Debt Collection Agencies
Debt collection agencies are independent, third party organisations that make money by collecting the debts of their customers and clients.
Debt collection agencies generally operate on a commission basis. Most will charge you a commission of between 10% and 25% of the debt you are seeking to recover. Some will also charge you a set up fee, sometimes as much £1,500.00.
The methods used by debt collection agencies vary. The vast majority will begin by offering telephone and letter collection services. An initial telephone call may be followed by a series of letters, threatening legal action in the event of non-payment. They cannot progress a case to litigation, if it proves necessary.
Debt collection agencies cannot conduct litigation, though many unfortunately do. The Legal Services Act 2007 states that litigation is a “reserved legal activity” – only those organisations authorised by the Solicitors Regulation Authority or other associated organisations with similar regulatory powers can do so. Litigation essentially means the conduct of representing a client in court-based proceedings. For example, the drafting of legal documents and representation at court.
Debt collection agencies are largely unregulated. No one organisation really exists to control the practices adopted by these types of businesses. Some debt collection agencies will have the benefit of authorisation by the Financial Conduct Authority but it is unclear what day to day work is undertaken by this organisation to monitor the activities of its members.
In summary, there are a number of disadvantages of using debt collection agencies:
- Although debt collection agencies usually operate on a no win, no fee basis, they will often charge a set up fee of as much as £1,500.00.
- Debt collection agencies cannot progress cases to litigation.
- Litigation is a reserved legal activity, which means that debt collection agencies cannot conduct litigation.
- Debt collection agencies are largely unregulated, which means that their practices are unlikely to be monitored by a regulatory body.