This category covers establishments primarily engaged in the collection or adjustment of claims other than insurance. Establishments primarily engaged in providing credit card service with collection by a central agency are classified in SIC 6153: Short-term Business Credit Institutions, Except Agricultural; those providing adjustment services are classified in SIC 6411: Insurance Agents, Brokers, and Service; and those providing debt counseling or adjustment services to individuals are classified in SIC 7299: Miscellaneous Personal Services, Not Elsewhere Classified.
Debt collectors are businesses acting as third-party agents to recover outstanding debts from consumers and businesses. Most credit grantors initially attempt to collect the money due using their in-house collection departments. At some point, however, it becomes more economical to hand over past-due accounts to a collection company. In turn, the agency works to recover the amount still owed and is paid a percentage of the amount received. According to the Association of Credit and Collections Professionals International (ACA, formerly the American Collectors Association), in 2003, more than $546.8 million was recovered for the federal government alone, with the 5,215 collection agencies operating in the U.S. earning $16.5 billion annually, tripling in the last 10 years.
The debt collection industry has grown from small, localized businesses to nationwide companies. The industry has also become more regulated with the implementation of the Fair Debt Collection Act of 1977. This legislation mandates behavioral guidelines for creditors. Violations of the act are reported to the Federal Trade Commission (FTC). In addition, the majority of states also regulate debt collection agencies through state licensing, registration, or certification of the right to conduct business within a particular state.
Debt collection industry leaders have been large, computerized agencies, such as the NCO Group and Outsourcing Solutions. Beyond the few major national corporations such as these, the remaining companies in the industry are small, local, private companies.
Collection and accounts receivable management agencies are third-party agents that assist in recovering delinquent or written-off debt. Although most large corporations have their own internal collection departments, a creditor will typically release the debt to a collection agency after the account is 180 to 240 days in arrears. Third-party agents can generally provide more effective service at a lower cost than in-house personnel. Collection agencies usually are compensated by commission, based on the percentage of debt recovered.
Some collection agencies market a prepaid letter service that includes dunning notices and related reporting and collecting services. This type of service generally has been used by smaller businesses and organizations. With a letter service, the client prepays a flat fee rather than paying through a percentage of the money collected. The more traditional collection service operates through the activities of the contingency collection agencies, working on commission and earning 25 to 35 percent of the amount collected.
The debt collection industry can be divided into four main groups: health care, including hospitals and doctor's offices; retail businesses, including department stores and credit-card companies; utilities; and commercial accounts, or businesses owing money to other businesses. Hospitals and bank cards have provided the greatest amount...