When a borrower defaults on a loan or a customer fails to pay a bill, the creditor often starts by attempting to collect the debt through reminders and payment plans. If these efforts prove ineffective, the account may be transferred to a collection agency that specializes in recovering unpaid debts. These agencies employ various methods such as phone calls, letters, and legal actions to encourage repayment. The collection process is regulated by laws designed to protect consumers from harassment and unfair practices, ensuring that collectors follow ethical guidelines when pursuing debts.
Collection Example
For example, if a consumer fails to pay their utility bill for several months, the utility company may first send reminders and offer a payment plan. If the consumer still does not pay, the company may hand over the account to a collection agency, which will then contact the consumer to recover the owed amount using various collection techniques.