Debt collection methods a bank can use

Debt collection is a process in which a collector pursues debt payments that an individual or business owe to a bank or other creditor. Since the inception of banking, debt collection is the primary source of income for most banks.

But banks too faces customers who don’t pay the loans on time or refuses to pay the outstanding amount. In such a case,  a bank or other institutions use debt collection agencies to collect the debt.

Let’s begin…

A bank highly regulates the process of loan collection. They want the customer to pay back the loan with interest, thus, they provide the loan with either a guarantor or a mortgage as a backup. The debtor and the lender agree to repay the loan at a particular date and time. The creditor usually monitors how quickly a debtor pays the loan, and it also affects their future loan taking capacity.

The bank follows these methods to collect the payment if the debtor misses one or two installments:

• The bank sends the debtor a letter of demand, which asks the debtor to pay the debt by a particular date, or the bank may take legal action against the debtor.
• If the debtor still doesn’t reply, the bank sends them a final letter of demand.
• Some banks also call their phone and record the conversation to find out why they are paying. The recording is done in case there is some potential defaulting.

If none of the above methods work, they send the account to a collection agency 

Collection firm

A debt collection firm is an agency that collects debts on behalf of the original creditor.  They are of two types: 

First – Party Collection Agency:

A first-party collection firm is an internal department of the creditor’s firm. A debtor deals with them for the first six months. The debtor should settle the debt with a first-party collector. Otherwise, they have to deal with a third-party collection agency, and they can lower your credit score too.

Third – Party Collectors

A third party collector works for a third party collection firm like Cedar financials, know more about cedar financial. They collect the debt for the original creditor on commission. They are experienced and know all the state and federal laws that safeguard the debtors. It helps them use a method to collect the debt, which is legal and doesn’t hurt the debtor and ensures full repayment of debt on time.

Process:

• A third-party debt collector will contact the debtor using the information given by the bank.
• If that fails, they contact the debtor’s family, neighbor, friends, and even their work-place to seek an audience with him/her.
• If nothing works, they use ‘skip tracing’ technique that lets the collector uses various databases to track down the debtor.
• Once the initial contact has been made, the debtor gets 5-30 days to verify the debt by sending a written request.
• The process of the collection begins. A debtor can take help from a collector. They have the power to provide them with settlements or help them pay the debt through installments.
• If a debtor still doesn’t pay, the collector can take him/her to court. If they win, they can garnish their wages or siege their bank accounts or assets.

Hopefully, the above article would help you in times when a collector calls you.