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What is a debt recovery agency and how do I work with one?

If you have defaulted on a credit card, a personal loan, or even a utility bill payment and have perhaps received a letter from a debt recovery agency, it might be worth familiarising yourself with these agencies and how they operate. This can help you figure out how best to work with them.

What is a debt recovery agency?

A debt recovery agency (more popularly known in the UK as a debt collection agency) is a service business that assists creditors to collect debts owed to them. These agencies are usually used by creditors as a last resort after they have made multiple attempts to recover a debt. Some are small and specialise in the collection of specific types of debts while others are large and operate on a national scale, collecting a wide range of debts.

So why do creditors use debt recovery agencies? The primary reason is that creditors specialise in lending and collecting money, not chasing debts. Debt recovery agencies, on the other hand, are experts in debt collection and have detailed knowledge of legal collection methods. They often promise to use every means possible to recover debts, prompting many creditors to turn to them for assistance.

Debt recovery agencies in the UK are regulated by the Financial Conduct Authority (FCA) and cannot legally operate without a consumer credit license from the authority. 

What happens when my debt is passed to a recovery agency?

When you have defaulted on a payment for a debt such as a credit card, store card, loan or utility bill, most creditors will give you a grace period of 30 days or more to pay, after which the debt will be reported to either one or all of the three major credit bureaus – Experian, Equifax and TransUnion. 

After reporting you to credit bureaus, the creditor may still continue trying to collect the debt from you for up to 180 days. If these efforts prove futile, the debt will most likely be turned over to a recovery agency. However, some creditors may not wait up to 180 days and may pass over the debt to a recovery agency sooner. 

The passing of the debt to a recovery agency can happen in two ways. First, the recovery agency can be contracted to collect the debt on behalf of the creditor. Here, the creditor still owns the debt while the agency will receive a fee or commission if it manages to recover the debt. Second, the debt can be sold to a recovery agency, meaning that the agency now owns the debt and will keep everything that is recovered. In this scenario, you no longer owe the creditor but instead owe the recovery agency.

How do I determine the legitimacy of a debt recovery agency?

When receiving a letter, one action you can take to establish the legitimacy of a debt recovery agency is to request information about the agency, including its full company name, official phone number, physical address and consumer credit license number. 

You can also request validation of the debt in writing and then check it against your own records to confirm that the debt is real.

For a few more tips on confirming the legitimacy of a debt recovery agency, check out this article on how to spot a debt collector scam.

How do I work with a debt recovery agency?

Opening a dialogue with the recovery agency when they contact you may be a better option than ignoring them. Ignoring their letters will only make them increase their efforts to get hold of you. If you owe the debt, you can explain to the agency why you haven’t paid it yet as well as your current financial situation. Most debt recovery agencies will understand.

If you have the money, paying the debt owed in a single instalment can save you from continuous and unnecessary contact with the debt recovery agency. On the other hand, if you aren’t in a position to completely pay off the debt, you have the option of proposing a realistic repayment plan to clear the debt – even if it involves paying only a few pounds each week or month. Most debt recovery agencies will accept this kind of arrangement.

For more information and advice related to dealing with debt recovery agencies, take a look at this article about what to do when you receive a debt collection letter and this one about what to do when debt collectors keep calling.

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