
Collection Agency
A collection agency is a company used by lenders or creditors to recover funds that are past due, or from accounts that are in default. Collection agencies deploy multiple strategies to try to retrieve funds, such as the following: Calling the debtor’s personal and office telephones Mailing numerous late-payment notices to the debtor Contacting a debtor’s family, friends, and neighbors to confirm the debtor’s contact information Appearing at the individual’s front door Third-party collection agencies — but not creditors' in-house collection departments — are bound by the Fair Debt Collection Practices Act (FDCPA), of which some rules are cited below. A debt collector may not do the following: A lender may outsource the debt-collection activity to a third party (the collection agency), or it may have an internal department or a debt-collection subsidiary that would handle the job. If the borrower pays their debt as a result of the collection agency's efforts, then the creditor pays the collection agency a percentage of the funds, or assets, that it recovers. Collection agencies are regulated by the Fair Debt Collection Practices Act (FDCPA) and bound by rules about what they can and cannot do to collect funds. When a borrower defaults on their debts or fails to make scheduled loan payments, the creditor will report this delinquency to a credit bureau.

What Is a Collection Agency?
A collection agency is a company used by lenders or creditors to recover funds that are past due, or from accounts that are in default. Often, a creditor will hire a collection agency after it has made multiple failed attempts to collect its receivables. A lender may outsource the debt-collection activity to a third party (the collection agency), or it may have an internal department or a debt-collection subsidiary that would handle the job.



How a Collection Agency Works
When a borrower defaults on their debts or fails to make scheduled loan payments, the creditor will report this delinquency to a credit bureau. Then, not only will the borrower's credit history be tarnished, but also their debt will be turned over to a collection agency within three-to-six months of default.
When a Borrower Pays
If the borrower pays their debt as a result of the collection agency's efforts, then the creditor pays the collection agency a percentage of the funds, or assets, that it recovers. Depending on the original agreement entered into with the creditor, the debtor may have to pay the full debt all at once or a portion of it at a time.
When a Borrower Does Not Pay
If the borrower still will not, or cannot cover their arrearage, the collection agency can update the borrower’s credit report with a "collection" status, which leads to a drop in the individual’s credit score. A low credit score can affect a person's chances of obtaining a loan in the long term, as an account under debt collection can remain on their credit report for seven years.
Collection agencies deploy multiple strategies to try to retrieve funds, such as the following:
Debt Collection Agency Regulations
Third-party collection agencies — but not creditors' in-house collection departments — are bound by the Fair Debt Collection Practices Act (FDCPA), of which some rules are cited below.
A debt collector may not do the following:
A debt collector may, however, do the following:
Related terms:
Adjustment Bureau
An adjustment bureau is an organization that focuses on helping businesses collect outstanding debts from delinquent debtors. read more
Arrearage
An amount on a loan, cumulative preferred stock or any credit instrument that is overdue, also referred to simply as "arrears". read more
Bankruptcy
Bankruptcy is a legal proceeding for people or businesses that are unable to repay their outstanding debts. read more
Credit Score: , Factors, & Improving It
A credit score is a number between 300–850 that depicts a consumer's creditworthiness. The higher the score, the better a borrower looks to potential lenders. read more
Credit Bureau
A credit bureau is an agency that collects and researches individual credit information and sells it to creditors for a fee. read more
Creditor
A creditor is an entity that extends credit by giving another entity permission to borrow money if it is paid back at a later date. read more
Debt Collector
A debt collector recovers past-due debts for creditors in return for a fee. read more
Debt
Debt is an amount of money borrowed by one party from another, often for making large purchases that they could not afford under normal circumstances. read more
Debt Assignment
Debt assignment is a transfer of debt, and all the associated rights and obligations, from a creditor to a third party—often to a debt collector. read more