Debt collectors - it's all about the subtle differences

Legal basis for collection is usually an outstanding receivable that has not been settled by the debtor. In legal terms, an outstanding receivable is a claim based on contractual obligation. Typically, this is a payment claim resulting from a contract - usually a sales contract - between the debtor and the creditor. If an outstanding receivable is not settled by the debtor, the creditor has several options to obtain his money. Some companies have well-functioning internal receivables management. Others, in turn, outsource collection agencies to "collect money" and act on behalf and with the authority of the creditor, in other words, they become the "owner" of the receivable by "purchasing" the debt. Then there are those dubious debt collectors, who use rude methods to pressurise persistent debtors to settle out-of-court. This is where every company has the responsibility to choose a legitimate method that complies with the law.

 

Internal debt collectors - in-house receivables management


Internal debt collectors can be found in various departments of a company;  in the finance department, in accounting, dunning and the controlling department, to name a few. This is because in-house receivables management begins with accounting and the recording and organising of outstanding payments. Even before the initiation of business relations, especially those of large-volume, a responsible company enquires the credit rating of a future business partner to detect possible financial turbulence.

 

External debt collectors - collection agencies


Collection agencies are legitimate debt collectors, as long as they comply with the applicable law and the strict rules and regulations set out in the Legal Services Act (Rechtsdienstleistungsgesetz). They perform their duties in the field of receivables management on behalf, for the account and in the name of the creditor. A "purchase of debt" is a possibility, in which the creditor assigns one or more outstanding receivables to the collection agency, which then appears to the debtor as debt collector in their own name. In the last option, where the collection agency acts as debt collector in their own name, the creditor must accept significant discounts compared to the actual value of the outstanding receivable.

 

Debt collectors - when outstanding receivables are collected using rude methods


Debt collectors who use rude methods to collect outstanding debts often consider themselves the last resort in prompting persistent debtors to pay. To be more precise, this sort of debt collector works on the edge of legality: rude debt collectors run the risk of being tangent to or even intentionally committing criminal offences such as coercion, assault and extortion.

 

Legal bases of legitimate debt collectors


If debt collection agencies are registered as such, they are subject to the strict standards of the Legal Services Act (RDG), also known as the law on out-of-court legal services, which has been in force since 1 July 2008. The Bundesverband Deutscher Inkasso-Unternehmen e.V (BDIU)  [Federal Association of German Debt Collection Agencies],  based in Berlin, used this to develop strict rules to ensure legal certainty for consumers and companies alike. Accordingly, valid collection registrations are withdrawn as soon as a collection agency's performance is permanently unqualified, detrimental to those seeking justice and harm legal relations. The remuneration for professional "debt collectors" is based on § 4 para. 5 Introductory Act to the Legal Services Act (RDGEG). This standard regulates the amount of collection costs. According to this standard, collection costs are based on the amount a lawyer may charge for a comparable activity. The Lawyers' Remuneration Act is analogously applicable to the activities of a collection agency. Pertinent provisions in analogous application § 13 Lawyers' Remuneration Act (RVG) are in conjunction with no. 2300 VV RVG (collection costs) or § 13 RVG in conjunction with no. 7002 VV RVG (expenses).

 

Not all debt collectors are the same - the significant differences


Legitimate collection agencies are characterised by the lawfulness and transparency of their activities. Unlike dubious debt collectors, natural or legal persons who engage in debt collection must have no criminal convictions and be financially established. A significant difference to a dubious debt collector is that, prior to enforcement, collection agencies will verify the outstanding receivable and in case of legitimate doubt, they renounce the assignment. Basically, collection agencies try to reconcile the interests of creditor and debtor. This first takes place via a collection letter as a reminder of the payment obligations, or via telephone collection. Any legitimate debt collector who does not follow the rules of the BDIU must expect sanctions from the Association. as the BDIU acts as a complaints office for the consumer, as soon as problems arise within the debt collection process. In this respect, membership at the BDIU is considered a kind of quality seal, which guarantees legitimate collection activity and separates the legitimate debt collectors from the dubious ones.