UNDERSTANDING THE COLLECTION PROCESS Note: These comments are based on many years I spent as a Collector. They are general observations and, as a rule, are reliable â?? but obviously each lender may have somewhat different policies and some accounts may be handled somewhat differently, but as a rule, this is a good guide to what motivates a Bill Collector and how they think. PHASE 1 â?? IN HOUSE COLLECTIONS The purpose of the Collection Department of any lender is to collect past due payments and bring the account current while, if possible, maintaining customer loyalty and good-will. Obviously, the collection function takes precedence over the maintenance of good will, and you will see that, as an account ages, the good-will function becomes less important and is ultimately abandoned. Aging is a crucial concept to understand. Aging refers to the number of days past-due an account has become. Aging is important to the lender for one or both of two reasons. The first is profitability. When an account reaches 180 days past due, almost all lenders are required to charge the account off to a Bad Debt account, reducing company profits. For any accounting students reading this, they CREDIT the Accounts Receivable (an asset) account and DEBIT Bad Debts (an Expense) account. Increasing an expense account decreases profits, hence the Loss from the Profit-and-Loss (P&L) account. Charging off an account to P&L does not mean the debt is forgiven, it is just an accounting entry in the lenderâ??s books. The second reason aging is important is that, except for banks, the average age of delinquent accounts directly affects the lenderâ??s cost of funds. The higher the average age, the higher the interest rate the lender pays for funds, and the lenderâ??s collection costs are paid by delinquency charges assessed (Late Charges and Over Limit Charges) as well as the â??spreadâ? (meaning difference) between the interest rate paid and the interest rate collected. The larger the spread, the larger the profits. When the first payment is missed, the account is classified as a â??30-dayâ? account â?? the very mildest of delinquencies. The policy of the lender could be that the 30-day status is conferred immediately after the grace period, or 30-days after the payment due date. For our purposes, we will assume that it is conferred when the grace period expires. Some lenders send their first letters before the expiration of the grace period. The first actual collection letter is usually sent just after the grace period expires and shows the assessment of the late charge. The tone of the letter is almost apologetic and I have seen some that actually give a list of excuses for missing the payment, asking the borrower to â??pick oneâ? and send in the errant payment. Towards the end of the cycle, it is possible that a collection telephone call may be made. The collector will be very cooperative and will accept any excuse that ends with â??Iâ??ll send the check onâ?¦..â?. At the end of each cycle, one of two things has happened â?? either a payment (or more than one payment) has been made, or it hasnâ??t. We will assume it hasnâ??t. To understand the concept of â??agingâ? you should think of a room with a computer, 4 desks and a door. The first desk in the â??30-dayâ? desk, the second is the â??60-dayâ? desk, the third is the â??90-dayâ? desk, the 4th is the â??Pre-Charge-offâ? desk. At the end of the grace period, the 30 day desk gets the account to call. If a payment is made, the account goes out of collections. If no payment is made. The account â??agesâ? to the 60 day desk. The 60-day collector gets to work the account for a month. If one payment is collected the account goes back to the 30 day desk. If two payments are made, the account goes out of collection. If no payment is made, the account ages to the 90-day desk. If the 90 day collector can collect 3 payments, the account goes out of collection. If only 2 payments, the account goes back to the 30 day desk; if 1 payment the account goes back to the 60 day desk. If the 90 day collector canâ??t get any payments, the account ages to â??pre-charge offâ?. The pre-charge off desk may or may not have any set number of days to work the account. If pre-charge off canâ??t collect, then the account is charged off and, depending on the company and the debtorâ??s status, either forgotten about, sent to a Collection Agency or sent to an Attorney for immediate suit. Some small loan companies use a different path to charge off. Instead of just the number of payments delinquent an account is, they will measure the number of days since the last payment was made. This method is called â??Recency of Paymentâ?, and accounts are generally charged off when they pass the 90 day desk. The 30-day desk will try to keep customer good will. The 60-day desk will start making threats and may suspend borrowing privileges. The 90-day desk will almost certainly close the account to future charges and will not give any consideration to maintaining customer good will. If the account is an auto loan, the repossesor is probably looking for the car as soon as the 60 day desk gets the account. If it is a mortgage, the 60 day desk started mentioning foreclosure and the 90 day desk will be refusing anything except payment up-to-date. It is unlikely Auto Finance or Mortgage lenders will have a â??pre-charge-offâ? desk. Their accounts will generally go straight from the 90-day desk to a Collection Agency or Attorney. Each of the collectors in-house is paid by Salary, but their effectiveness (and therefore tenure and raises) are determined by how few accounts age past them, and the dollar volume of those accounts. That is why a large balance account gets a lot more aggressive collection attention than a small balance account. Each collector will make notes of each conversation, and thatâ??s how they will know that you missed the payment last month because your Aunt Sadie died for the 6th time. Collectors are trained to look for your hot-button â?? the one thing you fear the most they can do to you, and to exploit it. If they sense your concern for your credit rating, they will mention that it is going down the tubes; if they sense you donâ??t want to get sued, they will make it sound like the Judge is sitting right next to them. At the 60 and 90 day desks they may gang up on you in a variation of the â??good-cop, bad-copâ? shakedown; one will settle for nothing less than paying off the account in full and the other will â??settleâ? for just bringing the account current. COLLECTION AGENCIES Once the account has been charged off to P&L, it is most likely to be sent to a Collection Agency (CA). The CA must, by law, send you a letter saying that the account has been placed with them, that you have the right to validation of the debt, tat anything you say will be used for collection purposes and more. See the Fair Debt Collection Practices Act page for complete information on this â??mini-Mirandaâ? (named after the Miranda Warnings police are required to give when making an arrest.) CAâ??s do not have the aging concerns that the original lender has because the account has already been charged off. The CAâ??s concern is to get as much money into their hands as fast as they can because they are paid on commission. CA commissions generally run 25% to 40% of the amount collected. You can consider the CA as just an extension of the Original Creditorâ??s (OC) 90-day desk. They will do the same thing, say the same things, make the same threats. It is not uncommon for a Lender to send a debt from CA to CA, especially if the first CA couldnâ??t collect. Collection Agents tend to concentrate on the â??easy moneyâ? â?? people they can easily get on the phone and have hot buttons they can find and exploit. People who are hard to get ahold of or who exhibit no hot buttons they will work a couple of times and just move on. The size of the account will have little effect on the CAâ??s desire to work it, since the commission is the same on a debtor paying off a $100 account or making a $100 payment on a $5000 balance. JUNK DEBT BUYERS Junk Debt Buyers are companies that buy large portfolios of defaulted debts for a couple of pennies on the dollar and try to collect 100 cents on the dollar. Except for the fact that they own the debt rather than are collecting for someone else, they are the same as Collection Agencies. COLLECTION ATTORNEYS Except for the actual ability to file a lawsuit, Collection Attorneys are no different from CAâ??s. They just THINK they are.
This is exactly why I say - if this an option for you - change your address and put your phone in someone elses name.
i like that... good info... with your experience as a debt collector in mind.... how likely is a hospital to sue for 2,000?
Re: Re: Understand the Collection Process if after almost 4 years of nonpayment... and a 6 year sol...does that help? also it's one of those ... you know... smaller hospitals still the same 50/50 ? thanks... kbean
Re: Re: Re: Understand the Collection Process hey thanks.. but i started d/v and disputes so they are dunning and calling.... (one of the top 100 credit repair mistakes...waking the sleeping giant) i have referred to this same account in another thread, so i guess i will drop this and not hijack this thread... thanks for the input... i will keep you on your toes and i ask a ton of questions... sounds like you are up to it!! great.
Re: Re: Re: Understand the Collection Process Thank you so much for somewhat enlightening me on the process and practices of CA's....very interesting material indeed!
Re: Re: Re: Understand the Collecti thanks for the info. I have a question. After you send a Val. ltr. how long does the CA have to respond?
Re: Re: Re: Re: Understand the Collecti A Val letter basically says "prove it or drop it", so they can NEVER respond as long as they don't pursue you for money.
Re: Re: Re: Re: Understand the Collection Process What if the debit is large? Like 20K or 30K. What is the chances of getting sued?
Re: Re: Re: Re: Understand the Collection Process Two Questions; #1. What does "bump" mean? #2. Do you have any idea of which ccc's have insurance on the accounts? I remember reading someplace on Creditnet that the ccc's have insurance on the cc debt and they collect on the insurance and then write off the debt or sell it to the CA's.
Re: Re: Re: Re: Re: Understand the Collection Process <BUMP> MAKES A POST GO TO THE FRONT OF THE LINE...
Actually, that is not completely correct. There is no law that says a ca must send you a letter. What the FDCPA says is that a ca must send the above within 5 days of their initial communication with a debtor. But if there is no initial communication, they need not send anything.
Cross-linking Flying, And with the same comment. You post in an editorial opinionated format as if what you are conveying is factual and without backing it up. That is a dangerous position to put yourself in and not fair to anyone reading along, especially when your views aren't entirely accurate or factual. http://consumers.creditnet.com/straighttalk/board/showthread.php?s=&postid=369037#post369037 No one should consider or take action based on the advise of another without confirming for themselves what is and isn't a fact and what is and isn't a person's opinion versus a statement of fact or an absolute. Sassy
