Know More About Debt Collection!3 min read
Debt collection is not a recent financial activity; it has been around for many centuries and dates far back to 3000 BC at the time of the ancient Sumer Civilization. It gives a kind of timeline to understanding how financial transactions were entered into or made during the earliest days of human civilization. In ancient civilizations, a debtor who was unable to repay a debt was forced into ‘debt slavery’ along with his family till the creditor received full payback through their physical labor. Before time limits were set on debts, some debts used to carry into subsequent generations and debt slavery continued. However, after the entrance of adjudicators or settlers to resolve matters concerning debts, there have been instances of ‘debt forgiveness’ where the debt was reduced or the creditor forgave the debt.
History of debt collection
The earliest forms of Judaism in the first millennium before the Christian Era strictly forbade lending of money and discouraged collectors from taking interest on amounts owed to people. During the Middle Ages, some kind of laws were enacted that dealt specifically with debtors. The earliest instances of court involvements mention how creditors who were unable to collect debts within an agreed time frame and was given recourse to a court judgment where a bailiff appointed by the court went to the debtor’s home and collected goods against the money owed or remove the debtor to a ‘debtor’s prison’ till the debt was paid off or in some instances, the creditor forgave the debt.
Debt collection agencies
In the modern era, when debtors’ prisons became obsolete, creditors had no other way to secure their debts. One area where creditors could protect their interests in a debt situation was if the debt was guaranteed by collateral such as property, which came into the possession of the creditor if the debt remained unpaid. Unsecured debts or personal debts therefore became a grey area where a creditor could do nothing even if he managed to get a judgment or court order against the debtor; it remained largely on the debtor’s ability to repay the debt owed. The only way a creditor could hope to receive money back was to extend credit to ‘solid’ parties who could repay the loans taken.
A debt collector or a collection agency is a business enterprise that specializes in the collection of debt payments owed by other business enterprises or by individuals. These collection agencies invariably operate as “agents” of the creditors and pursue debt collection for a percentage of the total amount or for a fixed fee.
During the loan crisis of the 1980s in the US, there were vast amounts of written-off debts and foreclosures on a smaller scale as compared to the Great Depression of the 1930s. In this situation, financial innovators who saw an opportunity in collecting debts bought up delinquent accounts from creditors and financial institutions and sought to collect at least a portion of the amount owed; these accounts were purchased from creditors or lenders at pennies to the dollar. This way they turned in a neat profit by collecting a portion of the debt as well as receiving a free from the creditor for collecting the debt.