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A debt collector is any agency, company, or lawyer who tries to collect the due amount from debtors.
The debtors could be individuals or businesses.
Most debt collectors operate for a fee or a certain percentage of the total amount collected. These agencies are hired by the creditor companies to whom the debtors owe money and have repeatedly failed to pay back despite desperate attempts.
Some collectors act as debt buyers. These companies purchase the debt at a fraction of their face value from the original creditors. The buyer then collects the debts using their means or by hiring a third-party agency.
Debt collection in Malaysia
To collect debt in Malaysia, one must be mindful of the Limitation Act 1953. This Act imposes a time period of six years beyond which the creditor cannot take any legal action against the debtor.
The Debtor’s Act 1957 has various provisions for arrest, imprisonment (under limited circumstances), and attachment of property (sections 4 to 12 ).
The Act also covers the various remedies to enforce the judgment like the attachment of property, the arrest of the debtor & sale of assets, and perishable goods.
A bird’s eye-view of the dynamics of debt collection
Let us suppose a company has loaned a particular amount to a debtor. The debtor, however, fails to settle his scheduled payment even after the due date. The creditor will first make repeated attempts to contact the debtor through multiple mediums such as text messages, phone calls, e-mail, or snail mail.
In most instances, the debtors are given a time period of thirty days from the bill due date for repayment. If repayment is not made even after thirty days, the matter can be reported to credit bureaus.
From the perspective of a debtor, it would be wise to make use of this thirty-day window to explain their situation to the creditor and set up a proper repayment plan.
Non-payment beyond the agreed credit term can affect the debtor’s credit history, and his debt can also be turned over to a debt collection company. Overdue payments on phone bills, credit card balances, auto loan payments, back taxes, and utility payments are some of the few examples of delinquent bills that can be entrusted to a debt collector for the sole purpose of retrieving.
In times when collector companies were not popular, organisations had dedicated staff used to undertake the daunting task of chasing the clients to collect the due debt.
However, these days, most companies find it much cheaper and more convenient to employ a debt collector organization to recover unpaid debts.
How can a debt collector help you?
Once a collecting agency or firm is entrusted to collect your dues, they work tirelessly on your behalf to continuously follow up with the borrowers. When it comes to convincing the debtor to pay back the amount, the well-trained staff of a debt collecting company is a very important resource.
- Debt collectors use a wide variety of means to communicate with the debtor, including e-mail, phone calls, text messages, and in-person meetings.
- If the company can’t reach the borrower, they use the original information provided by the creditor to dig deep into the details of the debtor, even by employing private investigators and using sophisticated computer software if mandated.
- They look for details for the debtor’s assets to check whether the debtor is financially capable of repaying the debt.
Following are the key steps used by collection agencies:
1. Ascertaining financial credibility of the debtor
So, how do debt collectors ascertain financial credibility of the debtor?
For individuals, this includes:
- Determining what the individuals have in bank accounts, share trading accounts, and other accounts containing cash and cash equivalents.
- Properties or land, along with any structure that is permanently attached to it.
- Other movable properties-vehicles, boats, jewellery, collectibles, household furnishings
- Investments-mutual funds, pensions, retirement plans, annuities, bonds, cash value of life insurance policies.
Unless a court judgment is obtained, verbal persuasion methods are used to persuade the borrower to pay back the amount.
For companies, this includes:
- Current assets
- Inventory like goods available for sale or raw materials for manufacturing
- Accounts receivables which includes money owed by customers to be paid back in a short time
- Cash and cash equivalents.
- Fixed assets like machinery, furniture, land, buildings etc.
2. Put pressure on the borrower.
The legal collector can put pressure on the borrower to pay back the due amount as soon as possible. With the help of debt collecting organisations, companies or individuals can now avoid the headache of continually chasing the debtor and asking to repay the money they owe.
The pressure can be through frequent letters, daily calls, or talking about the nearest possibility of a lawsuit if they fail to repay.
3. Ask repayment on an expired debt.
In Malaysia, as per the Limitation Act 1953, all unsecured debts will be deemed ‘expired’ after a certain date. The time duration is six years from the date of supposed repayment, beyond which the borrower cannot be sued.
A debt collector organization can still keep track of this and ask for repayment of old financial backlogs.
What if the borrower still refuses to repay the amount?
Even in the instances where it is clearly established that the borrower is financially capable of repaying the amount (after going through all the assets and bank details), it is not legally possible to immediately freeze the debtor’s bank account and extract the money.
For this, the collector will have to liaise with lawyers to sue the borrower to obtain a court judgment in favour of the creditor.
Suing the debtor for repayment
As a final attempt to redeem the debt amount, you can sometimes sue the borrower. If the debtors don’t appear in the court during the trial, they will lose by default. This will lead to winding-up, bankruptcies or garnishment of accounts.
For companies who have several borrowers on the list, using a debt collector service could help in avoiding the hassles of managing multiple lawsuits.
What a debt collector can’t do?
It is interesting to note that some agencies go to the extent of threatening and intimidating the debtors. In Malaysia, debt collection is legal, but how it is undertaken will sometimes cross the barriers of legal boundaries.
The first and foremost step in choosing a reliable debt collection agency is to understand the laws surrounding it. In fact, even Bank Negara Malaysia has formulated guidelines to say that banks can hire the service of debt collection agencies but that is subject to rigorous conditions.
While choosing a debt collection organisation, it is important to choose the one who diligently follows the guidelines.
Below is a list of few things which a debt collector cannot legally do:
- They cannot threaten: Under no circumstance is a debt collector allowed to threaten the borrower. They cannot make any false claims like intending to sue the debtor if they can not legally do so. These agencies are directed to not harass the debtor by using means like threatening to inform family and friends about the debt problem.
- Use of abusive language is forbidden: An agency can not use any form of abusive language; either in oral or written format. In the event that it happens, the debtor can immediately report the matter to the management of the company or discuss it with an attorney about his legal rights.
- Cannot lie about their identity: A debt collector has to inform the borrower about their identity and on whose behalf they are communicating/contacting for. They should not give any false impression about their authority or identity.
- Cannot call the debtor if asked to stop: If the debtor has informed the debt collection company to stop calling him at work through a verbal or written request, the law forbids the debt collector in making any further calls. However, it does not mean that the borrower is off the list. He will be contacted through other modes of communication, such as messages and e-mails.
- Misinterpretation: A collector cannot report false information on the debtor’s credit report.
Is there a debt collection fee?
Debt collecting companies charge a prescribed amount of fees that are involved in maintaining staff, fieldwork, and lawsuits, along with a fair profit.
Debt collection fee depends on varying factors such as type of industry, business size & the type of services offered. While some collection companies are industry-specific, others serve depending on the business size alone.
Similarly, while some collection companies charge with a fixed fee, others focus on a certain percentage of the amount collected. Sometimes a combination of these two will be followed, depending on the complexity of the work involved.
Lastly, there is one more payment structure called contingency collections. Here the payment is only made after the debts are fully recovered. This is applicable to substantial delinquent debt. The fee for contingency collections will be slightly higher as there is more work involved in the process of recovery.
Just like the famous proverb, “a stitch in time saves nine,” when it comes to bad debt, taking a swift action can give excellent results. By hiring a debt collector, you are giving a straight message to the debtor that he has to repay the due amount immediately, or stricter actions could follow.
If your debtor is making repeated excuses, it is most likely that he is trying to evade the repayment. Hiring a debt collecting agency can encourage the customers to pay back the money and, at the same time, maintain a good customer relationship