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How to deal with a collection company in case of debt

If you have been approached by a collection company, assert your rights and learn how to defend yourself.

When the phone rings and someone on the other end announces himself as working for a collection companywe know that a fight will start.

This fight, however, does not have to be lost at the outset. Collection companies can have more or less aggressive approaches, so it is important that you know what your rights are and how you can enforce them.

How does a billing company work?

Basically, the business of a collection company consists of buy debts from third parties to, in exchange for a commission, accept collection of them🇧🇷 Imagine that you have a loan and you are failing to make payments. Your bank can sell the debt to a collection company, take a portion of the amount, and let that company collect the rest.

On the one hand, the bank recovers a portion of the debt that was already theoretically lost because it was impossible to collect. On the other hand, the collection company earns the difference between the actual debt (which it will charge) and the amount for which it bought that debt from the bank.

The deal is advantageous for everyone but you. Not only are you not debt free, but you will also have to deal with a collection company whose methods can be more or less questionable, depending on the entity.

How are these companies regulated?

The business of a collection company is to assume responsibility for difficult credits that are given, from the outset, as impossible to collect. After having bought the credits from other companies or financial institutions, this company will only make a profit if it succeeds in collecting the total debt from the debtor, not looking into efforts to recover the money.

With regard to the regulation of these companies, there is a nice void which often opens space for them to resort to unethical collection methods in an attempt to intimidate debtors.

From the collection of debts that no longer exist, to the harassment of friends and relatives of the debtors, there are several complaints from consumers that we can find on the DECO website and on the Queixa Portal.

The problem is that a collection company is not a financial institution and, for that reason, is outside the regulatory scope of Banco de Portugal. As there is also no specific legal framework for debt collection companies, we are facing a scenario in which the regulation of these companies is almost nil. Not being subject to supervision by a specific entityany problem will have to be resolved in ordinary courts.

There is, however, a limit that we cannot forget and that is non-negotiable: your rights as a citizen.


Demand information about the debt in question

A collection company cannot simply knock on your door and demand payment. The company has to explain what the debt is, what the origin is and the amount missing. If they refuse to give you that information, refuse to pay. Just as he would if a stranger approached him on the street to collect a debt he had never heard of.

If you see that the process is not resolved, send a registered letter to the collection company establishing the rules of the game: negotiation of payment only begins when the debt is acknowledged.


Hold your bank accountable

The focus, in these situations, is the collection company, but your bank cannot pass through the raindrops. Contact the services (ideally by registered letter) and demand to know under what conditions the institution sold your personal data to third parties, as this is illegal under the General Data Protection Regulation.

Your name, email, address and telephone number cannot be circulated around just because the bank decided to. Unless you have signed the consent for the sharing of personal data, this is illegal and you can enforce your rights.


Confirm your status on the Banco de Portugal blacklist

Regardless of what happens, if your debt is sold to a collection company, it is no longer open to your bank. Since the collection company is not a financial institution, then your name must remain clean on the blacklist of Banco de Portugal, without any record of outstanding debts.

It doesn’t matter if the billing company is more or less aggressive: everything agreed with that entity must be contractually agreed in writing.

Payment terms, amounts, interest, commissions and amortization. Everything must be written and signed by the parties. If you are offered a deal over the phone, say that you accept it, but that you only consider it valid (and only start paying) when you receive, at home or by e-mail, all the details in writing.


Don’t accept intimidation from those you don’t know

If a “lawyer”, “solicitor” or even “judicial executor” shows up at your door saying that you have to pay the debt or are seized, don’t even talk to him: demand an official identification right away. Surprise yourself, but the probability that the person does not have it is very high.

The truth is that it is very common for collection companies to send employees to the home of debtors who pretend to be law enforcement agents. The problem is that this is fraud.

If something similar happens to you, let them know that, without presenting accredited identification, you are not even available to talk.


Make sure you know your rights

If the collection company goes overboard, send a registered letter reminding them that you know very well where their freedom ends and yours begins. Always keep in mind that:

  • The collection company cannot harass your friends and family, under any pretext;
  • Threats, by mail, email or telephone, can (and should) be recorded and brought to justice for constituting a crime (article 153 of the Penal Code🇧🇷
  • Debts expire (for example, a debt to a telecommunications company expires in six months) and can no longer be collected.

See too
Invoices older than 6 months: pay or not pay?

Article originally published in June 2020. Updated in November 2022.

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