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Some creditors will actually use a separate company name, address, and phone number for their internal collection departments, in order to give the impression of an "outside" agency, on the theory that debtors will take it more seriously. This strategy is generally only used when the debt is recent (under six months delinquent.) However, most collections activity is performed by third-party collection agencies, which are separate from the original creditors, and "work" debts on behalf of various lenders. They may also buy bad debts which have been designated as charge-offs by the original creditor.

How do they make money? Third-party collection agencies often work on commission, where they receive a percentage of the amount that they collect. Individual collectors are often paid a low base wage plus commissions based on their personal performance.

Some agencies also purchase large groups of charged-off bad debts for a small percentage of the "face value" (amount owed.) After a debt is sold, the debtor now owes the full amount to the purchaser. Since the chances of recovery decrease substantially with time, an agency might only pay 1% - 5% of face value. The agencies' profits come from the difference between the purchase price and the amounts that are eventually collected.

The first letter must state that the recipient has the right to dispute the validity of the debt (in writing), and the agency must send some confirmation after verifying it with the original creditor. Collection letters must also contain the statement that they come from a debt collector, and that any information gathered will be used for the purpose of collecting the debt. Collectors are legally prohibited from printing anything on the outside of the envelope which indicates or suggests the nature of the communication. Even the return address must be discreet, so many agencies will just use their company's initials, or some other nondescript name.

The debtor's reaction to the letters will affect which letters the agency will select from its repertoire. Cooperation (e.g. making payment arrangements and/or partial payments) may result in letters with a gentler tone. Evasive or hostile reactions from the debtor may result in a more threatening tone.

Collectors try to create a sense of urgency, in order the collect within the shortest amount of time, and to encourage the debtor to prioritize that particular obligation. Deadlines may be set, such as, "Pay this amount within ten days." There may also be threats, such as, "...Or we will proceed to further collection action." But most of the time, if a debtor fails to meet the deadline, all that will happen is that yet another form letter will arrive, making the same basic demand. The "further collection action" usually just means more form letters. Collection letters will always encourage the debtor to call the collection agency on the phone. If the debtor doesn't call, then a collector will often call the debtor.

If a collector calls and reaches someone other than the debtor (e.g. a roommate), s/he is legally prohibited from disclosing the reason for the call. Depending on the state, this may or may not include the debtor's spouse. If the collector reaches an answering machine or voice mail, s/he will often leave a message, but is prohibited from explaining the reason for the call, since someone besides the debtor might hear it. The standard message goes something like, "I am calling for John Smith. It is very important that you call me back. My name is Joe Schmo, and my number is 1 (800) 234-5678." S/he will typically sound rather bored and stilted, with other voices chattering in the background. Collection agencies are required to provide a phone number which is free for the debtor to call. They also may attach their (800) numbers to equipment which instantly identifies and logs the phone number which a debtor is calling from, in order to call the debtor at that number later.

When speaking with a debtor, many collectors (especially those without much experience) will use a script, which contains a pre-written introduction, request for payment, and has various branches to follow, depending on how the debtor responds. If a particular debtor is taking up too much time, without making arrangements to pay, the collector will be inclined to move on to other accounts.

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