29 out of 50 states require collection agencies to be bonded in order to conduct business. Those states with some type of legal bonding mandate are shown in green in the following image:

Licensing requirements, bonding requirements, and the associated fees vary by state which makes for a complicated landscape if you’re a collection agency trying to started. Companies must comply with the requirements for the state(s) in which they practice. A list of the requirements by state can be found on the InsideARM website.

34 out of 50 states require collection agencies to be licensed in order to conduct business. Those states with some type of legal licensing mandate are shown in green in the following image:

Licensing requirements, bonding requirements, and the associated fees vary by state which makes for a complicated landscape if you’re a collection agency trying to started. Companies must comply with the requirements for the state(s) in which they practice. A list of the requirements by state can be found on the InsideARM website.

The Consumer Financial Protection Bureau (CFPB) is an independent agency of the United States government responsible for consumer protection in the financial industry. Debt collection is a part of the financial sector and so collection agencies are regulated by the CFPB. You can read more about the CFPB at their website

Check verification services are used to verify the history of an account holder and/or to validate the authenticity of a check. Businesses can expand their customer base by accepting checks from customers that prefer to pay in this manner.

Debt collection companies specialize in accounts receivable management. Whenever commercial transactions take place there is a debtor (the individual or entity that owes money) and a creditor (the individual or entity to whom money is owed). Collection agencies specialize in finding and negotiating with debtors and, in the event that the debtor refuses or is unable to pay, going through the legal process to ensure that a judgment is awarded and the creditor receives compensation from the debtor in so much as it is possible.

A “bonded” collection agency is one that has taken out a surety bond with an insurance company that provides them. Surety bonds are legally enforceable contracts between three parties: typically the principal (the collection agency), the obligee (the state government), and the surety (the insurance company that issues the bond). If the collection agency violates the terms of their bond (e.g. breaks a regulation or inappropriately handles payments), the state government can make a claim with the insurance company against the bond. The insurance company will evaluate the claim, pay it if it is determined to be valid, and then subsequently seek reimbursement from the collection agency.

Skip tracing is a way of “tracing” (finding) a debtor who has “skipped” (left) town in an effort to get out of a debt that is owed. A good collections agency has access to database information that allows them to locate debtors that have relocated without furnishing a forwarding address. Skip tracing is highly relevant if you’ve been attempting to contact the debtor and have been routinely ignored.

Subrogation is a synonym for “substitution.” In legal parlance it refers to the right of one party (typically an insurance company) to pay the obligation of a second party and then subsequently to collect from a third party (the debtor) after the fact.

The Cohort Default Rate is defined differently depending on the type of student loan concerned and the number of student borrowers attending the school. Here are the two definitions according to the United States Department of Education’s Cohort Default Rate Guide:

1. “For schools having 30 or more borrowers entering repayment in a fiscal year, the school’s cohort default rate is the percentage of a school’s borrowers who enter repayment on certain Federal Family Education Loans (FFELs) and/or William D. Ford Federal Direct Loans (Direct Loans) during that fiscal year and default (or meet the other specified condition) within the cohort default period.”
2. “For schools with 29 or fewer borrowers entering repayment during a fiscal year, the cohort default rate is an ‘average rate’ based on borrowers entering repayment over a three‐year period.”