Author Topic: Understanding the in-House Collection Department  (Read 21837 times)

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Flyingifr

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Understanding the in-House Collection Department
« on: October 14, 2005 11:22:18 PM »
Note: These comments are based on many years I spent as a Collector. They are general observations and    as a rule    are reliable – but obviously each lender may have somewhat different policies and some accounts may be handled somewhat differently    but as a rule    this is a good guide to what motivates a Bill Collector and how they think.

IN HOUSE COLLECTIONS

The purpose of the Collection Department of any lender is to collect past due payments and bring the account current while    if possible    maintaining customer loyalty and good-will. Obviously    the collection function takes precedence over the maintenance of good will    and you will see that    as an account ages    the good-will function becomes less important and is ultimately abandoned.

Aging is a crucial concept to understand. Aging refers to the number of days past-due an account has become. Aging is important to the lender for one or both of two reasons. The first is profitability. When an account reaches 180 days past due    almost all lenders are required to charge the account off to a Bad Debt account    reducing company profits. For any accounting students reading this    they CREDIT the Accounts Receivable (an asset) account and DEBIT Bad Debts (an Expense) account. Increasing an expense account decreases profits    hence the Loss from the Profit-and-Loss (P&L) account. Charging off an account to P&L does not mean the debt is forgiven    it is just an accounting entry in the lender’s books.

The second reason aging is important is that    except for banks    the average age of delinquent accounts directly affects the lender’s cost of funds. The higher the average age    the higher the interest rate the lender pays for funds    and the lender’s collection costs are paid by delinquency charges assessed (Late Charges and Over Limit Charges) as well as the “spread” (meaning difference) between the interest rate paid and the interest rate collected. The larger the spread    the larger the profits.

When the first payment is missed    the account is classified as a “30-day” account – the very mildest of delinquencies. The policy of the lender could be that the 30-day status is conferred immediately after the grace period    or 30-days after the payment due date. For our purposes    we will assume that it is conferred when the grace period expires.

Some lenders send their first letters before the expiration of the grace period. The first actual collection letter is usually sent just after the grace period expires and shows the assessment of the late charge. The tone of the letter is almost apologetic and I have seen some that actually give a list of excuses for missing the payment    asking the borrower to “pick one” and send in the errant payment. Towards the end of the cycle    it is possible that a collection telephone call may be made. The collector will be very cooperative and will accept any excuse that ends with “I’ll send the check on…..”.

At the end of each cycle    one of two things has happened – either a payment (or more than one payment) has been made    or it hasn’t. We will assume it hasn’t.

To understand the concept of “aging” you should think of a room with a computer    4 desks and a door. The first desk in the “30-day” desk    the second is the “60-day” desk    the third is the “90-day” desk    the 4th is the “Pre-Charge-off” desk. At the end of the grace period    the 30 day desk gets the account to call. If a payment is made    the account goes out of collections. If no payment is made. The account “ages” to the 60 day desk. The 60-day collector gets to work the account for a month. If one payment is collected the account goes back to the 30 day desk. If two payments are made    the account goes out of collection. If no payment is made    the account ages to the 90-day desk. If the 90 day collector can collect 3 payments    the account goes out of collection. If only 2 payments    the account goes back to the 30 day desk; if 1 payment the account goes back to the 60 day desk. If the 90 day collector can’t get any payments    the account ages to “pre-charge off”. The pre-charge off desk may or may not have any set number of days to work the account. If pre-charge off can’t collect    then the account is charged off and    depending on the company and the debtor’s status    either forgotten about    sent to a Collection Agency or sent to an Attorney for immediate suit.

Some small loan companies use a different path to charge off. Instead of just the number of payments delinquent an account is    they will measure the number of days since the last payment was made. This method is called “Recency of Payment”    and accounts are generally charged off when they pass the 90 day desk.

The 30-day desk will try to keep customer good will. The 60-day desk will start making threats and may suspend borrowing privileges. The 90-day desk will almost certainly close the account to future charges and will not give any consideration to maintaining customer good will. If the account is an auto loan    the repossesor is probably looking for the car as soon as the 60 day desk gets the account. If it is a mortgage    the 60 day desk started mentioning foreclosure and the 90 day desk will be refusing anything except payment up-to-date. It is unlikely Auto Finance or Mortgage lenders will have a ‘pre-charge-off” desk. Their accounts will generally go straight from the 90-day desk to a Collection Agency or Attorney.

Each of the collectors in-house is paid by Salary    but their effectiveness (and therefore tenure and raises) are determined by how few accounts age past them    and the dollar volume of those accounts. That is why a large balance account gets a lot more aggressive collection attention than a small balance account. Each collector will make notes of each conversation    and that’s how they will know that you missed the payment last month because your Aunt Sadie died for the 6th time. Collectors are trained to look for your hot-button – the one thing you fear the most they can do to you    and to exploit it. If they sense your concern for your credit rating    they will mention that it is going down the tubes; if they sense you don’t want to get sued    they will make it sound like the Judge is sitting right next to them. At the 60 and 90 day desks they may gang up on you in a variation of the “good-cop    bad-cop” shakedown; one will settle for nothing less than paying off the account in full and the other will “settle” for just bringing the account current.

COLLECTION AGENCIES

Once the account has been charged off to P&L    it is most likely to be sent to a Collection Agency (CA). The CA must    by law    send you a letter saying that the account has been placed with them    that you have the right to validation of the debt    tat anything you say will be used for collection purposes and more. See the Fair Debt Collection Practices Act page for complete information on this “mini-Miranda” (named after the Miranda Warnings police are required to give when making an arrest.)

CA’s do not have the aging concerns that the original lender has because the account has already been charged off. The CA’s concern is to get as much money into their hands as fast as they can because they are paid on commission. CA commissions generally run 25% to 40% of the amount collected.

You can consider the CA as just an extension of the Original Creditor’s (OC) 90-day desk. They will do the same thing    say the same things    make the same threats. It is not uncommon for a Lender to send a debt from CA to CA    especially if the first CA couldn’t collect.

Collection Agents tend to concentrate on the “easy money” – people they can easily get on the phone and have hot buttons they can find and exploit. People who are hard to get ahold of or who exhibit no hot buttons they will work a couple of times and just move on. The size of the account will have little effect on the CA’s desire to work it    since the commission is the same on a debtor paying off a $100 account or making a $100 payment on a $5000 balance.

JUNK DEBT BUYERS

Junk Debt Buyers are companies that buy large portfolios of defaulted debts for a couple of pennies on the dollar and try to collect 100 cents on the dollar. Except for the fact that they own the debt rather than are collecting for someone else    they are the same as Collection Agencies.  There is a separate post in the Collection Agency area that discusses them at greater legnth.

COLLECTION ATTORNEYS

Except for the actual ability to file a lawsuit    Collection Attorneys are no different from CA’s. They just THINK they are. There is a separate post in the Junk Dedbt Buyer section that addresses them more completely.
« Last Edit: December 20, 2005 05:08:34 PM by Flyingifr »
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

knight

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Re: Understanding the in-House Collection Department
« Reply #1 on: May 28, 2006 12:06:49 AM »
Are they (the in-house collection department) governed by the FDCPA as well?
All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation. John Adams

Anyone who works in collections has one single Job: To locate people's asset and seize them. His job is not to be your friend or help you as he may say, his job is to take your money. K.T.

Rottweiler

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Re: Understanding the in-House Collection Department
« Reply #2 on: May 28, 2006 03:43:26 AM »
No.

The one exception would be if the in-house collection department/division presented themselves as if they were a third-party CA, and did nothing to let the customer know that the collection department and the OC are one and the same.  In such a case, they would be covered under the FDCPA.
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Pablo

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Re: Understanding the in-House Collection Department
« Reply #3 on: July 18, 2009 04:46:38 AM »
Just to comment on the commission aspect.  I've talked to some people in collection and the rate can be slight different than what is on here.  For example I've been told that the rate can be low such as just 13% (for example recent utility bills) up to 90% (for example very old JDB accounts).  However, from what I've heard I believe the range that was given by Flying is accurate :)
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survivor23

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Re: Understanding the in-House Collection Department
« Reply #4 on: June 13, 2011 07:38:38 PM »
Yeah, I've also heard that accounts are purchased for just cents on the dollar.. This is from the book "good credit is sexy" they said debts can be sold for as little as pennies.

As for the in house collection department, I think times have changed. I had perfect payments, and the bank, wanting to limit their exposure just cut my lines off. They are supposed to send a letter of adverse action when they do this, but they did not.

Then, I stop paying on it. I know what I think doesnt matter, but just common sense, they violated their end of the contract, so why should I fulfill mine? I know, this wont hold up in court, its just common sense.

So I get the stupid calls from the inhouse collection departments, and they are lying, telling me it was something I did that I got my line revoked, (make perfect payments?) and how they are demanding this or that, blah blah blah.

In my case, the bank going under, they were not nice at all,

Flyingifr

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Re: Understanding the in-House Collection Department
« Reply #5 on: August 16, 2012 01:39:54 AM »
Seven years after its original publication and with the Great Crash of 2008 in its wake, several things have happened that make the original post in this thread somewhat obsolete, so I will add this as an update.

First, many creditors are asking for and getting, either from you or from other sources, email addresses. The email address is a collection tool (as are all ways of contacting you). With the ever-increasing price of postage, expect lots more emails. They are fast and cheap -a  creditor's dream. I have reports of collection emails being sent to debtors as much as 15 days BEFORE a missed payment (you read that right - the payment is due on the 30th and on the 15th they are reminding you to pay). When the account gets into collection, the emails will be of the "call us" type. I have been recieving a series of emails asking me to call. My response is "where I am I cannot call the USA, so say what you have to say in the email". They refuse to say anything other than "call us". This sequence of emails, once played out, will be another thread in the Flyngifr Method.

Social Media as a way of contacting debtors is a new phenomenon and is perfectly legal. If you are willing to post your contact information on the Internet, they are free to use it. Now.... when you do post your contact info, a savvy debtor will have several pages - one for the people you want to contact you (and only they have this page) and several for people who you don't want to contact you. The former would be a "private" page not viewable except with your permission on a case-by-case basis. The others would have pure trash in them (read the parts about Nuking your Data Mine files in "Frustrating the Skip Tracer" to see why).

Second, once a payment is missed, collectors are getting on the phones a LOT faster than when I was in collections. In those ancient days of my Collections career I never saw an account on the collection floor that was less than 30 days after its first missed payment. Now calls are being made as few as 5 days after the first missed payment. The aging process hasn't changed but the timing of the calls has accelerated, as well as the frequency. Even in the first month of missed payment (1-30 days delinquent) you can expect telephone calls as frequently as every other day. When I was in collections that frequency wasn't hit until the last month before charge off.

Both of these changes indicate a real urgency creditors feel in the collection process - it is a race among the vultures to the dead carcass lying on he ground. The last vulture there goes hungry.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

CAconfusion

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Re: Understanding the in-House Collection Department
« Reply #6 on: November 20, 2014 03:50:31 AM »
forgive me if this is a silly question but are there any circumstances of which and in-house collection department does not contact the the debtor? Also, is the original creditor allowed to sell or lease or rent your debt to multiple collection agencies at a time? And is it usual for an in house dwpartment to only retain the debt for about month? Thank you... Wow what an education!

Flyingifr

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Re: Understanding the in-House Collection Department
« Reply #7 on: November 20, 2014 02:12:59 PM »
forgive me if this is a silly question but are there any circumstances of which and in-house collection department does not contact the the debtor? Also, is the original creditor allowed to sell or lease or rent your debt to multiple collection agencies at a time? And is it usual for an in house dwpartment to only retain the debt for about month? Thank you... Wow what an education!

The OC Collection not contacting a debtor would be stupid - they would be giving up on the account without even trying. It may appear that they are not contacting the debtor because they are using obsolete contact information (see "Frustrating the Skip Tracer" in the Flyingifr Method).

But..... I have seen it happen. When a person moves and disconnects utilities, the final utility bill is usually "sent" (often to the old address if at all) to an obsolete address and then the account is immediately assigned to a Collection Agency. This "Cause Maximum Damage As Soon As Possible" policy creates a LOT of posts on DB and similar boards because of its rapidity and the utilities simple refusal to even listen to reason. Their "you owe us and because you moved out of our service area we don't give a about you" attitude is quite common.
BTW-the Flyingifr Method does work. (quoted from Hannah on Infinite Credit, September 19, 2006)

I think of a telephone as a Debt Collector's crowbar. With such a device it is possible to pry one's mouth open wide enough to allow the insertion of a foot or two.

Debtors Exams are the perfect place for us Senior Citizens to show off our recently acquired Alzheimers.

Founder of the Credit Terrorist Training Camp (Debtorboards)

BrokeBob

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Re: Understanding the in-House Collection Department
« Reply #8 on: May 13, 2015 09:59:39 PM »
The OC Collection not contacting a debtor would be stupid - they would be giving up on the account without even trying. It may appear that they are not contacting the debtor because they are using obsolete contact information (see "Frustrating the Skip Tracer" in the Flyingifr Method).

But..... I have seen it happen. When a person moves and disconnects utilities, the final utility bill is usually "sent" (often to the old address if at all) to an obsolete address and then the account is immediately assigned to a Collection Agency. This "Cause Maximum Damage As Soon As Possible" policy creates a LOT of posts on DB and similar boards because of its rapidity and the utilities simple refusal to even listen to reason. Their "you owe us and because you moved out of our service area we don't give a <Removed> about you" attitude is quite common.

I have seen this happen as well.  As I mentioned in another post on another thread:

One time my wife was in the hospital giving birth to one of our kids. 
She had insurance, but a co-pay.  She worked out a payment plan with the hospital. 
One time the hospital neglected to record a payment.
The next month, she was ONE DAY LATE.
Hospital sent it to a collection agency that day. 
In other words, my wife was contacted by a collection agency, even though she didn't owe a penny. 
Next kid, we used a different hospital. 

 

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