Bill D Gray asked: Handing my tenant debt immediately to a collection agency is not my first preference. Myself, I would first report the debt to Experian, Equifax and TransUnion, and let the ding on the debtor’s credit work a few months before I gave it to an agency that will charge me a hefty commission.
Collecting tenant debt is much different than collecting other debts, such as credit card debt. A collection agency represents you and your business, and you could be taken to court should they violate the law. And, just as important as any legal matters, is how well they will collect your debt.
I have worked in the industry for 12 years and would like to believe that most collection agencies work hard, ethically and within the law. But, as in most industries, there are those agencies that I consider to be renegades. They operate outside the law, or right on the edge. Unfortunately, these companies get all of the press, thus making all agencies look bad.
The fact of the matter is that the collection industry fills a critical need in the business world. Imagine if everyone could just stop paying their bills with no repercussions. Do you think any bank would loan anyone any money? And what would it do to the prices of all goods and services?
Here are what I consider the most important factors in hiring an agency to collect tenant debt:
o Has the agency had any verified Federal Trade Commission (FTC) violations? The FTC regulates and investigates the collection industry; more than one violation would concern me.
o Is the agency licensed in all 50 states? While this is not required to do business, this question helps me sort out the companies that have a national presence and are large enough to fulfill the many state requirements.
o Is the company bonded and insured? If the company does not carry a minimum of $1 million dollars of liability insurance, I would not give them my business.
o Does the agency have membership in the American Collectors Association? Again, not required to operate in the industry, but it can show the level of interest and participation the company has in its own industry.
o Does the agency report debts to Experian, Equifax and TransUnion? This is one of the biggest collection tools agencies use to motivate a debtor to pay his or her debt. Not all companies report.
o What type of debt does the company specialize in? The list of types of debt agencies collect is extensive. They may collect commercial or consumer debt. Consumer debt may be a car loan, credit card, utility bill, mortgage, medical bill, rent, etc. To do a good job collecting tenant debt, an understanding of the terminology and the business is critical. Very few nationwide collection agencies specialize specifically in collecting this type of debt.
o Does the company collect judgments as well as non-judgment accounts? Few companies that collect debt for landlords collect both types of accounts.
o Do they work the account for the life of the account? It is common for agencies to work the newest accounts they receive the hardest. As an account ages, it is deemed less collectable. Often agencies will work the account hard eight to ten months, and after that they rely almost solely on the credit bureau reporting to help collect the debt. It costs a company more to have a collector working older accounts; therefore expect a good agency to charge a higher fee. I want a company that works the account for as long as it is legally possible. If reporting the debt to the credit bureaus is enough to collect the debt, I can do that very easily and inexpensively myself without paying any commissions.
o Does the agency pre-judge accounts? In the industry this is called “rating the paper.” Amazingly, at least one company that specializes in tenant debt brags that they rate accounts before they even begin collecting them. This allows the company to spend it’s time and resources on debts they “believe” are the most collectible. This reduces their overhead, but does nothing to help many of their clients. Landlords that lose out are those that rent average apartments to everyday average people. Do you want to hire an agency that only focuses on high-end properties, with well-to-do debtors? You would get about the same amount of effort if you reported the debt to Experian, Equifax and TransUnion yourself, for a lot less money!
o Does the agency accept collection accounts from independent landlords? At least one of the few nationwide agencies that specializes in tenant debt will only take on clients who own or manage a minimum of 100 rental units. This is because they do not want to be bothered by customer service calls from independent landlords.
o Will the company provide you with references from other landlords who use their services? References are important so that you may learn not only how well the agency collects your money, but also how they treat their clients. I have known of agencies that treated their clients poorly when they called with a question or concern.
o Does the agency you interview boast about how much better they recover debt than other companies? If they do, run! Run for a couple of reasons: If indeed they do collect more than other agencies, how do they do it? Do they threaten debtors and violate the Fair Debt Collection Practices Act (FDCPA)? This could increase the chances of your being dragged into a lawsuit. Likely their boasting is merely a sales ploy, and a cheap one at that. An overall average of how much they collect means about as much to you as what they had for breakfast. Plus, you have no way to verify their claims. The truth is that is no one can predict how well they can collect for you until they look at your accounts and work on them for awhile. In fact, it may be a couple of years before you can realistically evaluate whether the company you hired was effective. This is why doing your research up front is so very important.
o Does the agency charge you a fee to take on your debtor file? Unless they can justify the charge, and it seems as if they are an excellent company, I would continue looking for another company.
o What does the agency charge for collecting your debt? This question comes last, because it is the least important; but, it is often the first question I am asked. When I am asked this question first, I know I am talking to someone who does not know what else to ask. The fact is that you may find a company that charges 30 percent of what they recover. But, for 30 percent, they are limited in the resources they can commit to collecting your debt. Would you rather see a recovery of 30 percent of nothing, or 50 percent of a $3,000 debt? Do not be fooled by a very low commission rate.
I realize that this is a very long list of questions and concerns. But, once you have done your homework and hired an agency, you can get on with the task of running your business and not worry about it further.
A good portion of tenant debt is recoverable if you and the agency you hire do your jobs. It may take some time to collect what you are owed, but recovering lost profit at any point is icing on the cake.
Again, sending an account to an agency is not my first choice for collecting tenant debt. My philosophy is that I would report the debt to the credit bureaus myself and collect the easier debt. After several months, when I had already collected the easy debt, I would give the account to a reputable agency and let them get to work.
Contact me with your specific tenant debt questions and I will try to help.
Bill@thelandlorddoctor.com
Bill Gray
Erin
