Did you know that 70% of Citibank's bad debt accounts are skipped accounts? And that 10% are bankruptcies and deceased accounts?That leaves just 20% of their bad debt that they are "actively" trying to collect or that they normally just write off or sell.
What happens to the other 80%? Of the $60 billion of debt that will be charged-off by issuers of general-purpose credit cards in the United States this year only 90% is potentially collectable because 10% is tied to deceased, fraudulent and bankrupt accounts.
When this 90% of debt is placed with collection agenciesit is found that half of the cardholders cannot be located even after the use of databases and online tracing tools.
Government regulations prohibit collection agencies from using any means other than databases to find debtors because they are not the owners of the debt.
So if these accounts are placed with the agency on a contingency or other basis they would need to ask their client who placed those account with them to hire a "skip tracer", "private investigator" or "skip tracing firm" to locate those debtors for them so they can then continue to try and collect.
If you purchase credit card debt and are the owner of the debt you can utilize the tools a professional skip trace firm uses to locate those debtors and continue to try and collect.
I am told by professional skip tracers that you should check with the state you reside in.
There are a number of states that do not require licensing or that do not have state regulations.
It is all over the board and varies from state to state.
45% of all charged-off accounts are returned to issuers after primary, secondary and tertiary collection efforts by collection agencies without any collection activity because the debtors could not be found by traditional data base or collection skip trace methods.
Issuers then have two choices, sell the debt or hire a professional investigator to track down the debtors.
The overwhelming practice has been to sell the debt.
Card issuers seldom hire professional tracers because they consider them too expensive and feel they are throwing good money after bad.
This could be because they can't be bothered to continue to spend time on the accounts or that they don't realize that most location firms offer a quote on all portfolios prior to processing and in some cases the cost can be added to the debt.
Fees range from $100 - $150 for small balance accounts with average fees of $350 to $450 for most portfolios.
These tracers usually uncover home and office addresses and phone numbers which then let the collectors make contact and try to collect their money.
Most importantly, because so much time has elapsed since the original charge-off date, collectors can go after not only the original debt but also accumulated interest, fees and in some states the cost of the tracing or locating of the debtor.
The original amount of debt charged-off doubles every 30 months with added interest and fees.
Some professional investigators or skip tracing firms can locate up to between 70% and 80% of missing persons, I know of one location company that guarantees that they will locate 80%, so how can you lose? Other firms that specialize in location work state that the information uncovered can be virtually limitless depending on how much money the client wants to spend and the permissible purposes they are operating under.
Some examples they gave are assets, physical and mailing address, vehicles, telephone and cell phone numbers.
Location firms are not subject to the government regulations that prevent the use of aggressive tracing techniques by any entity other than the owner of the debt.
All private investigators are regulated by their state in which they operate.
Their rule of thumb is, don't do anything to locate a person that you wouldn't do to locate your mother or your best friend.
Private investigators have a fair amount of latitude as long as they don't do anything illegal, immoral or unethical.
As a PI it is illegal to pass yourself off as a police officer, official of the court or any other government official.
If the company you hire to do your location work has no involvement in the debt collection aspect after the individual is located and has no knowledge of the specifics of the debt, they are not a "debt collector" as defined by the FDCPA.
This is an important distinction.
The skip tracing firm must not be owned or affiliated with a collection agency.
Chris Soteros the skip tracing manager at Merlin Information Services states that they must abide by the FCRA and the Gramm, Leach Bliley Act both of which restrict their use of Credit Bureau information to activities supporting the collecting of a debt.
Healso stated that his company is not a third-party debt collector and therefore is not regulated by the FDCPA.
Third party debt collectors must follow the FDCPA when obtaining location information, this includes in house "locators or skip tracers", even if they are not doing any collection work.
This means that they can use databases and phone calls as long as they follow the FDCPA.
Most collection agencies and business owners are not aware that they can partner up with an exclusive skip trace firm to increase their recovery on bad debts.
Many collection agencies offer "skip tracing" as an added service to their clients.
In most cases, based on the limited tools they have available to them, they do not locate 80% of the accounts they are looking for and therefore send them back to the creditor as "uncollectible".
Business owners need to be aware that when that happens, all hope is not lost.
They should place that 80% of bad debt accounts with a professional skip tracing company and send them back to the agency for collection once they have good contact information for the debtors.
Depending on the balance that is due, this can add up to quite a bit of money at the end of the year.
It has been my experience that collection agencies that also offer "skip tracing services" locate approximately 15% of the accounts they work if they are doing collection work and limited location work.
This is because most agencies train collectors to collect not skip trace, and also since they work for the agency they are bound by the same laws as the collector and therefore are limited in the use of certain location tools.
Many people I interviewed for this article share the view that when you work at a collection agency there is little time for skip tracing in most agencies, the biggest reason being that most agencies work on a commission basis, where they get paid for the money collected.
If they are successful in locating a debtor, they still have to try and collect and that is not a guarantee.
The general consensus is that it is not cost effective for collectors or collection agencies to spend time and money skip tracing when they could be spending their time collecting, which is what they do best.
I interviewed many collection agencies that advertise "skip tracing" as one of the services they offer and many of them stated that the way they "locate" debtors is through credit reports, asking other business owners in their network about the debtor, and search engines.
Some of them told me that they offer address location, phone number reversal and retrieval, employment location, banking locations, vehicle locations and much more but couldn't elaborate on how they obtain this information.
I even had one company that offers skip tracing tell me that they could not comment on answering any questions about their skip tracing techniques based on "their direction and target audience.
"When you are researching a location or skip tracing firm be sure to check references, check their credentials, and talk to their customers.
Some have websites with testimonials listed.
Email those people, ask them how the service worked for them; be smart about your money.
Business owners who utilize the services of collection agencies recognize that they need help with those collections and so they place or outsource their bad debt to their collection agency.
Once their agency returns any accounts they cannot collect due to being unable to locate a debtor, a smart business owner should then recognize that they can place those accounts with a professional skip tracing firm to have them located and then give them back to their collection agency to collect on.
This way they are helping themselves and their collection agency and recovering more of the money they are entitled to.
Creditors who utilize a location or skip tracing service are smart and will see that reflected in their bottom line.
Collection agencies will sometimes outsource different aspects of their collection work, such as generation and mailing of letters.
Collection agencies do this because they recognize that they can collect more money if they outsource something they don't specialize in, such as printing letters, stuffing envelopes and mailings and focus on what they do best, making collection calls and collecting money for their clients.
When they return accounts to their client, and ask them to provide them with current contact information so they can continue to try and collect, they are making a smart business decision.
They will make more money because once the client receives the accounts back from their skip tracing firm, the agency can then work the account, collect the money and make a commission as well as send a check to their client.
Everyone is happy.
Location firms, businesses and collection agencies complement each other by working together to ensure as much debt as possible is collected, resulting in all parties being successful.
After you look at these facts, take a good look at your business and bad debt and ask yourself, "Can I afford not to use all the resources that are available to me to recover the money that I am owed?"If you are in business to make money, using a location firm, just like using a collection agency is a necessity.
The market for debt buyers and collection agencies has become increasingly competitive with higher prices, greater risks and more exacting demands on performance according to the November issue of Cards & Payments.
In view of this you want to work together with your collectors and your skip tracers.
When you can help make a collector's job easier by utilizing a skip tracing company, you will all benefit.