If a creditor is unsuccessful in collecting a debt payment, it may retain an outside service, or collection agency, to continue efforts to collect on the debt. A collection agency receives a percentage of the amount recovered, usually between 10 and 50 percent, in return for its efforts. Because its chief concern is to maximize its own potential earnings on the account, a collection agency’s tactics are regulated by both federal and state law (see below).

Within five days of its first telephone call to a debtor, a collection agency must send a notice in writing that states the total amount owed, and the name of the original creditor for whom the agency is attempting to collect. The written notice must also inform the debtor that he or she has 30 days from receipt of notice to dispute the debt in writing, and/or request a written verification of it.

Debtors are usually authorized at this point to make payments directly to the collections agency, which will forward the net balance (after deducting its percentage of the recovered amount) to the original creditor. It is imperative, prior to making any payment, that the debtor verify that the collection agency indeed represents, and is the agent for, the principal creditor. A debtor may reasonably rely on correspondence from the collection agency, stating the name of its creditor client, as evidence of this.