Like any industry, the debt collection and accounts receivable management industries have some bad apples. There are those organizations who are licensed, professional, effective, and ethical, and then there are those who would take advantage of specialized knowledge or the opportunity to take money unlawfully from debtors. The latter are obviously people and organizations that you would want to avoid should your business need assistance with collecting on delinquent accounts. Let’s take a look at some of the miscreants in the debt collection industry. This way, when you are ready to partner with a collections agency, you’ll know what to look for - and how to avoid scammers.
A few months ago, we wrote a blog about debt collection horror stories, which detailed some real-life examples of debt collection gone horribly wrong. There are legal and common sense restrictions on the tactics that a collector or agency should use when contacting a debtor. Some of the laws and organizations that govern and oversee these interactions are the Consumer Financial Protection Bureau (CFPB), the Fair Debt Collection Practices Act (FDCPA), and the Fair Trade Commission (FTC). These are all in addition to any state or local laws, and the codes of ethics followed by affiliate members of organizations like the Association of Credit and Collection Professionals (ACA International). You can bet that any reputable collection agency will be an ACA member, and will also be well versed in the various regulations surrounding their industry.
But what if there was no real debt in the first place? Or no legitimate debt buyer?
You probably haven’t heard of “phantom debt collections,” but it’s a real phenomenon! This is when (usually unlicensed) people pose as debt collectors or buyers and threaten, harass, and otherwise attempt to collect on debts that are not actually owed or that they do not have the right to collect on.
How can something like this happen? Many consumers are not well-versed in the myriad of laws protecting them, and some of the tactics employed by these phantom debt collectors can be very compelling. In a recent Illinois case, Charles and Chantelle Dickey have been accused by the Federal Trade Commission (FTC) of threatening to arrest debtors, garnish their wages, or revoke their driver’s licenses...none of which they had the authority or ability to do. Unfortunately, many of these debtors ended up paying the Dickeys to stop the harassment, even if they didn’t owe the debt in question. Or perhaps they did take out a payday loan, but they did not know that the Dickeys were not legitimate collectors (and that they could not act on those threats). This is obviously a case where people take advantage of a lack of knowledge regarding lawful collection tactics.
So what’s the implication for you, the business owner? At some point, you may need assistance with accounts receivable management or collecting on delinquent accounts. You’ll want to steer clear of any organizations that operate contrary to common sense and legal obligations. When searching for a collection agency to partner with, be sure to ask about compliance - and listen for the alphabet soup in the answer (FDCPA, UDAAP, CFPB, etc). You can also read about choosing a medical collections agency if you’re in the healthcare industry, or how to get big agency results with small agency service.