Collection Agency Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Collection Agency, written in plain English, along with examples of how it is used.
What is Collection Agency?
“Hired by a creditor, this business attempts to acquire a debtor’s payment who is delinquent or defaulted in loan payments. Typically, a percentage of the amount owed is taken by the collection agency as a fee. In some instances, the debtor may also be liable to the collection agency’s costs.
History and Meaning of Collection Agency
A collection agency is a business entity that specializes in collecting unpaid debts from individuals or businesses. The concept of third-party collections dates back to ancient times when moneylenders would employ agents to collect their debts. In the United States, collection agencies arose in the late 19th century when consumer credit became popular. At that time, creditors found it difficult to collect debts from borrowers who often moved frequently, changed jobs, or simply disappeared. Collection agencies stepped in to help bridge the divide between creditors and debtors.
Examples of Collection Agency
John has not paid his credit card bill for several months. The bank that issued the credit card hires a collection agency to recover the debt.
Susan owes money to a utility company for unpaid bills. The utility company hires a collection agency to recover the unpaid debt.
James has a loan with a local bank. He has missed several loan payments, and the bank hires a collection agency to recover the outstanding debt.
Legal Terms Similar to Collection Agency
Debt Collector - A debt collector is a person or company that collects debts owed to others, usually on a commission basis.
Fair Debt Collection Practices Act - The Fair Debt Collection Practices Act is a federal law that regulates the practices of debt collectors and creditors.
Garnishment - Garnishment is a legal process in which a creditor obtains a court order to seize a debtor's wages or assets to satisfy a debt.