Legal Definitions - collection agency

A collection agency is a business or individual specifically engaged to recover overdue payments (debts) on behalf of another person or company. These agencies act as intermediaries, attempting to collect money that is owed to the original creditor, rather than money owed directly to themselves. While certain entities like banks or licensed attorneys often handle their own collections or are subject to different regulations, a collection agency's primary function is to pursue debts that a creditor has been unable to collect directly.

• Imagine a local hospital that has many outstanding bills from patients who received medical care but haven't paid their portion after insurance. The hospital's internal billing department has tried to contact these patients multiple times without success. To focus on patient care and avoid spending excessive resources on debt recovery, the hospital contracts with a specialized firm.

  This firm is a collection agency because it is hired by the hospital (the original creditor) to pursue and collect the unpaid medical debts from the patients on the hospital's behalf.

• Consider a small, independent gym that offers monthly memberships. Several members have stopped paying their monthly fees for months, despite repeated reminders from the gym owner. The owner, busy running the gym and training clients, decides to outsource the recovery of these overdue membership fees.

  The company the gym owner hires to contact these delinquent members and secure payment is a collection agency. It is acting on behalf of the gym to collect debts owed to the gym, not to itself.

• A regional credit union provides various financial products, including personal loans. When a significant number of borrowers fall behind on their loan repayments and efforts by the credit union's loan department prove unsuccessful, the credit union might engage an external company to handle these difficult accounts.

  This external company, tasked with contacting the defaulting borrowers and negotiating repayment plans for the credit union's loans, functions as a collection agency. It is working to recover funds owed to the credit union, its client.