When a debtor owes a creditor money and the creditor is seeking assistance collecting the amount owed, the creditor can either use a collection law firm or a collection agency. Law firms and collection agencies serve the same purpose initially. Both can send a demand letter and call the debtor to request the outstanding amount owed.
Should the debtor refuse to pay and it becomes time to file suit, the collection agency will have to engage a third-party law firm to file suit. A law firm, on the other hand, already has authorization from the creditor to bring suit. While this is an obvious difference that sets a law firm apart from a collection agency, both entities share multiple similarities.
First, if either the collection agency or collection law firm engage in collecting debt from consumers for personal, household, or medical debts, they are subject to the Fair Debt Collection Practices Act (FDCPA). A federal law, the FDCPA governs the actions that all third-party debt collectors must take when collecting consumer debt, which includes the notice and disclosure requirements when contacting debtors, and limitations on such contact.
Additionally, a collection law firm, like a collection agency, is subject to the requirements of the local jurisdiction as a third-party debt collector, which usually means that a collection law firm must obtain a state or city license to collect consumer debt. For example, collection law firms engaging in collecting consumer debt in New York City must obtain a debt collection agency license from the New York City Department of Consumer Affairs.
Differences Between a Debt Collection Law Firm and a Debt Collection Agency
Both a collection law firm and collection agency may enter into settlement or payment agreements with debtors for the outstanding debts.
Because they are unable to file suit against a debtor, a collection agency will usually report debtors’ late payments to the credit bureaus as a tool to encourage payment. Additionally, a collection agency more often handles large portfolios of claims, and often refer claims to multiple collection law firms when a claim is ready for suit.
Collection law firms, however, are able to use legal enforcement mechanisms upon entry of judgment against debtors. This can include the issuance of information subpoenas with restraining notices against debtor’s bank accounts and wage executions. Law firms also focus on a smaller amount of claims that are appropriate for suit in court.
A creditor’s decision to use a collection law firm depends on the type of debt(s) the creditor has, the number of claims, and the complexity of the debt in question. A collection law firm, however, can file suit, enforce a judgment, and use legal mechanisms limited to the state jurisdiction where the attorneys hold licensure. A collection agency often sends correspondence and communications to debtors in multiple jurisdictions throughout the country, not limited by attorney state license. Note: A debt collection firm can send correspondence to multiple jurisdictions as well, but their abilities to obtain and enforce money judgments are limited to the jurisdictions where the firm’s attorneys are licensed.
If you are looking to retain a debt collection law firm, please contact us for a consultation.
