Managing Debt Collectors
Debt Collectors Explained:
Debt Collection for a lender is a minefield of policy and government legislation. The lender needs to navigate this complex area between their hardship requirements, and their business goals which are essential to make money. Therefore each lender has a slightly different take on their use of debt collectors and how they are integrated into their debt collection process. Firstly let’s show some examples of different types of collection.
- Internal debt collection – this is where a debt has been classified as in arrears and is past to the lenders’ internal collection department with a view to receiving payment and bring the loan back into the black.
- External debt collection – This is where a debt has been passed to an external company to administer the collection of debt. This section can be broken down further into additional categories:
- The debt has been sold to a company – this is the main type of collection – this is where the lender has made a policy-driven business decision to sell your debt to an external company. The reason for the sale is that the lender has worked out that it is more cost-effective to sell the debt at anywhere from 5% – 60% of the debt value, rather than spend billable employee hours and company resources to recover monies.
- The debt is passed to a debt collection agency on a collection fee basis – this is where the external company is contracted to recover the debt for a fee. The debt is still owned by the lender, and the lender is viewed as a client of the debt collection agency. This term client is important to remember, as it can be confusing when discussing terms with a debt collector as when they indicate they need to refer to their client it means they need to refer back to the lender.
Each category of debt collector responds differently to discussion though once you understand a few basic principles in most circumstances a debt collector can be easier to work with that a lender.
- The first point to mention is that a debt collector is not the lender and the debt collector owns your debt.
- The main intention of a debt collector is to make a profit – they are a private company with business costs, procurement costs – they need to recover the cost of buying your debt, and staffing costs etc.
- The debt collector has paid for your debt, hence they want to recover your debt as soon as practical. The cost of your debt is variable based on a number of factors – Are you working? Do you own property? Do you run a business? Are you on Centrelink? If you are working, have a property your debt may have cost them 40%-50% of the debt value, so for a $10000 debt, they may have paid $4000-$5000. If you are on Centrelink with no income apart from Centrelink, they may have paid 5% which is around $500. Understanding this is very important to negotiate terms of payment, or negotiating reductions in your debt.
- Debt Collectors in most cases will seek a lump sum payment to cover the cost of the debt, before entering into a payment arrangement – this is usually the first push from a collector. If nothing can be achieved in regard to a lump sum payment then they will seek to establish a high-value payment arrangement to cover interest and the balance. In these instances, they may even have added collection fees and penalties that could have increased your debt from a $10000 loan to even $20000.
The main point of the above items is that the debt collectors have paid for your debt, and want to cover their costs in buying your debt. There is a very good financial incentive that can (if played right) put you into a position of advantage in a negotiation. Stay cool and level headed.
Managing Debt Collectors – The system:
- Harassing Phone calls – debt collectors can have your phone number set on a round-robin phone system. This is where your number is set automatically to dial. The collection companies have worked out it takes 30 sec for each employee to call, and 200 calls a day = 100 minutes and 1.66 hours of pay. Over 50 or 100 staff = a lot of money. How do you manage this system? There is a privacy regulation that means you can update your phone to another phone, and make requests for communication. You are in control. They need to keep records to communicate with you, however, you can tell them how to communicate with you ie buy another phone number and provide that number. Then check the number at lunchtimes, or after work and return calls then. You don’t need to be harassed. If you have 5 debts gone bad, with three calls a day that could mean 15 debt collector calls a day on a work phone. Interrupt this process by requesting they update their phone records.
- Communication and agreements – always record the name of the person you are speaking to, and if an agreement is made the request the agreement in writing via email or letter. You may be negotiating with one company though there maybe 15 people in that particular department. All it takes is the person you are discussing your debt with to not update or record your conversation and you are back to square 1.
- Agreement letters and emails – be precise in the terminology when requesting an agreement. Ensure there is a date, a $ figure to the agreement whether its for full or part payment or an ongoing payment. Always include in the letter details related to the debt collection agency won’t list a credit default if the terms are kept.
- Breaches of agreement – if a debt collector breaches an agreement then go back to your letter/email to confirm the details and ensure their breach is actually a breach. If it is a breach you have rights to fight their breach. The avenues available to you are sending the letter to their head of the collection department, or even in court with VCAT to dispute changes. Keep in mind if you default of a payment the agreement is usually made null and void.
- When making an agreement always complete a budget to work out what you can afford and then make an arrangement to pay at the very minimum amount. This way as you save money you can make an offer to the collection agency to close the debt entirely. If you have a very high payment, then you may find it difficult to come up with additional funds to make offers. The added bonus if you are on a payment arrangement that is minimal, a lump sum payment may be a preferred option for the debt collector that receiving minimal funds.
- Always record all conversations in a diary with date, time, name of the company, name of a person, the content of discussion and outcome of the conversation.
- If you make an agreement and forget to request a letter/email and you have issues in the future – you can say to the debt collector you are in dispute with “I made an agreement where x, y, z was agreed upon – you must keep voice recordings of phone conversations so take a look back in your phone records for details of our agreement” – this may or may not work, though it will give the debt collector the point of view you are telling the truth. Keep in mind – do not lie as they may have recorded the conversation and they will check.
I hope this helps. If you are having issues with your debt collectors, or are looking for other alternatives such as debt consolidation and a bad credit home loan to pay your debts. Feel free to contact Loan Saver Network on 1300 796 850 to discuss your options.