Bullies in the debt collection industry

What can a bill collector really do to you if you owe a debt that you are unable to repay? Well, some in the collection industry would say that depends on who the collector works for – the credit grantor, which makes the collector a first-party collector, or a collection agency, which makes the collector a third-party collector.

While others in the credit and collection industry tell me - there is no excuse to bully people. Debt collector or not, bullying is against the law! There is never a time that the threat of physical violence is tolerated.

When a debt is in arrears or in default the creditor is initially concerned with retrieving the money owed as quickly and cheaply as possible, with minimal destruction of the debtor’s goodwill. If the first phase of debt collection – notices and reminders – do not result in payment, debts that may be more difficult to collect are handled more aggressively. They may be referred to a special division of the creditor’s firm such as a recovery department or to an independent collection agency. The last resort for many creditors is the court.

Who does the collecting?

All of the collection stories that I have heard have one thing in common. Fear, fear of the unknown, many debtors are so afraid of what is going to happen to them, that sometimes they will agree to anything just to get off the phone.

Not all collectors are bullies, but for those that have been bullied by a debt collector, nothing is more frightening. Some people are so afraid that they will not answer the phone or pick up their mail.

Collection agencies

A collection agency is a provincially licensed business that specializes in the collection of overdue accounts for others. The agency’s income, and in many cases the income of the individual collector, depends directly on the success of the collecting the money from the debtor.

In many cases the agency will retain between 30 and 50% of the amounts collected. However, neither the agency nor the collector will earn a fee if they are unsuccessful in collecting the money from the debtor. So it is not surprising that some collection agencies are very assertive and sometimes aggressive in their efforts to collect money.

In recent years, some collection agencies have started calling themselves “collection services” and have begun offering a wider range of services to creditors. A collection service might take over doing a company’s credit approvals; alternatively, a bank credit card company or a large utility company might arrange for the collection services to send out the usual monthly statements to cardholders. A collection agency may even act as an agent for a credit bureau and provide services to the public.

Third-party collection practices

Since all collection agencies’ staff work on commission, they are under pressure to get money coming in as soon as possible on each account. As a result, they usually demand immediate payment of the full amount owed on an account – or a commitment that the money will be in their hands shortly. Failing that, they will threaten to sue the debtor. In practice, the creditor will sue only if there is a good chance of collecting the debt – for instance, if they find that there are wages that may be garnished or assets that can be seized. Creditors that refer debts to collectors usually expect to recover an average of 25 to 30% of the funds listed within three months. The collection industry is very competitive and collectors who cannot meet this monetary target will lose business to those who can.

Collection procedures often depend heavily on psychological tactics, particularly in the early stages, before the collector may recommend to the creditor that the debt be referred to a court. Some collection measures are chosen with the aim of intimidating debtors to some degree – for example legal-looking forms and letterheads, referring the debt to a lawyer or an agency, or by making threats that may not be enforceable but that will go unchallenged by uninformed debtors.

Enforcement of security

Normally, a creditor will consider enforcement of any security worthwhile seizing, before beginning aggressive collection procedures. When a creditor holds security in the form of assets, the creditor has the debtor’s prior permission to realize on these in the case of default. But sometimes the security is not sufficient to cover the balance owing and alternate procedures are needed. It depends on the province you live in what legislation covers the enforcement of the debt. So be sure to check your rights when is comes to seize or sue provincial legislation.

The legislation regulating collections appears not to apply to all those who collect debts. In fact, it appears to be directed to third-party collections; that is, situations in which the collector is not the creditor. However Morris Redecopp, the director of debt collection for the province of British Columbia, advises me that all credit grantors are governed by the Debt Collection Act and therefore all are bound by its rules and regulations.

The Criminal Code of Canada prohibits indecent, threatening or harassing telephone calls. In other words, yes, bullying is illegal, even in the debt collection industry. This applies to all collection endeavours and it provides some recourse for the consumer who is being pursued for payments by someone whose activities are not regulated under the provincial legislation. That means you can do something if you are being harassed by a debt collector – regardless of who they work for. You have the right to lodge a formal complaint with provincial authorities if a collector is harassing you.