What is a debt collection agency?

When you default on a debt such as a phone or utility bill, outstanding credit card balance, or a loan, the company you owe money to (or creditor) will contact you repeatedly to let you know your account is in arrears and that you need to pay up. If you still owe them money after about six months, the creditor may choose to hire a collection agency to try to recover the debt from you on its behalf.

In most cases the original creditor still owns your debt, but contracts the services of a collection agency to assist in the debt recovery process. Collection agencies usually work on commission, meaning they get to keep a percentage of whatever debts they recover for the creditor. This commission can be as little as 10% or as much as 50% of the amount they are collecting.

Because collection agents only get paid if you pony up, they might aggressively try to get you to pay as much as you can, as soon as possible.

What to do if a debt collector calls

The first thing to do if you hear from a collection agency is to ask for all the information pertaining to the specific debt in writing. In fact, most provinces in Canada require debt collectors to send out such a letter at least six days before they call you. The letter should include the following information:

  • who they are, i.e., the name of the collection agency;
  • who hired them, i.e., the name of the creditor you owe money to;
  • exactly how much money you still owe on the debt.

You can (and should) also ask for additional information when an agent contacts you by phone, including:

  • the full name, spelling, phone number and/or email address of the person calling;
  • what account number they are calling about (it’s possible the debt is not even yours);
  • how long the debt has been outstanding;
  • what documentation, if any, they can provide to prove you still owe an outstanding amount on the debt.

Write down the answers you receive and ask that the same information be sent to you in writing. Then get off the phone, saying you will call back once you have corroborated the given information with your records.

If you dispute the debt—either because it’s not yours or you already paid it—say so. Order a copy of your credit report to see whether or not the debt appears there, and contact the original creditor to see if you can correct the error with them (for example, by providing receipts or reference numbers for payments you already made).

If you verify that the debt is, in fact, yours, and that the outstanding amount is correct, then you should determine how much you can pay and how quickly. Do not promise any payments to the collection agency that you cannot follow through on with the hopes of getting them to leave you alone. This will only make the situation worse.

Know your rights

In addition to the right of receiving all the pertinent information in writing, you also have several other rights as a debtor:

Call limitations. Debt collectors can only call between the hours of 7 a.m. and 9 p.m. (or 1 p.m. to 5 p.m. on Sundays), and cannot call at all on statutory holidays. They also may not contact you on your mobile phone unless you have given out that number.

Call cessation. You can ask to be contacted in writing only and have the collection agency calls terminated altogether. To do so, send a registered letter with a written request to your original creditor, and be sure to include your contact information.

Freedom from abuse. Debt collectors may not threaten you or use language that is meant to be intimidating.

Accurate information. The collection agency must be truthful about the status of your debt and the situation as a whole.

If a collection agency is not obeying these rules and you feel your rights are being infringed upon, you can report the behaviour to the Financial Consumer Agency of Canada.

The dos and don’ts of dealing with collection agencies

Here are a few dos and don’ts for repaying your debt through a collection agency.

Don’t pay any amount on a disputed debt. Even a small payment could be regarded as verification of the debt, making the agency’s claim more legitimate.

Do come up with a payment plan that works for you. Refusing to pay a debt that you legitimately owe will negatively affect your credit score, making it difficult or exceedingly expensive to borrow money in the future. If you are able, try to negotiate a reduced lump sum payment, say 25% of the outstanding debt, to settle the account immediately. But before you pay anything get that agreement in writing—or the collection agency could come back later asking for more.

Don’t send cash. Be sure to get a receipt or other written confirmation for payments you make to the agency.

Don’t let them bully you. As stated above, abusive language should not be tolerated. Furthermore, any threats to sue should be taken with a grain of salt, especially if your outstanding debt is less than a few thousand dollars. Chances are, the cost of suing would be prohibitive.

More: How to get out of debt

About the Author

Tamar Sotov

Tamar Sotov

Freelance Contributor

Tamar Satov is an award-winning journalist specializing in personal finance and parenting. Her work has appeared in Canadian Living, The Globe and Mail, Today’s Parent, Parents Canada, Walmart Live Better and many other consumer magazines and websites.

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