Using a Licensed Collection Agency in the U.S. Is Imperative
By Amir Erez
All over the world, the collection industry of each country is wide and various. In some countries, collection regulations towards consumer and commercial collections are very stringent and individuals working in the industry must attain certain professional qualifications. In other countries, collection activities may only be regulated very lightly or not at all, which can allow individuals to perform collections in ways that are considered unethical.
A Snapshot of the U.S. Collection Industry
The U.S. collection industry has over a 150 year history and during this time it has evolved and become very sophisticated on many levels. There are thousands of collection agencies and attorneys nationwide that handle commercial or consumer claims, with specializations in insurance subrogation, health care, education, and many other areas. Throughout the decades, especially over the past forty years, the U.S. collection industry has become much more regulated, not only by governmental authorities, but also by industry trade associations, which have established strict codes of conduct and several legal, banking, and auditing requirements to be fulfilled by its members.
What Laws Govern the U.S. Collection Industry?
At the national level, in brief, all consumer collection providers fall under the authority of the Federal Trade Commission, which in broad terms protects consumers and businesses by monitoring, regulating and stopping unfair, deceptive or fraudulent practices in the marketplace. Subsequently, the Fair Debt Collections Practices Act spells out in detail all of the regulations to which collection providers must adhere in order to execute collection activities legally and ethically. In addition, the Consumer Financial Protection Bureau, which was established subsequent to the 2008 economic meltdown, regulates the financial and non-financial institution products and services sold in order not to mislead or defraud consumers.
At the state level, throughout almost the entire U.S., states require a collection provider performing collection activities within that state to be licensed according to its professional licensing regulations. These regulations are in turn enforced by the state’s attorney general. A license, issued by the state government, represents the minimum compliance, training, and adherence to what has been declared to be professional and legal collection activities. It further indicates that a collection provider maintains the financial capacity to operate and remit the collected funds to its clients.
What Does It Take to Become a Licensed Agency in ALL 50 states?
As part of the the licensing process, depending upon the state, the collection provider may have to:
- undergo an annual audit of its books, records, and collection procedures
- produce certified documents attesting to its trust bank account information
- create a compliance manual, maintain a compliance director and/or compliance department
- implement training programs to keep their collectors and managers abreast of proper collection techniques and collection regulations
The U.S. does not have a centralized licensing system which allows collection providers to be easily licensed nationwide. For example, if a collection agency domiciled, registered, and licensed in Illinois were to receive a claim from a creditor against a debtor in California, the Illinois agency would also have to be licensed to perform collections in California.
For many collection providers, becoming licensed in several or all states is far from an easy process. Every state has its own unique licensing requirements and regulatory authorities that one has to go through and apply to in order to obtain a license. The more states in which a collection provider becomes licensed, the more costly and complicated it becomes to maintain the licensed status. This requires not only having the financial resources to apply for all the renewal licenses, but often necessitates installing a compliance officer to keep track of the ever changing state (and even federal) requirements.
The Risk of Working with an Unlicensed Agency
When an agency asserts they are licensed in every state and can easily show this, it represents a superior effort on their part to provide a legal and secure framework to domestic and overseas clients and agencies that use them respectively.
However, due to the financial burden and complexity to become licensed in each state, where a provider is requested to provide their collection services, many providers may often try to circumvent this hurdle by forwarding the claim on to another agency that is licensed in the target state.
When this happens it still does not remove the lack of a licensing component within the collection and commission flow.
After the forwarding agency receives the collected funds from the onsite agency, it takes its commission share prior to sending them on to the credit grantor. If the on-site agency performed its collection activities in an unethical manner, this may negatively affect the integrity of the entire collection process and can result in suits, judgments, and hefty fines against all the parties, including the credit grantor.
Just the fact that a collection agency is not properly licensed should be the first and last reason why they should not be used. Always remember that your collection partner represents your company, and their legal problems could draw you into a quagmire that at a minimum, negatively impacts your company’s reputation.
In addition to being licensed to perform collections within a given state, it’s also imperative for the credit grantor to confirm if the collection provider is bonded. Being bonded is assurance to the credit grantor that in the event the collection provider fails to remit collected funds, the insurance company issuing the bond will step in and pay the un-remitted funds to the credit grantor.
You’re Entitled to Complete Assurance
Just like you would expect your doctor, attorney, or accountant to be licensed, you should always make sure that your collection partner, whether for consumer or commercial claims, is legal, licensed, bonded, and operating within a professional framework that gives you complete assurance when entrusting them with your collection needs.