A collection agency is a company that creditors hire to collect unpaid consumer debt. One of the ways they can convince a customer to pay up is by reporting the collection account to the credit bureaus.
Collection agencies work on what is, essentially, a commission basis. They get a cut —sometimes as much as 50 percent—of any money they collect. The rest of the money then goes to the original creditor.
For example, if you owe an apartment complex $4,000 in unpaid rent,
the apartment management can hire the collection agency to collect it from you. In
exchange, the collection agency may keep 40% to 50% of the amount collected as their
consignment fee.
In a few cases, collection agencies will actually buy debts from credit companies and collect these debts as their own. However, this practice has come under closer government scrutiny, so it’s not as appealing to collectors as it once was.
Needless to say, collection agencies are very motivated to extract whatever money they can from you. That’s how they get paid. However, collection agencies are not allowed to get on the phone and simply rail at you, day and night. Learn more about debt collection laws that protect you as a consumer.
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