There may come a time, not so far away, where every Judgment or debt buyer will have to become a licensed Collection Agency (CA) to stay in business. This article addresses issues that come up when CAs enforce judgments, and what this can mean for independent judgment buyers, enforcers, and judgment owners.
When one becomes a CA, they may either collect judgments under the supervision of another entity, or another entity may collect Judgments under their supervision.
Any CA, or anyone who advertises or appears to be a CA, is saying someone represents someone else. Not all agencies network with other entities, but most do.
Once one holds themselves out as an agency, many states require licensing in one form or another. Licensing may be expensive, and requires undergoing extensive background checks, purchasing a bond, insurance (which is not cheap or easy for a collection agency to obtain), and setting up a trust deposit account.
If one has employees or holds themselves out to have employees, or sets up a Website which gives the appearance that they have employees, then everyone whose name is listed on the Website may have to meet the state licensing requirements.
CA licensing may be compared to buying automobile insurance. In some states, as long as one has a valid driver's license, one may allow another person to drive their car. If there is an accident, the owner and the driver may be covered under the owner's insurance.
Other states require everyone driving the vehicle to be insured under the owner's policy, which means every driver will have to undergo a background check. Everyone is checked to make sure their license is valid, and that there have not been too many accidents or problems in the past. Only after a driver is cleared by the insurance company are they placed on the policy, and will be covered in case of an accident.
The same analogy applies for collection agencies. Most states (E.G. Arkansas, Illinois, and Florida) require anyone wanting to become a collection agency to submit a detailed application.
Just because someone is licensed under one business entity doesn't mean that every entity they own is covered under that same licensing application. Most states do not allow the transfer of a license to another entity, nor do they allow an agent's other business entities to be covered.
Check if any collection agency name or person is licensed in their particular state. Should a search not show that the agency is listed, contact the agency which handles CA licensing in your state, and make sure the agency is licensed in all states related to their office and in the jurisdictions of the affected judgments.
The FDCPA is a big set of laws that agencies have to follow. All it takes is for one knowledgeable person to file a lawsuit for a violation, for a collection agency to be heavily fined or shut down. A few collection agencies have been violating the FDCPA for years. Recently the FTC has been coming down hard on collection agencies. Make sure your agency is not threatening people with lawsuits if they have no intention of suing the debtor, or taking the legal action threatened.
Check the complaint history with the BBB, or an online search of complaints. If there is a long list of complaints related to FDCPA violations, do not use that agency.
Make sure that the collection agency enforcing your judgment meets all licensing requirements. In the rare event that the Judgment debtor or some state agency files a lawsuit or fines the collection agency, if a judgment owner is named as a party to the suit (which is allowed in some states), the chances for their judgment to be dismissed may be greater if the agency or its agents are not properly licensed.
What if you are in a state, that for now, does not require you to be a licensed collection agency to enforce judgments?
If you are working alone as a Judgment Enforcer, getting referrals or purchases from other Judgment Enforcers, you are just fine. However, if you have employees (agents?), you have to set up payroll, offer Workman's compensation, meet FICA rules meet other required laws, and make sure all the legal requirements for employees are met.
For those agencies using subcontractors in various states, the subcontractors may have their own state licensing, business and labor laws requirements to meet. Then there are tax issues such as filing 1099's and making sure one meets the IRS's guidelines for subcontractors, and making sure the IRS does not classify their subcontractors as employees.
It might be best not to be a collection agency until one doesn't have a choice. To reduce exposure to fines or lawsuits, it's a good idea to not give any appearance you are someone's agent, if the particular agency you are with is not licensed in your state.
Finally, check at least once every six months to verify that their licenses remain in good standing.
