Debt collection often carries a host of misconceptions that can obscure the true nature of this essential financial industry. In this article, we explore and debunk several common debt collection myths, providing a clearer understanding of how debt recovery operations work and their impact on businesses and consumers.

A Look at Debt Collection Myths

Debt collection is frequently misunderstood, with myths influencing how everyone perceives the process. It’s crucial to distinguish fact from fiction to ensure that everyone involved has a realistic understanding of debt collection practices.

Debt Collection Myth 1: Professional Collectors Use Intimidation Tactics

The portrayal of debt collectors in popular media often includes aggressive tactics, harassing phone calls, and intimidating threats. These depictions create the misconception that all debt collectors operate unethically, using fear to extract payments from debtors. This myth is particularly harmful because it discourages people from engaging with debt collectors and paints an inaccurate picture of the industry.

The Reality:

In reality, professional collectors operate within strict legal and ethical boundaries. A reputable debt collection agency prioritizes clear, respectful communication with debtors, focusing on solutions rather than threats. The Fair Debt Collection Practices Act (FDCPA) is a federal law explicitly prohibiting abusive, deceptive, or unfair practices by debt collectors. Agencies that violate these rules can face significant penalties, including fines and lawsuits.

• Regulated Communication: Professional collectors are trained to adhere to regulations that dictate when and how to contact debtors. For example, collectors cannot call before 8 a.m. or after 9 p.m. unless the debtor agrees. They are also prohibited from contacting debtors at work if they know the employer disapproves.
• Ethical Standards: Many debt collection agencies go beyond what the law requires, implementing internal policies that ensure fairness and empathy in their collection efforts. These agencies recognize that treating debtors with respect not only complies with the law but also increases the likelihood of recovering the debt. For example, a collector might work with a debtor to create a payment plan that fits their financial situation rather than insisting on immediate full payment that negatively impacts them.

Debt Collection Myth 2: All Professional Debt Collection Agencies Are the Same

Another common myth is that all debt collection agencies operate similarly, using a one-size-fits-all approach to recover debts. This misconception can lead businesses to select agencies based solely on cost without considering the agency’s expertise, technology, or customer service capabilities. It can also prevent businesses from finding a partner who understands their industry’s unique challenges.

The Reality:

Debt collection agencies vary widely in their approaches, specialties, and service levels. Some agencies specialize in specific types of debt, such as medical, retail, or commercial collections, and tailor their strategies to meet the particular needs of those industries. Others may focus on consumer debts, offering services that are more suited to high-volume, low-balance accounts:

• Specialization in Industries: Agencies specializing in certain industries have a deeper understanding of the unique challenges those sectors face. For example, a debt collection agency focusing on healthcare is well-versed in HIPAA regulations and the nuances of dealing with insurance companies. This specialized knowledge allows them to recover debts more effectively and in a manner that aligns with industry standards.
• Adoption of Technology: Leading agencies use advanced technologies to enhance their collection efforts. These technologies might include data analytics, machine learning, and automated communication systems. For instance, data analytics can help an agency identify which accounts are most likely to pay and prioritize those, increasing efficiency and recovery rates. Automated systems can ensure that follow-up communications are sent at the optimal times, improving debtor engagement.
• Customer Service Approaches: A debt collection agency’s level of customer service can vary significantly. Some agencies prioritize building positive relationships with debtors, understanding that a respectful approach can lead to better outcomes. These agencies may offer more flexible payment options and provide clear, transparent information about the debt and the debtor’s rights. Others may take a more transactional approach, focusing primarily on the recovery of the debt with less emphasis on the debtor’s experience.

Debt Collection Myth 3: Debt Collection Damages the Debtor’s Credit Indefinitely

One of the most damaging debt collection myths for consumers and the collection industry is the belief that once a debt is sent to collections, it permanently ruins a credit score. This misconception can cause debtors unnecessary stress about financial difficulties. It may lead them to avoid dealing with their debts altogether, thinking there’s no point in repairing their credit.

The Reality:

While debt collection can impact a debtor’s credit score, the effects are not permanent. The impact depends on various factors, including the amount of the debt, how long it remains unpaid, and the debtor’s overall credit history.

• Credit Report Duration: Typically, a collection account will remain on a credit report for up to seven years from the date of the first delinquency. However, as the debt ages, its impact on the credit score diminishes. For example, a debt that went to collections five years ago will have less effect on a credit score than a debt recently sent to collections. Additionally, some newer credit scoring models, such as FICO 9, place less emphasis on paid collections, meaning that once a debt is settled, it may not impact the score as much as before.
• Potential for Credit Repair: Debtors can repair their credit after a debt has gone to collections. One of the most effective ways is to work with the debt collector to settle the debt, either by paying it off in full or negotiating a payment plan. Once the debt is paid, the collector will update the status on the debtor’s credit report, which can improve the debtor’s credit score over time. Sometimes, debt collectors may agree to remove the collection account from the credit report entirely as part of a settlement agreement, although this practice is not guaranteed.

Debt Collection Myth 4: Collectors Can Take Any Action to Collect Debts

A pervasive debt collection myth is that professional collectors have unlimited power to recover debts, including garnishing wages, seizing assets, or throwing debtors in jail. This myth often stems from a lack of understanding of the legal constraints on debt collection practices and can lead to unnecessary fear and anxiety among debtors.

The Reality:

Numerous laws limit debt collectors’ actions. The FDCPA, for instance, provides clear guidelines on acceptable behavior for debt collectors, and there are severe penalties for those who violate these rules.

• Prohibited Practices: Debt collectors are prohibited from making false statements, claiming that the debtor will be arrested if they don’t pay, or can garnish wages without a court order. They are also not allowed to threaten legal action unless they intend to take it, and they cannot engage in deceptive practices, such as pretending to be attorneys when they are not.
• Rights of Debtors: Debtors have the right to request validation of the debt, which means the collector must provide proof that the debt is legitimate. If the debtor disputes the debt, the collector must cease collection efforts until the dispute is resolved. Additionally, debtors can request that the collector stop contacting them. While this doesn’t erase the debt, it does require the collector to halt communication except to inform the debtor of specific actions, such as filing a lawsuit.

Debt Collection Myth 5: Hiring a Debt Collection Agency Is Only for Large Businesses

Many small business owners believe debt collection services are a luxury only large corporations can afford. They may think that their debt volumes are too small to warrant professional collection services or that the costs will outweigh the benefits. This myth can prevent accessing valuable services geared toward small businesses that could improve their cash flow and financial stability.

The Reality:

Debt collection services are valuable for businesses of all sizes. In fact, small businesses can benefit significantly from outsourcing their debt collection, as they often lack the resources to manage extensive credit management and debt collection operations in-house.

• Scalability: Professional debt collection agencies offer scalable services tailored to small businesses’ needs. Whether a company has a few outstanding accounts or a large portfolio of overdue debts, a collection agency can provide the appropriate level of service. This scalability allows small businesses to access the same high-quality debt recovery services as larger companies without investing in expensive infrastructure or hiring additional staff.
• Cost-Effectiveness: Outsourcing debt collection can be more cost-effective than managing it internally for small businesses. When a small business handles debt collection independently, it must allocate time and resources to the task, which can divert attention from core business activities. By outsourcing, the company can focus on growth and operations while the collection agency works to recover debts. Additionally, professional collectors are often more effective at recovering debts, which can result in higher recovery rates and improved cash flow for the business.

Work With the Professional Collectors at ACS to Maximize Your Return and Simplify Recovery

For nearly 50 years, the professional collectors at American Collection Systems have helped our clients in higher education, healthcare, retail, construction, and many other sectors recover what is owed to them—compliantly, ethically, and responsibly. If you have questions or concerns about debt collection myths, we welcome you to reach out today to schedule a free consultation and learn how we can tailor a strategy for your unique needs.