What Debt Collectors Can and Cannot Do
Debt collection agencies are companies that collect debts when the original creditor can’t get the debtor to pay. Debt collection agencies do not have special legal powers and can’t do anything that the original creditor could do.
Debt collection agencies can write to you and phone or text you. They will tell you what they plan to do – threaten court action or announce a visit to your home – but they cannot lie or send you misleading information. They also cannot bombard you with phone calls.
They can go on to take court action if you do not pay, but they will usually take note of any repayments that you make.
Dealing with debt collection agencies can be stressful, but if you know your rights and have a plan in place to get out of debt, it can be a lot easier.
How debt collection agencies work
There are two ways in which debt collection agencies normally work:
Your creditor assigns, or sells, your debt to the debt collection agency because you were not paying enough in repayments for them. Your creditor can do this after your account has defaulted. By selling it to the debt collection agency at a reduced amount, they pass the debt to the collection agency. They become the legal owner of the debt and proceed to collect the full amount from you.
The original creditor holds onto ownership of the debt but uses a debt collection agency to contact you for repayment. The collection agency will usually get a percentage of the money recovered. To find out what circumstance they are contacting you under, refer to the letter that they send you. If the address is your original creditor’s, they will still own the debt.
Does a collection agency have to contact you?
A debt collection agency will have to contact you to communicate about your debt but they should not bombard you with communications.
Debt collection agencies may phone, write to you or text you. You should not ignore their communications as it will only make things worse for your situation. If you’re not happy with how you are dealing with you, you can make a complaint.
Do collection agencies send certified letters?
A letter from a debt collection agency may look like a legal document, but it is not. Creditors are allowed to contact you by sending reminders and demands for payment, telephoning to repayments, ask for payment, visiting you at your home at a reasonable time of day and taking court action.
How to know if collection agency is legitimate
There are many legitimate debt collection agencies and some other companies that are not legitimate. There are ways in which you can tell one from another. Legitimate debt collectors will have information about you already; they should not need to ask you for your name, address, and date of birth or your account number.
Debt collectors cannot threaten you with criminal regulations, such as arrest or prison and they cannot pretend to be a government official or public servant. A legitimate debt collector will also not ask you to pay straight away or ever ask you to pay by wire transfer. They may use debit or cheques, but never wire transfer.
Debt collection agencies who are legitimate are legally required to share their company details, including their business address and phone number.
Can a collection agency repossess your car?
It depends. A leased or financed car is not yours until the debt has been paid. The creditor has the right to repossess your car if:
- You fall behind on your payments
- You breach your loan agreement
- You gave wrong or misleading information when applying
- Your car is seized as part of a court order
If you have a personal contract hire (PCH) or a personal contract purchase (PCP) agreement, the lender can repossess the car at any time. If you have a PCP and have already paid a third of the amount, the lender will have to get a court order.
Lenders do have to give you at least 14 days’ notice of repossession. This also offers you the chance to make a repayment and correct the default.
Do collection agencies have to report to credit bureaus?
Yes, collection agencies can report to credit record bureaus – and even if you are repaying your debt. If your debt is transferred from your original creditor to a debt collection agency, the debt moves to the collection agency and that gets noted on your credit report.
What can a collection agency do to you?
A debt collection agency does not have any legal powers or any powers that your original creditor did not have. They can write to you and phone you but they cannot threaten you or try to mislead you. They cannot bombard you with letters or phone calls. They can ask you to repay and take court action against you if you do not make payments. Some agencies will put a halt on charges and interest whereas others will continue to charge the interest agreed in your original credit agreement. They may send someone to your door, but they only have the same power as someone telephoning you.
Can collection agencies call your job?
No – unless your debt is a loan to a business that you own. A debt collection agency may not call or visit your workplace to discuss or collect the loan unless you have given them permission.
Can collection agencies take money from your bank account?
If your creditor has gone to court action and got a county court judgment (CCJ), or other court order, against you, you have not paid and the creditor believes that you do have the money to pay them, they can apply for another court order, called a third party debt order. With an order like this they can go to a third party to take only the amount of debt from you. They cannot take this from your bank but can approach your employer to take the amount from something like a redundancy payment.
Can collection agencies take your house?
Collection agencies cannot take your house as they are not bailiffs. All they can do is to ask that you make arrangements to make a repayment on the debt.
How to deal with debt collection agencies
- Be wary of debt collection agencies but do not ignore them. Make sure that you know your rights and stick to your position.
- Make sure you know what you owe what to and exactly which debt they are chasing before you agree that you do owe them money.
- Ask the debt collection agency, in writing, for a copy of your original credit agreement, which they must legally provide
- Instruct them that you should only be contacted be post, rather than by phone or house visit
- If you owe money and can pay, you should look to settle what you can afford
- If you owe money and cannot pay, agree a repayment plan to pay back what you can afford every month
How to respond to a collection agency
Do not ignore a collection agency – it will make things more difficult.
If you owe money and can pay, pay what you can of your debt and put a repayment plan in to deal with the rest of the debt. If you cannot pay, agree a repayment plan and stick to your monthly repayments, even if they are small.
How do you respond to a summons for debt collection?
Paying some of the money back might be able to prevent you going to court. Agree to pay some of the money -what you can – back. It is important to reply to the claim as soon as possible, even if you don’t think that you owe the money. You can say this in your response, but don’t ignore it. Always offer to make a repayment of some sort – no matter how small – this may keep you out of court.
Spend time looking over your documents. If they have not issued you with the correct documents, you can challenge the claim. Look at your original credit agreement with your original creditor – you will probably be covered by the Consumer Credit Act, which means that your creditor must follow a 3-step process before taking you to court. They must;
send you a default notice; a letter claim, and a claim pack. If your agreement isn’t covered by the Consumer Credit Act, they do not have to send you a default notice, but still have to send you a letter of claim and a claim pack. If they do not follow this process, you may be able to challenge their claim.
Can I negotiate with a collection agency?
If you are contacted by a legitimate debt collection agency, don’t instantly agree to settle the entire amount. You may be able to offer a lump sum which they accept. Negotiate a repayment of a lump sum that you can afford and you may even be able to close the debt.
Can a debt collection agency refuse an offer of payment?
Yes, they can. A debt collection agency does not have to accept your offer of payment, but you should continue to make repayments regardless. Continue to write to them to ask them to accept your repayments. If you don’t keep paying and asking them, they could end up charging you more than you can afford. Stay firm but keep paying what you can.
Is it good to settle with a collection agency?
You may want to make an offer to settle and they may accept, especially if your debt will take a long time to pay off. Send them your offer in writing and instruct them to let you know if they accept your offer in writing before paying them. They may not accept and you will simply have to keep paying the agency, but you may want to re-issue the offer periodically. Settling can work in your favour and reduce your payment term considerably.
What percentage should I offer a full and final settlement?
That depends on the amount that you can repay, but you should offer the percentage of the debt that you have to pay off. Bear in mind that a creditor might not accept an offer of 20% but they may consider an offer of 80%.
Can I remove settled debts from my credit report?
Once you have agreed a full and final settlement, your creditor will mark the debt as ‘partially settled’ on your credit report. This is an indicator to future lenders that you cleared the debt, but for less than the full amount, which could impact your future borrowing. This account, however, will be removed from credit report six years after it was settled in part – or six years after the default if earlier.
How to beat debt collection agencies
‘Beating’ a debt collection agency may go against you in the long run. They are there to recover a debt. However, you don’t have to follow their lead and there are things that you can do to make it work in your favour, even if only slightly.
Don’t ignore them
Set the conditions as to how you wish to be contacted
Do not pay in full or settle or refuse to pay without knowing what they are asking of you
You can complain if they mishandle you or your case
If you can pay, pay. If not, work with them to agree a repayment scheme
How to make a settlement with a collection agency
If you find that you have a lump sum to put towards your debt, send the debt collection agency a settlement offer in writing. Ask that they let you know, in writing, if they accept your offer before you pay. Settling can work in your favour and reduce your payment term considerably.
How long can a collection agency pursue a debt?
A debt collection agency can chase a debt for 6 years since you last wrote to them or made a payment. This does not include mortgage payments.
What is the statute of limitations on debt collection?
The Limitation Act, 1980, sets a six-year time limit on unsecured debts, with 12 years on mortgage arrears, typically. This means that, in England, Wales and Northern Ireland, the debt will remain in reality, but a creditor cannot pursue it by initiating court proceedings.
Can a debt be collected after 10 years?
Six years is the time limit under which a creditor can chase unsecured debts, under the Limitation Act 1980. The ‘limitation period’ begins at the time of your last payment or from your debt acknowledgement, as opposed to the age of the debt or repayment period.
How to make a complaint about a debt collection agency
You can make a complaint to the Financial Ombudsman Service (FOS) about the behaviour of a creditor or debt collection agency. It is a free and independent service, which will address your complaint and decide if the creditor or agency has or has not treated you fairly.
Other Common Collection Agencies FAQs
What to do if your debt has been passed to a debt collection agency
You will be contacted if you have defaulted or if you are in arrears. Debt collection agencies are not bailiffs and have no more legal authority than your original creditor.
What is a debt collection agency?
A debt collection agency collects debts where the creditors cannot get debts repaid.
Will a debt collector visit my house?
They can visit your house but they are more likely to telephone you or write to you.
What proof must a debt collector provide?
A debt collection agent calling to your house must:
Show proof of ID
Not pretend to have legal authority or to be a bailiff or sheriff officer
Insist you open the door or let them in
Leave if you ask them to
Not take anything from your house
Should I pay a debt collection agency?
Not on the doorstep and not by cash payment. Contact the head office and discuss payment by phone or letter.
Will a collection agency add more interest and charges?
Interest and charges usually stop, but some debt collection agencies may continue adding interest and charges. They can only add the amounts stated in your original signed contract.
I’ve got more than one collection agency contacting me about the same debt – which one do I pay?
Go back to the original creditor and explain that this is happening. They need to decide which sole debt collection company they are dealing with and inform the other to desist. Do check that it is not one company using multiple names as this can be the case by checking the address on letters.
Who governs debt collection agencies?
The Financial Conduct Authority (FCA) regulates debt collection agencies. The agencies that deal with consumer credit collections are governed by the FCA’s rules and regulations – there are things that they can do and they cannot do.
What Will Happen if I Ignore Debts Collectors?
Don’t ignore debt collectors – they will not go away. They will also keep reporting you to the credit rating agencies and that will damage your credit report. Your debt won’t disappear and interest will likely continue to be added. Even if you can’t pay your debt, you can still communicate with the agency to look at the options to settle your debt.
Do collection agencies buy and sell debt?
It can happen. Debt collection agencies buy debts at a reduced rate from the creditor and then chase the full amount from you, making a profit. Debt agencies can also sell debt on to other debt collection agencies.
Is it better to pay the original creditor or collection agency?
Always try to deal with your debt when it is with the creditor. Debt collectors are only concerned with reclaiming money from you as it is how they make their money. Ask your creditor if you can deal directly with them.
What happens if you don’t pay a collection agency?
The debt collection agency can take you to court and you could find that you get a County Court Judgement (CCJ) against you.
Can a collection agency report an old debt as new?
If a debt collection agency takes too long to recover off a debt, it could become ‘statute barred’. This means that, although the debt legally exists, it cannot be recovered through the court. Essentially, the debt is written off.
To work out when a debt becomes statute-barred, work out when the last payment was made, communication or default, and then add the 6-year limitation period. Once a debt is statute-barred, it cannot be restarted even if you make a payment. A creditor also cannot keep asking you to pay a statute-barred debt, if you’ve informed them you won’t pay it.
How long does debt collection stay on the credit report?
Information pertaining to debt collection stays on your credit file for six years after the date they were recorded, via defaulting or settlement, before being removed. This is the case even if the debt remains unpaid.
Can a debt collection agency register a default?
Yes, they can. While they do not have any extra powers that the original lender, the have the same legal rights and can take you to court for a CCJ if you do not keep up repayments.