What Are Private Debt Collectors?

Private debt collectors are third-party companies that are hired by creditors to collect debts.

This can be done through a variety of methods, such as contacting the debtor by mail, telephone, or in person. They may also try to seize the debtor’s assets or garnish their wages.

Over the last few years debt collection cases have increase a lot.

And according to Capital Recovery, there has been a 2.6% per year growth in debt collections in the U.S. between 2017 and 2022.

If you are in a similar situation yourself then read on to learn more about private debt collectors, their tactics, and your rights under the law.

What Are Private Debt Collectors?

Key Takeaways

  • Collectors may collect the debt by Seizing assetsGarnishing wages, or by Contacting the debtor.
  • You have a few rights that you should know of when it comes to dealing with debt collectors.
  • Your creditor might hire a debt collector because they have experience and training in debt collection & it is also cheaper to hire them.

What Is A Private Debt Collector And What Can They Do?

What Is A Private Debt Collector And What Can They Do

As mentioned, a private debt collector is a third-party company hired by creditors to collect debts.

This can often be done after the creditor has unsuccessfully attempted to collect the debt themselves.

There are many different ways that these collectors may try to collect a debt, such as:

  • Contacting the debtor: They will often try to contact the debtor by telephone, mail, or even in person. They may also contact the debtor’s family, friends, or employer in an attempt to get information about the debtor’s whereabouts.
  • Garnishing wages: These collectors may also try to garnish the debtor’s wages in order to collect a debt. Garnishing is when a portion of the debtor’s wages is withheld and given to the creditor.
  • Seizing assets: In some cases, these collectors may try to seize the debtor’s assets to collect a debt. This can be done through a process called repossession. 1

Read Difference Between Debt Settlement And Debt Consolidation

Role Of Private Debt Collectors In Government Organizaation

The IRS has been using Private debt collectors since 1996. Private Debt Collectors help IRS in collecting money from delinquent accounts.

The IRS also takes the help of Private Debt Collectors to collect unpaid taxes.

As of 2022, they have collected over $89 billion in unpaid tax in installments or full payments. 2

Why Do Creditors Hire Private Debt Collectors?

Why Do Creditors Hire Private Debt Collectors

There are a few reasons why creditors may hire private debt collectors. 

One reason is that they may be more successful in collecting debt than the creditor themselves.

Private debt collectors have experience and training in debt collection, and they may be more aggressive in contacting the debtor and trying to get them to pay their debt.

Another reason is that it can be cheaper for the creditor to hire a private debt collector.

This is because the creditor does not have to pay the private debt collector’s fees unless they are successful in collecting the debt.

Read: Cheapest Way To Get Out Of Debt

How Does Private Debt Collection Work?

When you do not pay your overdue taxes, you will receive a CP40 notice along with publication 4518. These notices will let you know that your account has now been assigned to a private debt collector.

After this, the private debt collector will send you an initial contact letter that contains information on how you can resolve the overdue tax issue.

Unlike other debt collectors, private debt collectors do not threaten you and treat you professionally and also, and they need to abide by the taxpayer’s rights. 3

Know Your Rights When Dealing With Private Debt Collectors

What Are Your Rights When Dealing With Private Debt Collectors

It’s important to know that you have certain rights when dealing with private debt collectors. These rights are outlined in the Fair Debt Collection Practices Act (FDCPA).

Some of the most important rights that you have to include:

  • The right to know who the debt collector is: The debt collector must identify themselves and let you know that they are attempting to collect a debt.
  • The right to know how much you owe: The debt collector must tell you how much money you owe.
  • The right to dispute the debt: If you believe that you do not owe the money, or if you believe that the amount owed is incorrect, you have the right to dispute the debt.
  • The right to request proof of the debt: You have the right to request proof of the debt from the creditor. This can be done by sending a written request within 30 days of receiving notice from the debt collector. 4

When Will The IRS Not Assign Your Account To a Debt Collection Agency?

The IRS will not assign your account to a debt collection agency if you are:

  • Under 18 years of age
  • Subject to a right of appeal
  • Deceased
  • Currently under litigation, examination, criminal investigation, or levy
  • A victim of tax-related identity theft
  • Put under innocent spouse case
  • In a designated combat zone
  • Recipient of social security disability insurance (SSDI) or supplemental security income (SSI) 
  • In an installment agreement

How To Check If You Are Being Contacted By a Legitimate IRS contracted PCA?

How To Check If You Are Being Contacted By a Legitimate IRS contracted PCA

There have been increased cases where scammers tried to pose as IRS-contracted PCA and troubled people.

If you want to safeguard yourself against such frauds, then here are things that you should take care of:

  • The IRS has contracted with these three PCAs – CBE Group, Inc.Coast Professional, Inc., and ConServe. So make sure you confirm the name of the PCA contacting you.
  • Both the IRS and PCA will send you a letter in the mail before calling you. Both mails should consist of Taxpayer Authentication Number.
  • Legit PCA will never ask you to make payments to them directly or via prepaid debit. The payments will always be made directly to the IRS.
  • Lastly, if you receive a notice asking you to make payments to the IRS and you are not sure about it. Then get in touch with your attorney to check if it’s legit or not. 5

What Should I Do If I Receive CP-40 Notice?

If the IRS has sent you a notice, then make sure you read it carefully to understand it fully.

Never ignore the letters that you receive from IRS or PCAs, and always keep them safe with you for your own personal record. Ignoring the notice can lead to bad consequences.

Final Thoughts

While private debt collectors can be helpful in some situations, it’s important to know your rights when dealing with them.

If a private debt collector is harassing you or violating your rights, you may want to consider contacting an attorney.

Read: Golden Financial Services Reviews


Why did my IRS account was handed over to private collection agency?

The IRS might hand over an account that has been unpaid for a long time.

Another reason why they may hand over your account to a PCA is that the IRS does not have enough staff to carry out the collection.

What should I expect from PCAs & IRS?

The IRS will always send you a written notice before transferring your account to a debt collection agency.

Can a PCA assigned by IRS take legal action against me?

The PCAs are required to abide by the Fair Debt Collection Practices Act and respect the rights of the taxpayer.

Even if the IRS assigns a PCA for tax collection from you, they cannot take any legal action on their part, and only IRS can do so. 6

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The National Planning Cycles is committed to producing high-quality content that follows industry standards. We do this by using primary sources, such as white papers and government data alongside original reporting from reputable publishers that were appropriate for the accuracy of information while still being unbiased. We have an editorial policy that includes verifiable facts with due credit given where applicable.

  1. https://www.investopedia.com/articles/personal-finance/121514/how-debt-collection-agency-business-works.asp[]
  2. https://www.capitalrecovery.net/blog/what-is-the-role-of-private-collections-agencies/#:~:text=Businesses%20or%20government%20organizations%20can,that%20might%20otherwise%20go%20uncollected.[]
  3. https://money.usnews.com/money/personal-finance/articles/what-is-a-debt-collector-and-what-do-they-do[]
  4. https://www.consumerfinance.gov/ask-cfpb/are-there-laws-that-limit-what-debt-collectors-can-say-or-do-en-329/[]
  5. https://www.irs.gov/businesses/small-businesses-self-employed/private-debt-collection-faqs#:~:text=The%20IRS%20will%20send%20you,was%20transferred%20to%20a%20PCA.[]
  6. https://www.irs.gov/businesses/small-businesses-self-employed/private-debt-collection-faqs[]
  7. https://www.irs.gov/businesses/small-businesses-self-employed/private-debt-collection-faqs[]

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