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Can Anyone Start a Collection Agency?

Collection agencies are a vital and beneficial part of the economy. They are vital in ensuring that payments for purchases are settled within a reasonable time frame if not on-time. Without repayment for services and goods, our economy would crash. Collection agencies prevent prices of goods and services from increasing for timely payments by recovering payments due to suppliers.

Can anyone start a collection agency?
Can Anyone Start a Collection Agency?

How To Start a Collection Agency

Starting a collection agency can seem daunting if you don't know how to do it. There have been tremendous successes in the industry for agencies that have gone through the long and tedious start-up process.

Besides, the amount of collectible debt is on the increase due to the expansion of consumer debt. According to a U.S. Federal Reserve report, the consumer credit outstanding amount is currently at $4 trillion.

Therefore, if you're trying to figure out how to start a collection company, here are the steps you should follow.

1. Find Out State Requirements for Starting a Business

All states have extensive and detailed requirements where opening a business is concerned. Meeting all legal requirements requires that you go to great lengths depending on the state you're in. All business owners must meet their state's unique requirements.

Also, these requirements are always changing. When starting a debt collection agency, you must first register the business in your state. Things are a little more complicated for a collection agency because you must be licensed and registered in every state you intend to collect. If a debtor resides in a different state, you should acquire adequate licensing from that state.

Here are typical legal requirements your state will most likely expect:

  • Business registration
  • Application for a business license
  • Employer identification number

2. Learn Debt Collection Laws

While every business deals with money, you will be required to abide by many laws since collecting money is at your center. You will need to do proper research to determine what laws you should abide by due to the difference in each state's rules and regulations. Here are some federal laws that govern all debt collectors in the U.S. and that your collection agency must follow:

The Gramm-Leach-Bliley Act (GLBA)

This law regulates how financial institutions deal with an individual's private information.

The Telephone Consumer Protection Act (TCPA)

This law deals with conducting phone solicitations.

The Health Insurance Portability and Accountability Act (HIPAA)

This law permits insurance companies, healthcare providers and facilities to divulge some information concerning a patient to a collection agency.

The Fair Credit Reporting Act (FCRA)

This law controls access to a consumer's credit reports and credit information

The Fair Debt Collection Practices Act (FDCPA)

This is likely the most crucial act on the list, due to its direct regulation on collecting debt by agencies. This law regulates the limits and conduct of third-party debt collection agencies acting on behalf of another entity or person. It restricts the methods and channels via which debt collectors can approach debtors, including the number of times contact with a debtor can be made and the time of day. If this law is violated, the debt collector or the debt collection agency is liable to face a suit within a year for damages plus attorney fees.

Understand Both State and Federal Requirements

You have to understand both federal and state laws to have a successful debt collection agency. When it comes to getting in trouble for not abiding by these laws, negligence is not a defense.

3. Plan Your Expenses and Purchase Equipment

Understanding the necessary capital needed to make a business successful through the start-up phase is a factor often overlooked by many new business owners in different industries. If you’ve met all legal requirements and obtained all the licenses, but don't have sufficient capital to start you off, you'll find yourself in a lot of trouble.

Getting off to a good start requires you to plan out operating and capital expenses for the initial two to three years you'll be in business. Once you plan out your capital, you'll need to consider getting computers, internet, phones, and basic office supplies, as well as make arrangements for employee expenses and salaries. You’ll also want to factor in the cost of payment processing. Things are a little different for collection agencies in this arena and you’ll need to be prepared.

Understand Your Start-Up Capital Requirements
Understand Your Start-Up Capital Requirements

4. Get Your Debt Collection License and Collection Agency Bond

If you want to become a debt collector, you should know that the process for receiving your collection agency license and bond will vary. Here are the steps you should follow:

  • Assign an agent of record/registered agent: For every state in which you have a Certificate of Authority, you will need to have a registered agent. Remember, having registration in one state doesn't mean you've got registration in another. The registered agent's responsibility is to acquire essential tax and legal documents such as annual report forms, service of process or notice of litigation, and franchise tax forms.
  • Get your certificate of authority: Obtaining this certificate is the next step you take before acquiring your bond. The certificate has details of vital business information, including the business's legal status, owners’ names, and the business's official name. This certificate allows you to operate your business and is obtained at the Secretary of State level.
  • Acquire a collection agency bond: As an element of the licensing process, you will be required to acquire a collection agency bond by some states. It mainly protects the creditor. Collection agencies collect money as third parties and receive remuneration based on the amount they collect. In case the agency collects the paid monies but doesn't reimburse the required funds, the collection agency bonds can be "called."

5. Acquire A Debt Collection License

Once you've successfully obtained a collection agency bond (if required by the state) and a certificate of authority, you can now apply for a debt collection license in your target state. The information required to fill out your application for the debt collection license is different in various states. However, all states will require personal information on the business's officers and owners seeking licensing, financial information, and business information.

While figuring out how to start a collection agency, you should be aware that some states will require you to keep a physical office in the state if you're seeking to license. Make sure you have this cleared early on to avoid any issues. The primary purpose of the office is to offer debtors the option to walk-in for payments. When required, while conducting investigations/audits, the state will use this physical location.

You will need to appoint a "Resident Manager" to act as the principal contact for the state licensing division in the states that require a physical office. The debt collection license process can be complicated and time-consuming. While no two licensing efforts are identical, you should plan on a period of 120- 180 days for full licensing.


So, can anyone start a collection agency? Yes, but as you’ve seen in this article, there is a lot to it. Starting a debt collection agency isn't easy. However, if you follow the steps that we've provided above, you should be well on your way to operating a successful debt collection company.

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