Explain the different types of collection agencies and how they function?
A collection agency is a third party entity, separate from the original creditor, who collects unpaid debt on behalf of the creditor. There are two types of collection agencies: the first is hired and “works” on behalf of the creditor to collect their unpaid debts. The collection agency doesn’t own these debts, as they’re still the original creditors’. Any money collected goes back to the creditor, minus the percentage fees charged by the collection agency. In the second example, the collection agency, or “debt buyer”, actually negotiates and purchases the debt portfolio from the creditor for an agreed upon amount. Since they now own the debt, they keep all the money they collect.
