Debt collection agencies act on behalf of creditors to recover overdue payments. They use various methods, including communication and negotiation, to encourage people to repay what they owe.
If you have outstanding debts that you're struggling to repay, your creditor (the individual or business you owe) may give your debt to a debt collection agency (DCA) whose sole responsibility is to collect unpaid debts on behalf of creditors.
Finding out your debt has been sold to a debt collection agency can be daunting, and it's normal to have more questions than answers.
For example, is a debt collector the same as a bailiff? And, why do debts get passed to debt collection agencies in the first place?
The debt collection process can vary depending on where you live and the type of debt you have, but knowing how these companies operate can help you know what to expect.
The term 'debt collector' can sound scary, but it's simply the name given to individuals who are hired to collect debts on behalf of creditors.
Most debt collectors work for debt collection agencies but a small minority work for private companies or themselves.
Usually, a debt collector will be brought into the recovery process when your creditor has failed to recover the debt themselves and doesn't have the time or resources to dedicate to collecting the debt.
Some debt collectors also specialise in certain types of debt or small debts while others are authorised to collect all types of debts, from credit cards to overdrafts.
The debt collection process depends on how your creditor contacts the debt collection agency. We've outlined the two main ways debt collection agencies work below:
The most common way that creditors use debt collection agencies is by reaching out and asking them to contact you on their behalf.
The debt collection agency will be paid a percentage of the debt they collect (typically between 25% and 50% of the total debt).
The other way creditors use debt collection agencies is by selling the debt to them for a reduced amount. This is commonly done after your account defaults.
The debt collection agency then becomes the legal owner of your debt and makes a profit by collecting the full amount you owe.
They are sometimes referred to as debt buyers.
The most important thing to remember about debt collectors is that they don't have any special legal powers and can't make changes to your original credit agreement or take legal action against you to force you to pay.
They can get in touch with you by phone, text, email, or post and will likely keep contacting you until you respond and arrange a payment plan.
There is also no legal process that they must follow, meaning they are not legally required to give you notice before they visit you and can technically turn up unannounced.
However, debt collectors can't lie, mislead you about their legal powers, or contact you so often that it could constitute harassment or abuse.
They must also refrain from threatening you, using obscene language, or refusing to tell you their name or who they are when they call you.
The terms 'bailiff' and 'debt collector' are often used interchangeably, but while they are both authorised to collect unpaid debts, there are several differences between them that you should know about.
For example, bailiffs are count-appointed officers with the legal power to enter your home and seize your belongings to repay a debt while debt collectors can't take anything from your home or force you to make a payment.
Furthermore, bailiff action can only be arranged through the court while a debt collector can be hired to collect an unpaid debt without a court order or warrant. So while bailiffs have greater legal powers to recover a debt, debt collectors may be able to yield results quicker.
It's important you respond quickly and appropriately when a debt collector contacts you about an unpaid debt.
Firstly, a debt collection agency will send you information about the debt, including the name of your creditor, the total amount you owe, and how to dispute the debt.
This is known as a 'debt validation letter' and can help you confirm whether the debt is yours to pay or if you should challenge it.
It can be tempting to ignore all letters, phone calls, texts, and emails in the hope that the debt collector simply gives up and stops contacting you.
, this will only make the situation worse as you'll likely be asked to repay the debt in full or in instalments you can't afford.
The best way to respond to a debt collector is to make a realistic offer of payment based on what you can afford.
This will show debt collectors that you're committed to dealing with your debt. If you don't know how much you can afford to pay, don't hesitate to contact a financial charity or organisation for free debt advice.
Typically, a debt collector will first get in contact with you by sending you a letter explaining that they are taking over the collection process.
They may turn up at your door and try to discuss the debt with you in person, but this is rare and will usually only happen if you have ignored multiple letters or phone calls.
However, before a debt collector visits you, it's crucial you understand what they can and can't do.
For example, while a debt collector can't threaten you into making payment, there is no rule stating that they can't put pressure on you as long as they stay within the confines of the law.
Furthermore, despite what a debt collector says, you don't have to let them into your home and you can ask them to leave at any point.
They must also present their ID upon arrival and shouldn't remove items from your home under any circumstances.
Remember, a debt collector is not the same as a bailiff and doesn't have any special legal powers to force you to repay a debt.
They may try and threaten you with legal action but you should never feel pressured to pay more than you can realistically afford.
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If you repeatedly fail to make payment towards a debt and all other methods of debt recovery have been unsuccessful, a debt collector may take you to court to force you to repay what you owe.
Firstly, you will receive a default notice warning you that your account is at risk of being closed if you don't pay the debt.
Once you've received this letter, you'll have 14 days to arrange payment of the debt before your account defaults.
It's always better to try and arrange payment of the debt before your account defaults as a default stays on your credit file for six years and seriously harms your credit score.
This will make it difficult to get approved for further credit, such as a loan, mortgage, phone contract, or bank account.
If the debt is not resolved before the 14-day deadline, you'll receive a claim form informing you that court action is being considered.
This letter will explain who is taking court action against you, why court action is being taken, and how much you owe in total.
The next step will involve you receiving a County Court Judgment (CCJ), which is a court order instructing you to pay the debt in full or in instalments.
The court will decide how payment should be made and if any interest or charges should be added.
The Financial Conduct Authority (FCA) regulates all debt collection agencies that deal with consumer credit collections in the UK and is responsible for ensuring all debt collectors follow a certain set of rules, responsibilities, and guidelines.
For example, while there is no law stating that a debt collector can't visit you in person, they must provide you with proper notice of the intended date and time of their visit.
They must also introduce themselves and clearly outline the reason behind their visit.
Similarly, a debt collector can't enter your property without consent and must leave immediately if they are asked to do so.
They are also prohibited from discussing your debt with anyone else without your permission or tricking you into paying more than what is outlined in your original contract.
Remember, if you feel like you're being harassed by a debt collector, you have the right to complain to the company they work for and, if that proves unsuccessful, the necessary legal body.
If a debt collector visits you in person, it's worth remembering that you don't have to pay the full amount owed or even hand over any cash at all.
This is because, unlike bailiffs, debt collectors have no special legal powers to enter your home and remove your belongings.
However, while it's unlikely that a debt collector will take legal action against you, it's not recommended to ignore them either.
Ideally, you should pay the debt in full or set up a payment plan to repay it in regular instalments.
Remember, always ask to see a valid ID and request proof of payment when dealing with a debt collector.
The amount you pay must also be realistic and you should never feel threatened into making payments you know you won't be able to afford in the long-term.
There are several reasons why debts get passed to debt collection agencies but, in most cases, it's because your creditor doesn't want to spend any more time or money chasing a debt that they've been unable to recover.
Furthermore, most creditors are happy to lend money but would rather not spend time or money chasing payment of a debt.
Therefore, if they can pass an unpaid debt on to a third party with more time and resources to collect the money owed, they most likely will.
This usually happens when the debt is a few years old and your creditor has tried various things to try and recover the money owed.
Some creditors also hope that you'll be more willing to repay a debt once you notice that you're being chased by an external debt collector.
In the UK, most unsecured debts become 'statute barred' and are no longer legally enforceable after six years.
This means that your creditor has run out of time to take legal action against you.
However, while your creditor won't be able to take legal action against you, the debt will still exist and they can still try to recover the debt without using legal action.
This may include hiring a debt collection agency with more time and resources to chase the money owed.
Remember, a statute barred debt can never be enforced using legal action and a debt collector should never threaten you with legal action to try and intimidate you into making payment of a debt that has expired.
The Financial Conduct Authority (FCA) is the organisation responsible for setting out the rules that debt collection agencies should follow when they operate in the UK, including the policies put in place for vulnerable customers.
If you suffer from a mental health issue, you must inform the debt collection agency of your circumstances as soon as possible.
They will then refer you to a dedicated team who will decide the best way to deal with your case.
Once your case has been referred, you may only be contacted within certain hours (e.g. in the afternoon) or in a certain way (e.g. by letter). Some creditors may even agree to pause the debt collection process until you've had time to talk to a debt advisor.
Once your debt has defaulted, your original creditor usually stops adding interest and charges.
This means that, if your debt has been passed on to a debt collector, it's unlikely that any more interest or charges will be added.
There are some situations in which a debt collection agency may continue adding interest and charges to your debt but this depends on the terms and conditions of your original credit agreement.
If a debt collection agency is working on behalf of your creditor, however, they may continue adding interest and charges while the debt collector gets in contact with you and starts the recovery process.
Finding out your debt has been passed on to a debt collection agency can be daunting, but the more you know about debt collectors and what they can and can't do, the more confident you can feel about the whole debt collection process.
The most important thing to know is that debt collectors have no special legal powers to chase you for an unpaid debt and can only try to come to an agreement with you over how to make payment. This means that, unlike bailiffs, they can't enter your home or seize your belongings to repay a debt.
There are also certain rules debt collectors must follow if you're classed as a vulnerable customer.
Once a debt collector knows you're vulnerable, they may agree to only contact you at certain times of the day or in certain ways.
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