A collection agency has the duty to collect a claim which is entrusted upon it by a creditor. The agency has to be vigilant, keen and should exercise its best effort in executing its work[i]. If it is not possible to collect the debt, the agency has a duty to communicate that fact to the creditor[ii]. Also, the agency should return any documents relating to the claim to the creditor. Otherwise, the collection agency should provide a reasonable excuse for not collecting the amount. When the agency is able to collect the due amount, it should hand over the same to the creditor. The agency can deduct its commission from the amount collected. If the agency fails to hand over the amount, it will face civil or criminal action.
An agency can be held liable for negligence and fraud or breach of trust if the agency does not take steps to collect on the claim entrusted upon it. If an agency, by false representation obtains money from the creditor towards expenses for actions not taken by it, the agency can be held liable for fraud. Also the agency will have to return the amount[iii]. When an action is brought by the creditor against an agency for the laches from the agency’s part in the collection of a claim, there is a presumption that damages equal the amount involved in the action. The burden is on the agency to overcome the presumption.
In Gibbs v. Giering, 183 So. 2d 459 (La.App. 3 Cir. 1966), the court observed that an agency should be careful in collecting a claim entrusted upon it. If failure to collect occurs because of agency’s fault, agency would be liable for the loss incurred by the creditor.
Similarly, in Poile v. Stockton Merchants Asso., 176 Cal. App. 2d 100 (Cal. App. 3d Dist. 1959), it was observed that if an agency missed on the collecting of a claim, the agency cannot escape from liability by merely offering to return the claim. It is possible to escape liability in such case only if the agency is able to prove that it could not collect the amount due even after if it was diligent. Also, the extent of damages in this case is the extent of injury caused to the creditor.
[i] Dahl-Beck Electric Co. v. Rogge, 275 Cal. App. 2d 893 (Cal. App. 1st Dist. 1969)
[ii] Poile v. Stockton Merchants Asso., 176 Cal. App. 2d 100 (Cal. App. 3d Dist. 1959)
[iii] Kuttes v. Luke, 59 Utah 324 (Utah 1921)