When people talk about the consequences of debt collection scams, they often focus on how inappropriate collection activity affects individual consumers. However, debt collector misconduct and fraudulent debt collection organizations can negatively impact businesses that need debt collection assistance as well.
A variety of different types of companies may need to engage in debt collection activities to get consumers to pay what they owe. Many of them outsource this operational responsibility to third-party service providers. Some of those companies may not fulfill their contractual obligations or may engage in misconduct that could harm the client organization that hires them.
How do debt collection scams affect businesses?
One of the most problematic debt collection scams from a business perspective involves a collection agency that doesn’t actively work on a debt. It is a common arrangement for debt collectors to purchase the debt from the original creditor. The company then has a profit incentive to actively collect on the debt if possible.
However, some debt collectors negotiate regular payments for debt collection services. Businesses may not receive the services that they outsource. Debt collectors may fail to reach out to debtors or to engage in skip tracing to track them down. The original creditor may lose money because of the unpaid debt and also the paid services that the debt collector does not actually provide.
Another example of a debt collection scam could involve a collection company reselling the debt. A debtor could end up receiving collection calls from multiple companies that believe that they own the same debt.
In some cases, debt collection companies retain information about older or paid accounts and then attempt to collect on those so-called zombie debts. Those practices can damage the reputation of the original creditor if the consumer takes legal action or reports what they have experienced on social media.
How can companies avoid scams?
The simplest way to avoid a debt collection scam is to work with reputable service providers or have assistance when selecting service providers. Attorneys who are familiar with California state and federal debt collection rules can help creditors identify potential scams and hold service providers accountable if they do not perform the collection activities that they were hired to provide.
Companies that occasionally need to collect on consumer debt may benefit from having the guidance of an attorney who can assist them with more aggressive collection efforts, including lawsuits to pursue wage garnishment or to place liens against valuable property. Executives and business owners who understand how debt collection scams could hurt their organizations may be more proactive about protecting their companies.