You had submitted accounts to a collection agency, however, they have ceased operations. What happens to the accounts they were working on, and what about those debtors who were in the middle of a payment plan. Are there any legal aspects involved?
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 to handle this transition.
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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 that it was better just to wind up the business than to 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.
What to do if your collection agency shuts down
Most collection agencies that shut down were small collection agencies. It is always advisable to hire medium-sized collection agencies that have the license to collect consumer and commercial debt all across the USA.
- 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.
- Your new collection agency should keep itself up to date with new federal and state laws. 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.