Pre-collection, flat-rating efforts should be approached with caution

Some companies looking to recover outstanding payments will often work with debt collection agencies to create pre-collection plans. These strategies occur when an agency simply sends letters to debtors on behalf of an enterprise, requesting that these payments be paid. These letters are generally charged on a flat-rate scale, and are an effective way for companies to recover back payments at a low cost, insideARM noted.

This process can indeed be useful but it should be approached with extreme caution by debt collectors. The source indicated that the intense stipulations of the Fair Debt Collection Practices Act (FDCPA) prohibit pre-collection in many instances.

At the moment, avoiding such missteps is especially important because insideARM stated that consumer legal professionals are currently stepping up efforts to pursue FDCPA violators. As a result lawsuits regarding unlawful pre-collection and flat-rating has increased significantly.

The reason why such practices are often deemed illegal is because the FDCPA prohibits debt collectors from misrepresenting themselves. When pre-collection letters are sent out, consumers can easily be confused about whether they should pay the collection firm or its client, which is actually owed the debt, Nolo asserted. If the letters are ambiguous or unclear, some debtors may send payments directly to a collection company, rather than the business that is owed outstanding payments.

Dangerous legal landscape

In some cases, a savvy consumer lawyer could bring action against a relief firm for misleading a debtor. Particularly if a consumer makes a full payment of an account but it still contacted about the debt because to owed party did not receive the payment, collection agencies could be at risk of a lawsuit.

What's also worrying is that legal action can be taken against the collector and clients who are owed debts. In these cases, a collection agency can be negatively impacted if its actions land their clients in court. Taking legal action is bad enough but it's even worse to brings clients along for the ride. Potentially, such events could lead to a loss of business down the road.

Although flat-rating can be an effective way for some collection enterprises to bring in additional revenue streams, it can be a litigation hot bed. Avoiding the practice altogether is one strategy debt collectors can adopt. However, it's also beneficial to simply ensure that all agents are well versed in FDCPA policies. Additionally, all pre-collection letters should be intensively analyzed to ensure that they are as clear as possible to consumers.