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Debt Collection Agency and Debt Management Company – What’s the Difference?

Here at Access Credit Management we like to provide our readers with the knowledge and information they can use to gain a good overall view of the financial sector here in the UK.  Today we’re taking a look at the differences between Debt Management Companies and Debt Collection Agencies in order to give you an understanding of what each of these type of organisations do.

A Debt Management Company (DMC) is an organisation that represents an individual in managing a debt – they can operate in several ways – free or fee-charging, charities or businesses.  A DMC will negotiate with the creditors for an affordable repayment solution either by reducing the total amount owed or by agreeing to sustainable monthly repayments for their customers (the debtors). 

DMCs should offer a range of solutions and advise each individual customer which would best suit their circumstances.  A DMC can negotiate a Debt Management Plan (DMP) which is a fixed agreement that will allow the customer to reduce and eventually pay off their debt.  The fee paid to a DMCs that charges for their services is met by the customer and added to the total amount owed which usually prolongs the time it takes to pay the debt.  The “free” DMC sector is usually funded by charitable contributions by the creditor which means that any money paid by the customer exclusively goes towards paying their debt.

A Debt Collection Agency (DCA) is an organisation that will collect debts on behalf of a third party client (these are typically banks, building societies, mail order companies, credit card companies, mobile phone companies, utility companies, etc.).  DCAs operate for a fee or charge a percentage of the total amount collected – a sum which is paid to them by the creditor rather than the customer. 

In this process, the DCA will contact the customer to inform them of the amount due and attempt to set up an affordable repayment plan.  If the customer is unable to repay the debt or needs help and advice with making repayments, the DCA should steer them towards a free debt advice service or DMC.  In the event that the customer opts to deal with a fee charging DMC the DCA should work with the DMC on behalf of the customer in order to settle on a figure of a suitable DMP. 

The Credit Services Association (CSA) is the UK trade body for the debt collection sector and its member companies are DCAs, rather than DMCs.  The CSA advises that anybody in debt should look for free debt advice from a not for profit organisation which is also the advice imparted by the Financial Conduct Authority (FCA), the UK’s financial regulatory body which operates independently of government and regulates the financial companies that provide service to consumers here in Britain.