Collection agency

Collection Agency

A collection agency is a business that pursues payments on debts owed by individuals or businesses. Most collection agencies operate as agents of creditors and collect debts for a fee or percentage of the total amount owed. Some agencies, sometimes referred to as "debt buyers", purchase debts from creditors for a fraction of the value of the debt and pursue the debtor for the full balance. Creditors typically send debts to a collection agency in order to remove them from their accounts receivable records; the difference between the amount collected and the full value of the debt is then written off as a loss.^{[citation needed]}

In many countries, collection agencies are governed by laws that prohibit certain abusive practices. Failure to adhere to such laws may result in lawsuits or government regulatory actions.

First Party Agencies

Some agencies are departments or subsidiaries of the company that owns the original debt. First party agencies typically get involved earlier in the debt collection process and have a greater incentive to try to maintain a constructive customer relationship. Because they are a part of the original creditor, first party agencies are not subject to some of the laws which govern collection agencies ^{[citation needed]}.

These agencies are called "first party" because they are part of the first party to the contract (i.e. the creditor). The second party is the consumer (or debtor).

Typically, most creditors will retain accounts with first party agencies for a period of around 6 months before the debt is written off and passed to a Third Party Agency (See Below).

Third Party Agencies

The term collection agency is usually applied to third-party agencies, called such because they were not a party to the original contract. The creditor assigns accounts directly to such an agency on a contingency-fee basis, which usually initially costs nothing to the creditor or merchant, except for the cost of communications. This however is dependent on the individual service level agreement (SLA) that exists between the creditor and the collection agency. The agency will then take a percentage of the debt that is successfully collected; sometimes known in the industry as the "Pot Fee" or potential fee upon successful collection. This does not necessarily have to be upon collection of the full balance and very often this fee is paid by the creditor if they cancel collection efforts before the debt is collected. The collection agency makes money only if money is collected from the debtor (often known as a "No Collection - No Fee" basis). Depending on the type of debt the fee ranges from 10% to 50% (though more typically the fee is 15% to 35%).

Some agencies offer a flat fee, typically $10.00, "pre-collection" or "soft collection" service. The service sends a series of increasingly urgent letters, usually ten days apart, instructing debtors to pay the amount owed directly to the creditor or risk a collection action and negative credit report. Depending on the terms of the SLA, these accounts may revert to "hard collection" status at the agency's regular rates if the debtor does not respond.

In the United States, consumer third-party agencies are subject to the Fair Debt Collection Practices Act of 1977 (FDCPA). This federal law is administered by the Federal Trade Commission or FTC. This act limits the hours during which the agency may call the consumer. It also prohibits false, deceptive or misleading representations, and prohibits the agency from making threats of actions the agency cannot lawfully or does not intend to take.

In the United Kingdom although no similar law exists, all third party collection agencies must hold a consumer credit license under the Consumer Credit Act 1974 in order to carry out their business. Licenses are issued and regulated by the Office of Fair Trading a government body which protects consumers from unscrupulous traders. In order to retain their license third party agencies must work within the framework outlined within the 2003 fair debt collection guidance.

Sale of Debts

Another option for creditors is to sell their debts to the fast growing debt buying industry. This allows the creditor to generate immediate revenue from their accounts receivables, save infrastructure costs associated with managing collection agencies, and avoid the possible legal liability and public relations risks associated with debt collection. This practice has developed principally in the USA but now the debt purchase market is burgeoning in the UK, Europe and Asia.

Debtors

The person who owes the bill or debt is called the debtor. People may become debtors because of a lack of financial planning or over commitment on their part, or due to an unforeseen and uncontrollable event that disrupted their life. Examples include the loss of a well paying job, an accident that leaves them unable to work, or a sudden and serious illness. Americans for Fairness in Lending and other non-profits can help debtors know what their rights are.

In commercial collection cases, the debtor is a business. This includes sole proprietors, corporations, partnerships or individuals that incurred the debt for business purposes.

Collection Practices

The modern business model is the primary reason for the many complaints brought against collection agencies ^{[citation needed]}. Debt collectors who work on commission may be highly motivated to convince debtors to pay the debt, often to the point that they sound threatening to the debtors. Most people are accustomed to being treated with a certain amount of customer service and often complain that they do not receive that treatment from debt collectors.

MP3

MPEG-1 Audio Layer 3, more commonly referred to as MP3, is a digital audio encoding format using a form of lossy data compression.

It is a common audio format for consumer audio storage, as well as a de facto standard encoding for the transfer and playback of music on digital audio players.

MP3 is an audio-specific format that was co-designed by several teams of engineers at Fraunhofer IIS in Erlangen, Germany, AT&T-Bell Labs in Murray Hill, NJ, USA, Thomson-Brandt, and CCETT. It was approved as an ISO/IEC standard in 1991.

MP3's use of a lossy compression algorithm is designed to greatly reduce the amount of data required to represent the audio recording and still sound like a faithful reproduction of the original uncompressed audio for most listeners, but is not considered high fidelity audio by most audiophiles. An MP3 file that is created using the mid-range bitrate setting of 128 kbit/s will result in a file that is typically about 1/10th the size of the CD file created from the original audio source. An MP3 file can also be constructed at higher or lower bitrates, with higher or lower resulting quality. The compression works by reducing accuracy of certain parts of sound that are deemed beyond the auditory resolution ability of most people. This method is commonly referred to as Perceptual Coding. It internally provides a representation of sound within a short term time/frequency analysis window, by using psychoacoustic models to discard or reduce precision of components less audible to human hearing, and recording the remaining information in an efficient manner. This is relatively similar to the principles used by JPEG, an image compression format.

Personal protective equipment

Personal protective equipment (PPE) refers to protective clothing, helmets, goggles, or other gear designed to protect the wearer's body or clothing from injury by electrical hazards, heat, chemicals, and infection, for job-related occupational safety and health purposes, and in sports, martial arts, combat, etc. Personal armor is combat-specialized protective gear.

PPE can also be used to protect the working environment from pesticide application, pollution or infection from the worker (for example in a microchip factory).

The protection may be important in both ways, as with the use of disposable gloves by surgeons and dentists.

Protective clothing is also worn for contact sports, such as ice hockey and American football. Baseball players wear sliding shorts and a cup under their pants. See baseball clothing and equipment, goalie mask, jockstrap.

In British legislation the term PPE does not cover items such as armour.

Common protective materials include Nomex and Kevlar.

The terms "protective gear" and "protective clothing" are in many cases interchangeable; "protective clothing" is applied to traditional categories of clothing, and "gear" is a more general term and preferably means uniquely protective categories, such as pads, guards, shields, masks, etc.

For riding a motorcycle, protective headgear and eyegear are required by law in many countries.

Default (finance)

In finance, default occurs when a debtor has not met its legal obligations according to the debt contract, e.g. it has not made a scheduled payment, or has violated a loan covenant (condition) of the debt contract. Default may occur if the debtor is either unwilling or unable to pay their debt. This can occur with all debt obligations including bonds, mortgages, loans, and promissory notes.

The term default should be distinguished from the terms insolvency and bankruptcy. "Default" essentially means a debtor has not paid a debt. "Insolvency" is a legal term meaning that a debtor is unable to pay his debts. "Bankruptcy" is a legal finding that imposes court supervision over the financial affairs of those who are insolvent or in default.

Types of default

Default can be of two types: debt services default and technical default. Debt service default occurs when the borrower has not made a scheduled payment of interest or principal. Technical default happens when an affirmative or a negative covenant is violated.

Affirmative covenants are clauses in debt contracts that require firms to maintain certain levels of capital or financial ratios. The most commonly violated restrictions in affirmative covenants are tangible net worth, working capital/short term liquidity, and debt service coverage.

Negative covenants are clauses in debt contracts that limit or prohibit corporate actions (e.g sale of assets, payment of dividends) that could impair the position of creditors. Negative covenants may be continuous or incurrence-based. Violations of negative covenants are rare compared to violations of affirmative covenants.

With most debt (including corporate debt, mortgages and bank loans) a covenant is included in the debt contract which states that the total amount owed becomes immediately payable on the first instance of a default of payment. Generally, if the debtor defaults on any debt to any lender, a cross default covenant in the debt contract states that that particular debt is also in default.

In corporate finance, upon an uncured default, the holders of the debt will usually initiate proceedings (file a petition of involuntary bankruptcy) to foreclose on any collateral securing the debt. Even if the debt is not secured by collateral, debt holders may still sue for bankruptcy, to ensure that the corporation's assets are used to repay the debt.,

There are several financial models for analyzing default risk, such as the Jarrow-Turnbull model, Edward Altman's Z-score model, or the structural model of default by Robert C. Merton.

Sovereign borrowers such as nation-states generally are not subject to bankruptcy courts in their own jurisdiction, and thus may be able to default without legal consequences. One example is with North Korea, which in 1987 defaulted on some of its loans. In such cases, the defaulting country and the creditor are more likely to renegotiate the interest rate, length of the loan, or the principal payments. In the 1998 Russian financial crisis, Russia defaulted on its internal debt