If you’ve been having trouble paying back a debt for some time, you may have been contacted by a debt collector or a debt collection agency.
There are two cases in which you may be hearing from a debt collection agency: The first one is that your original creditor has hired a collection agency to recover their debt from you.
The second case is that your original creditor has ‘sold’ your debt to the debt collection agency.
In the former case, your original creditor is still the legal owner of your debt whereas in the latter, the agency is now the legal owner of your debt.
The second case may make you wonder why an agency would want to ‘purchase’ debt from someone.
Today, I’ll briefly summarise how debt collection agencies work so that you have a better idea of what motivates debt collectors when they contact you.
Why Would My Creditor ‘Sell’ My Debt to an Agency? Do They Get More Money for it?
The truth of the matter is that a creditor that is selling their debt to an agency typically gets less money than the amount of the original debt is. I have never heard of a debt collection agency that would purchase a debt for the same or higher price.
The obvious question now is, “Why would my creditor sell it for a lower price instead of getting a larger amount of money as repayment from me?”
Well, this typically happens when you have been missing a lot of payments, submitting your payments late or paying your creditor a lot less than what was agreed upon in your monthly payments.
Creditors typically do their business by lending and then receiving repayments for those loans. They usually do not specialise in chasing debts. For example, if you have credit card debt, there’s a possibility that your credit card company would sell your debt to a recovery agency. It’s possible that if you were being tardy with your payments, your creditor grew dissatisfied with you and decided to sell your debt to a recovery agency.
While they would technically receive a lower amount for selling their debt than they would from monthly payments from you, the creditor is willing to make that choice since they don’t see you paying back your debts anytime soon. They’d rather have a large lump sum of money now than have minuscule monthly payments from you.
Unlike your previous creditor, debt collection agencies specialise in recovering debts from debtors. Hence, you will find that you won’t be able to get away with missing monthly payments or paying too little if you were doing that with your previous creditor.
Debt collectors will make sure to contact you and inquire about why you haven’t been able to make your payments. You will then have to provide proof that you are indeed paying them as much as you can afford to.
That is the key: You will never be forced to pay more than you can afford, nor should you ever feel pressured to pay more than you can afford. While debt collectors can seem to be extremely persistent, they are still regulated by guidelines defined by the Financial Conduct Authority.
If a collector attempts to pressure you into paying more than you can afford or does anything else that may seem like it’s violating regulations, you can report them to the FCA.
How Will I Know if My Debt has been Sold to a Debt Collection Agency?
You will most likely receive a letter or a phone call from your original creditor informing you that they have sold your debt to a recovery agency. Note that it’s the original creditor’s duty to inform you that they have sold your debt to someone else.
You will then also receive a letter from the recovery agency informing you that they are now the legal owner of your debt and you will be paying them now.
This letter will typically have the name and account number of your original creditor so that you can relate which debt it is that has been sold. If you are not sure about which debt it is, you can write to the recovery agency and ask them for clarification.
A recovery agency may threaten you with court action so it’s important that you seek advice from a professional about what the best course of action would be to pay off what you owe.
I recommend that you contact an independent debt charity such as Payplan or StepChange. They offer great advice to debtors based on their unique financial situations. The reason why I recommend independent charities is because if you go to a private debt management company, they will charge you a lot of money for their advice.
On the other hand, independent charities will provide their services to you free of charge.
Do the Same Rules and Payment Agreements Apply When My Debt is Sold?
Your legal rights do not change if your debt has been sold to a recovery agency. They still need to operate under FCA guidelines so your rights will definitely be protected. They also do not have the right to change certain aspects of your payments if they were not present in the original creditor’s agreement.
For example, a recovery agency is not allowed to add interest if the original creditor’s agreement stated that they could not add interest.
On the other hand, you can definitely reach out to your debt collectors and ask them to make changes to the payment procedure if you’re having a hard time with your monthly payments. For example, you can do this if a debt collector visits your house to inquire about your monthly payments or collect debt for their company.
If you have a copy of your income and expenditures, you can show them that to ensure them that you’re doing all you can to make payments towards your debts. Keep in mind that you don’t have to make any payments to a debt collector that visits your home.
It’s better to do this later. If you do happen to make a payment to a collector that visited your home, make sure that you get some proof of payment such as a receipt.
As with most debts, the same rules apply in terms of it being mentioned in your credit file as well. It will stay in your credit report for six years after the date when it has been fully settled. If you default, then it stays in your credit report for six years after the default date.
Also, just like your original creditors, debts collection agencies have the right to get a court order against you in the form of a County Court Judgment. This is quite uncommon, however. Collection agencies typically take this step as a last resort when they don’t see any other way of collecting what you owe to them.
I highly recommend that before you reach this point, you seek advice and get your financial affairs in order so that you can start paying them back. Even if you feel you can’t afford to pay back what you owe, keep in mind that in the UK, there are several options available (such as Individual Voluntary Arrangement or a Debt Management Plan) that you can opt for which can help you on your journey to financial freedom.
The concept of buying and purchasing debt may seem like a strange one to someone who has never heard of it before but it’s actually what keeps most debt recovery agencies afloat.
The process of having your debts passed onto a collection agency may seem overwhelming and confusing at first but you have to keep in mind that your rights do not change in the slightest.
You are still protected from all unfair practices and you still won’t be forced to pay a penny more than you can afford.