Debt Recovery

You can legally hire more than one collection agency at a time, provided you do not assign the same account to multiple collection agencies. If one debtor starts getting contacted by different agencies, you can be sued for harassment. 

However, hiring more than one collection agency will be very hard to manage. Keeping track of which accounts have been assigned to Collection Agency “A” and others to Collection Agency “B” is always confusing. Then each collection agency has its own way of recovering the debt. Two different client portals training will be required, and each agency will have separate ways and dates when they pay you or raise an invoice to bill you. Moreover, whenever a debtor calls you directly to make a payment or discuss something else about his debt, you will have to figure out which collection agency has the account of this debtor. It can be quite confusing. 

When does it make sense to hire two collection agencies?

1. Transitioning from Agency A to Agency B: You want to fire your existing collection agency “A” ( say you are unsatisfied with their collection results). Meanwhile, you start assigning all new accounts to this collection agency “B”. Eventually, all your accounts to your old collection agency “A” complete their collection lifecycle, and you are left only with the new collection agency “B”.
2. You are a large company with multiple offices across US. You also have hundreds or thousands of accounts that require collections every month. You decide to hire collection agency “A” for one set of offices and collection agency “B” for other offices. Both collection agencies will work hard to give you better results since you are such a large account for them. They will always have a fear of losing you.

Overall, we recommend that you hire only one collection agency that is licensed nationally. Do your due diligence to shortlist the best one.

Collection agencies typically offer two types of collection services to their clients. “Fixed Fee” and “Contingency Only” services.

In the Fixed fee service, a collection agency sends multiple written demands only.

In the Contingency service, one written debt validation notice is sent, followed by collection calls from an experienced debt collector.

Although the sales guy from the Collection Agency may attempt to sell you a “Fixed Fee” service that costs around $20 an account. Fixed fee may appear more beneficial after hearing all the sales pitch, however, it may not be the best service for you. The biggest advantage a collection agency gets is that the moment you buy their “Fixed Fee” service, they have made money from you even before a single account is placed for collections. 

Unless your accounts are less than 180 days past due, the “Fixed Fee” service may be of little help. After the collection agency fails to recover money for you in the “Fixed Fee” service, they will later insist that you should transfer accounts to the contingency service.

Why go for the “Contingency Only” service?

• No upfront fee is involved.
• A collection agency makes money only if they collect for you.
• Credit Bureau reporting is done for free by most agencies.
• Calls from a debt collector are more impactful than written demands. 
• Most agencies do USPS change of address checks only in Fixed fee service. They do not perform skip-tracing, a more accurate tool for locating the debtor and his phone number. In Contingency service, almost all collection agencies rely on skip tracing.
• A debt collector can negotiate payment terms even with those tricky debtors. For example, he may put the debtor in installments or settle the amount in one lump sum payment slightly lower than the original amount due.
• A debt validation letter is sent out anyway, even during the Contingency only service; therefore your debtor knows the account is with a collection agency. So you do get a considerable benefit from this written demand as well.
• A collection agency takes all the headaches involved in the negotiation and takes money from the debtor. In a fixed-fee service, you have to be the one to manage payment acceptance and negotiation. 
• You just have to notify the collection agency of any payments received from the debtors directly to you. Other than that, sit back, and you will receive the monthly checks for the amount collected.

When is the Fixed Fee service beneficial?

In our experience, it is a better service only if your accounts are no more than 180 days past due. If accounts are less than 120 days past due, it will most likely result in significant cost savings over contingency collections.

If you want less hassle-based recovery, go for Contingency Only collections.

You had submitted accounts to a collection agency, but they have ceased their operations now.

This is a fairly serious situation. 

What happens to the accounts they were working on, and what about those debtors in the middle of a payment plan?

Are there any legal aspects involved?

What about the charges that were credit reported? If there is a need to undo the credit reporting for a debtor (say due to some error), how will that be handled? 

• Try to retrieve any files, account data, or documentation they have regarding your accounts. Keep records of all communications with the collection agency. If your debtors have made payments to the agency or have arranged a payment plan.
• Explore any potential claims you may have against the agency.
• Are they notifying your debtors about the shutdown and any instructions on how their debt will be handled in the future?
• If the agency was responsible for reporting to credit bureaus, ensure this information is accurately reflected or transferred as needed. Make sure that any payments your debtors have made are reported.
• Double-check that the agency has shut down and that this isn’t a mistake or a scam.

There is a possibility that your old collection agency is not cooperating or is simply unreachable. Their phones don’t work and they have abandoned the office.

Next, Hire a new Collection Agency. Your priority this time is to look out for a mid-to-large-sized collection agency, regardless of their location. Smaller agencies always carry the risk of shutting down.

Your new collection agency should be able to guide you through the transition process. Share all updates that have been received from your old collection agency.

There is a systematic procedure to hand over accounts from one collection agency to another that is legally compliant and convenient. Not all collection agencies are experts in handling this transition.

Need a new collection agency: Contact us today Please mention that your existing agency has closed, and we’ll make the transition easy.

Many collection agencies have shut down recently due to the following reasons.

• Covid-19 Pandemic: Collection agencies were barred from collecting money in many states during the pandemic, impacting revenue from existing accounts. Moreover, the new business had stopped coming since people were not going to their offices and debt recovery was the last thought in their minds.
• CFPB rules: On November 30, 2021, the CFPB’s new Debt Collection Rules became effective, becoming a major roadblock for the entire Collections industry. Many collection agencies found it better to wind up the business than become compliant with these new CFPB rules.
• Credit Bureau Reporting changes: Starting July 2022, the top 3 credit bureau agencies made it harder to report medical debts for credit reporting. Medical debts form nearly 50% of consumer debt collections.
  
• Gramm-Leach-Bliley Act: As per FTC, starting June 9, 2023 all collection agencies will be treated as financial institutions. This means all collection agencies must secure consumer data nearly the same way as banks. It’s a huge yearly cost for collection agencies, especially the small ones.

What to Look in your new collection agency

• Most collection agencies that shut down were small collection agencies. Hiring medium-sized collection agencies with the license to collect consumer and commercial debt across the USA is always advisable.  
• They should have a staff of more than 25 people and in business for more than 10 years.
• Immediately hire a collection agency (without delay) because there may have been quite a few of your debtors who were about to pay or were paying their debt in installments.
• Hire a collection agency that offers both fixed fee and contingency fee collections. Accounts less than 90 days past due should ideally be submitted for fixed fee collections.
• You should also be able to download a collection performance report for all your accounts online. 
• They should have the license to collect money in all 50 states, which takes care of issues in case your debtor crosses state lines.

 

 

A debt collector lets you make payments in installments or a one-time total amount. Which one should the borrower go for?

Benefits of Paying in Full (in one lump sum payment)

• You can almost always strike a deal to settle the debt for a lower amount (keep insisting). Installments result in more work for collection agencies. They would rather accept a lower amount ( like a 10% or a 20% lower settlement and waive off all interest and extra charges) than work on your debt for months. Moreover, if a borrower skips an installment in the future, it results in even more work for them.
• Peace of mind. The matter is closed, and those pestering collection calls end.
• If you have cash available or can arrange it, then closing the matter in one lump sum payment is best rather than dragging the case. Debt collectors are persistent callers. They get paid a commission on whatever you pay and will keep bugging you until the payment is made. 

Benefits of paying in installments

• The borrower who pays in installments has effectively communicated to the debt collector that he does not have much money in the bank. He is genuinely tight on cash. He can usually settle the deal on the principal amount only and avoid paying any additional interest and fees.
• It gives more time to pay and avoids immediate cash flow problems. 

Benefits of Both (Installments and Full Payment):

• You avoid damaging your credit report.
• No more harassment from collection agencies or their lawyers.

The Russia-Ukraine war will undoubtedly translate to higher consumer and commercial delinquencies. 

Here are several reasons for it:

• Due to higher gas prices, everything has become expensive. Consumers need to shell out money on essential goods (like food, gas, clothes, expenses related to kids, etc.), and debt is something most people tend to put on the back burner. 
• For the majority of the American population, salary increase has failed to keep up with rising inflation. 
•  Commercial businesses have also been struggling with supply chain issues due to the covid restrictions in China; further increase in input costs due to the Russia-Ukraine war has resulted in severe financial stress. They are either not able to produce goods in required quantities or not able to always pass the increased costs to their customers.
• Many analysts predict that we are on the verge of an economic recession, the job market that has been very healthy so far can very well break the trend as corporations and small businesses may try to cut costs by laying off employees.
• Many people are saving money in cash, citing uncertainty.

The urgency for medical practices and small businesses to protect themself against unpaid bills is crucial. Before the financial situation of your debtor becomes worse, it is highly advisable to hire a collection agency and attempt to recover your money. The probability of recovering receivables goes down drastically each month, therefore prompt and intensive steps are sometimes necessary.

 

We all agree that healthcare costs in the USA are incredibly high.

Most doctors (and dentists) who do private practice struggle to cope with never-ending government regulations and mandates, a constant fear of frivolous lawsuits, dealing with insurance companies, and loss due to unpaid patient bills. The medical profession is among the most stressful careers out there.

Back to our core topic of medical debts and credit reporting of medical bills, here are our thoughts on this matter.

Regardless of the balance, reporting all unpaid bills to credit bureaus as the final step does two main things.

1. Inform future creditors about bills on which a person has defaulted so they can assess their own risk to lend money to that person.
2. It gives a chance to the borrowers to pay off their bills so that the concerned credit report entry can be marked as “Paid in full.” Paying off reported bills helps borrowers to improve their credit scores instead of leaving them unpaid.

But all this is changing, “only” for medical debts.

Credit bureaus have implemented these new rules:

a) Stop reporting medical debts lower than $500
b) Remove medical line items that have been fully paid
c) Collection agencies must wait one year before medical debts can be reported.

In the last few years, there has been a pushback on how medical bills are reported. These include government rules, credit scoring models, and even credit bureaus have made their own rules.

All these create roadblocks for medical credit reporting, encouraging patients to avoid paying their bills.

Debt is a debt … Shouldn’t all unpaid defaults ( medical or otherwise) be reported to credit reports in the same way?

Then let the lenders decide which one they want to consider or ignore.

Forcefully suppressing unpaid medical debts from credit bureau reporting will undoubtedly result in many unintended consequences.

•  Fewer patients would be willing to pay their medical bills. Even those who can pay may decide not to pay in the future.
•  The cost of unpaid bills will be passed to patients who can pay.
• Won’t hospitals be encouraged to push patients for procedures with a higher chance of getting paid?
•  This also means that the cost of medical treatments will increase gradually.
•  Some medical practices may try to intentionally inflate the cost of specific treatments so that accounts receivable from patients is over $500 so that they can be reported to the credit bureaus.
• On the other side, even patients may very well pay a portion of their medical bills, so the outstanding amount is less than $500. Now default on the remaining amount since there is no risk of credit reporting for amounts lower than $500.
• How is medical debt different from any other bill? Why does defaulting on one type of bill differ less from other kinds of bills? Isn’t this increasing the risk for future creditors who will lend money to the patient without knowing that the patient had past unpaid (medical) bills?

For example: What if a patient who owes $10,000 in medical bills wants to take a $500,000 home loan? Now he purposefully pays his old $10,000 medical bill to remove it from his credit report. Then he can qualify for a $500,000 loan. Wouldn’t this increase the risk of the bank/credit union with whom he takes that mortgage?

Suppressing how medical reports are reported to the credit bureaus will surely increase the cost of healthcare, more defaults, more legal mess, and higher risk for future creditors.