Consumer debt in America stands at $14.6 trillion, according to a Federal Reserve report. These figures were pushed by a record topping rise for mortgages in the real estate market during 2020 and 2021. With all this additional debt, merchant account services for collection agencies are often busy providing payment solutions with multiple MIDs, Crypto acquiring & ACH to help their merchants keep pace.
Households that eagerly took advantage of low interest rates to borrow money during the COVID 19 pandemic are now unable to repay their mortgage payments.
Recent data estimates that 44.7 million Americans owe over $1.71 trillion in student loans. With millions of more Americans having $1.4 trillion in auto loan debts.
Over 80% of adult Americans are caught up in a sort of debt. The average American has $90,460 in credit card debt, personal loans, student debt, and mortgages.
When a borrower falls behind on repayment, the creditor reports this default to a credit bureau. And if the borrower continues to skip payments over the next 3-6 months, the debt is referred to debt collection agencies. These debt collection companies use various payment processing solutions when accepting credit cards for the repayment of debts.
Every collection agency needs a merchant account for collections so debtors can conveniently pay back what they owe. This can be a single payment or a series of payments. The business model is the same. These debt collection businesses need solid debt collection merchant accounts and various alternate payment solutions to assist in recovering this debt for their clients.
Unfortunately, many financial institutions and acquiring banks do not provide merchant account services for collection agencies because they see them as high-risk businesses. These merchants are often riddled with excessive chargeback ratio’s and most credit card processors simply do not want to take on this risk.
Why Merchant Account Services for Collection Agencies are Considered Risky
The debt collection industry has a bad history of dishonest and corrupt practices. Collector agencies are notorious for using dishonest and biased tactics to recover debts at all costs. This is another reason why banks and other financial institutions prefer to stay far away.
Collectors have been known to impersonate law enforcement threatening to arrest people if they did not pay what they owed.
Other collectors make it a habit of showing up at homes and workplaces unannounced, hurling insults over the phone, or sending intimidating letters saying things like “Final Notice Before Arrest.”
Some collectors are also in the wrong for contacting relatives, friends, and work colleagues about consumer debts.
In the case of Bryan Noyes, an Iraq War veteran, he was harassed and hounded for debts he did not even owe. According to him, he used to get as many as 15 messages a day from the debt collector and phone calls early as 3 a.m.
Debt collection agencies are also seen as unsafe because the industry is flexed with people disputing payments and asking for refunds.
Additionally, many debtors still miss payments even when they have promised to pay. This massive volume of missed payments is a red flag for providers offering merchant account services for collection agencies.
When debtors fail to make their payments, banks lose money and hardly have any hope of recovering it back.
Consumer Complaints About Debt Collection
The Federal Trade Commission collects consumer complaints through the Consumer Sentinel Network (CSN) and one of the key findings was the massive amount of complaints about debt collectors.
According to the report, 620,800 complaints were about debt collections—making it the number 1 complaint in the Consumer Sentinel Network data book.
- Consumers make 100,000’s of complaints about debt collection agencies every year.
- Since 2015, collection complaints have been the most common complaint.
- 7 out of 10 states with the highest number of complaints are located in the South.
- Top areas of violations were “Calls even after getting cease and desist notices” (227,197 complaints), “Calling repeatedly” (210,238 complaints), and “False representation about debt” (192,704).
The strategies collectors use to chase debts is a turn-off for many financial institutions. However, this has not stopped merchant account services for collection agencies doing business in the industry.
Why You Need a High-Risk Merchant Account Provider
These high-risk payment providers provide a unique service in a challenging industry. They understand that not all collection agencies use deceitful ways to recover debts.
They are aware of the significant roles collection agencies play in recovering payments from debtors. These high-risk merchant account providers provide payment platforms that accept cards, ACH, and e-Checks by phone, mail, mobile devices, and the Internet.
Merchant account services for debt collection agencies basically cover any business trying to get individuals or businesses to pay back what they borrowed. Below are the common areas of debt recovery:
- Debt consolidation
- Student loans
- Lenders and loan service providers
- Health care medical debts
- Personal debts
- Commercial debts
- Membership and subscription debts
- Payday loan debts
- Auto lenders
- Title lenders
- Mortgage lenders
The Best Payment Solutions for Recovering Debt
Most U.S. consumers use debit cards, credit cards, and e-Checks/ACH. Credit cards are not the best for recovering debt. Debit cards and e-Checks/ACH offer better alternatives when it comes to repayments.
Credit cards are linked to a line of credit, while debit cards are tied to bank accounts. Most consumers in debt have exhausted their credit lines and no longer have access to credit cards. They mostly transact with their bank accounts and these accounts come with debit cards.
When considering merchant account services for your collection business, choose the provider that allows you to accept and process credit card and debit card payments easily.
E-check and ACH payments are electronically debited from a consumer’s bank account. The debtor provides account and routing numbers for the bank account from which funds are removed. This is actually the safest way to receive debt repayment because it removes the risk of too many chargebacks.
ACH offers a cheaper processing cost for high-risk collection merchants because payments are processed through the ACH network.
On the other hand, Echecks use bank-to-bank technology for processing transactions. And unlike the ACH option allows revokes and returns on transactions.
Some collection agencies use e-Checks to verify a debtor and to confirm that transactions will not be revoked. Once this is done, the collection agency moves the debtor from e-Checks to ACH because the processing rates are lower than e-Checks.
Choosing a High-Risk Collections Merchant Account Provider
- Multi payment methods that accept debit/credit cards and e-Checks/ACH easily and quickly.
- Unlimited recurrent billing plans that are convenient for debtors to make payments. Effective for collector agencies to receive repayments.
- Fast response time allowing applications to be approved quickly.
- Safe PCI payment gateway. Keeps businesses secure from data attacks. Easy integration for software and CRM platforms.
- Fast repayment with deposited funds processed quickly.
- Multiple channel payments. Accept payments from mobile devices, online and virtual terminals for mail and phone payments.
If you are interested in a consultation with one of our seasoned professionals, please have your processing history and bank statements available when calling or complete the application process below. SecureGlobalPay, payment solutions that make sense.