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.