Last updated on March 15th, 2025 at 09:35 pm
Collection Agency Merchant Account: An Insider’s Guide
A collection agency merchant account is a specialized payment processing solution that allows debt collectors to recover funds from customers by accepting credit card payments. Funds can be collected over the internet or over the phone via a virtual terminal. Additional payment modes available with a collection agency merchant account include bank transfers, Interac, eCheck, and ACH.
Traditional sponsor banks avoid working with collection agencies. This is because in the credit card industry, a collection agency is considered high risk. There are many reasons behind this reputation. Collection agencies generally find it very hard to get a stable credit card processing solution.
The team at QuadraPay has been providing collection agency merchant accounts since 2016. We have created this guide to make it easy for you to get a credit card processing account. The guide discusses various aspects of collection agency credit card processing. Let’s begin.
Why Collection Agency Merchant Services is Considered High Risk?
There are many reasons why sponsor banks and payment service providers consider collection agencies as high-risk merchants. A few of these reasons are listed below.
High Chargeback Rates: Payment processors believe that collection agencies can attract high chargebacks. This is because many collection agencies use pressure tactics to collect the payments from the customer, and later on the same customers may dispute the charges to get the money back.
Regulatory and Legal Risks: Another challenge is the complex regulatory framework around collection businesses. Collection agency Must follow the Fair Debt Collection Practices Act in the US. Similar acts are to be followed in the UK and Europe. If a merchant does not comply with these rules and regulations, then it can attract financial challenges for the merchant and the credit card processor.
Reputational Risk: Many sponsor banks simply don’t work with collection agencies because they fear reputational risk. Many acquiring institutions believe that because of the negative public perception of the debt recovery industry the reputation of the bank may also get damaged.
Because of these above-listed reasons, collection agencies find it hard to get credit card processing solutions. The only solutions that appear to be more accommodating are the high-risk merchant account solutions. The specialized credit card processing accounts charge higher fees than regular solutions and may also require large reserves that act as a buffer against potential chargebacks.
Types of Debt Collection Agency Merchant Services
With collection agency merchant services, recovery businesses can access a variety of payment methods to easily collect payments from debtors. Let’s look at some of the main types of collection agency merchant accounts.
Online Credit Card Processing for Collection Agencies:
This solution enables debt collection agencies to accept payments through various types of credit cards. Debtors find this payment method convenient. Across the United States, credit card processing is the most popular payment method in the debt collection industry.
Debit Card Processing for Collection Agencies:
It is common for a large percentage of debtors to have a bad credit score, which may result in the unavailability of a credit line. In such cases, debtors may not be able to pay off their debts using credit cards. Instead, they can use debit cards, which directly debit funds from the debtor’s bank account.
Electronic Check (eCheck) and ACH Processing:
In situations where debit cards or credit cards are not available, debt collection agencies can use alternative payment methods like eChecks and ACH. These payment methods are generally suitable for larger payments and significantly reduce the risk of chargebacks. ACH payment processing also offers recurring billing facilities, allowing debt collection agencies to schedule regular debits from customers’ bank accounts.
Virtual Terminal for Debt Collection:
Some debt collection agencies may need to accept card payments over the phone. For this purpose, they can use a virtual terminal. With this solution, a debt collection agent can collect credit card details from the customer over the phone and input them into the virtual terminal.
Depending on the unique payment processing requirements of the debt collection agency, they can choose either one or all of the above-mentioned merchant services solutions.
KYC Documents for Collection Agency Merchant Account
For the approval of a payment processing account for your collection agency business, you will be required to send some documents to the payment processing company for review. These documents must be copies of the original documents. The main documents that are part of the KYC (Know Your Customer) requirements in the payment industry include:
- Business registration documents
- Identity proof of all directors
- Bank account statement
- Utility bill
- Processing history
- Letter of good standing from the bank
- Any industry-specific licenses that you must have
- Along with the above-stated documents, merchants are also expected to submit a filled merchant account application form.
Application Process for Debt Collection Merchant Services
With QuadraPay, the process of applying for a debt collection merchant services account is quite user-friendly. It starts with the initial inquiry, where the debt collection agency fills out the basic application form on our high-risk merchant account website. With these details, the collection agency expresses its interest in obtaining a high-risk merchant account for debt collection through us.
The debt collection payment processing experts at QuadraPay conduct an initial pre-qualification by evaluating the merchant’s basic details, such as whether the company has a valid license, operational history, and compliance with industry regulations. Most of the information is available on the merchant website, but if these details are not available, our team will get in touch with you and ask for the same.
Once the application is pre-qualified, our merchant services team will contact you and request your KYC documents and the filled application form. These will be submitted to our partner processing company, which will initiate the underwriting review.
The underwriting team will conduct a comprehensive review of your KYC and the application, considering various factors including the financial stability of the company, chargeback history, and compliance with industry regulations like FDCPA, TCPA, and others.
After a thorough evaluation of your profile by the underwriting team, the processing company will determine whether to approve or decline your agency’s application for credit card processing. We want to assure you that our processing partners have a very high approval ratio, and there is a very high possibility that your account will get a payment solution. Just in case one provider says no, we can take your application to another provider. If your account is approved, you will receive a merchant account agreement outlining the terms and conditions related to your debt collection merchant services account.
Upon account approval and the signing of the agreement from both parties, you will be given the details of the account setup, which include access to the merchant account and integration documents. Merchants will have regular access to support from the credit card processor.
FAQ: Collection Agency Credit Card Processing
What type of businesses require collection agency merchant processing accounts?
Several types of businesses may be approved for a collection agency merchant account. Let us look at some of these:
Debt Collection for Lending/Loan Agencies: Financial institutions that offer various types of loans often struggle to retrieve the principal and interest amounts. Initially, they attempt to recover the funds directly. However, if unsuccessful, they may seek assistance from professional debt collection agencies.
Student Loan Debt Collection: Education is a significant sector in the United States, but many students fail to repay their loans after completing their courses. Debt collection agencies assist in recovering these unpaid student loans.
Medical Debt Collection: Healthcare companies sometimes face challenges in recovering medical service charges. Professional debt collection agencies can help these healthcare service providers and medical companies recover their dues.
Automotive Debt Collection: Consumers often purchase cars using credit lines provided by banks or private lenders. If customers fail to pay their monthly installments on time, debt collection agencies can assist automotive finance companies in recovering the outstanding payments.
Why should debt collection merchants choose a processor wisely?
Sometimes getting approvals for a debt collection merchant account can be extremely time-consuming and frustrating. Processing companies may reject the application without giving any specific reason. This may motivate merchants to try working with payment processors that are located offshore. However, this may not always be a good decision.
These processing companies may not be able to offer a good transaction success rate. This means a majority of the transactions processed on the gateway might be declined because of cross-border issues. Offshore solutions are generally more expensive than domestic options. Another problem is the holding of funds and delayed settlements. Sometimes these processors take up to 3 weeks to make the payment settlement. Because of the wrongdoing of the processor, merchants may be at risk of getting penalties and also being listed on the TMF or MATCH list.
What is the MCC code for debt collection agencies?
The exact MCC (Merchant Category Code) will be assigned by the payment processor after a full application review. However, these are the commonly used MCCs for debt collection-related services:
MCC 7322: Collection Agencies, Real Estate Agents
MCC 6051: Quasi-Cash—Merchant
MCC 6012: Financial Institutions—Merchandise and Services
MCC 7277: Debt Repayment—Prepaid or Court-Ordered
