Past Due Payments and Use of Collection Agencies

Past due utility bills, traffic citations, code enforcement fines—these are just a few of the areas in which a municipality can be placed in the role of a debt collector. While local governments wear many hats, past due debt collection is typically not an area of municipal expertise. 

State law—in particular RCW 19.16.500—authorizes local government entities to use collection agencies to collect public debts. This article will provide an overview of the requirements for use of a collection agency and address some frequently asked questions that arise when doing so. 

Requirements for Use of Collection Agencies

Under RCW 19.16.500(1), state and local government entities may retain collection agencies “by written contract,” to collect “public debts owed by any person,” including restitution being collected on behalf of a crime victim. The government entity may add a reasonable fee to the debt for the collection agency fee to be incurred. The contract between the government entity and the collection agency should specify the fee amounts, and the statute provides the following guidance:

• A contingent fee of up to 50% of the first $100,000 of the unpaid debt per account and up to 35% of the unpaid debt over $100,000 per account is reasonable;
• A minimum fee of the full amount of the debt of up to $100 per account is reasonable; and
• Any fee agreement entered into by a governmental agency is presumptively reasonable (which places the burden on the debtor to establish that the agreement is unreasonable).

There are important requirements that a government entity must meet prior to assigning a debt to a collection agency. Under RCW 19.16.500(2) the government entity must:

• Attempt to advise the debtor of the existence of the debt and that the debt may be assigned to a collection agency for collection if the debt is not paid; and
• Wait at least 30 days from the time notice was attempted before assigning the debt to collection.

It is also a good practice for the government entity to advise the debtor that additional collection fees will become due upon assignment of the debt to collections. 

Frequently Asked Questions about Collection Agencies

What type of process is required under state law to contract with a collection agency?

Most types of local government entities are not required to use a specific contracting process for services, but check out our Find Your Contracting Requirements webpage to be sure. Even so, using a request for proposal (RFP) process can help identify the most qualified collection agency. We have examples of collection agency RFPs from the City of Olympia and the City of Kirkland on our website. Any contract should be authorized by the entity’s governing body or follow the entity’s contract approval procedures. 

Can a local government entity contract with a collection agency through MRSC Rosters?

Yes, there is a service category for collection agencies on MRSC Rosters. 

If a contingent fee of 50% on the first $100,000 of unpaid debt is reasonable under the statute, is there any reason to negotiate a lower fee with the collection agency?

Yes. Debts to municipalities vary widely by type and amount. While a 50% contingency fee may be appropriate for a $200 utility debt, it may be more than needed for other types of larger debts. Collection agency fees should be set at an amount that reasonably compensates the agency for its services. The RFP process is a helpful way to determine what fee amounts are appropriate in different debt-collection categories. 

If utility shut-off is an option, why would a municipal utility need to contract with a collection agency? 

Water shut-off is another option, but for cities, it only applies to charges that are four months (or fewer) past due. To the extent the debt is older than that, referring the debt to a collection agency remains an option. For more on that, see our Collection Practices for Delinquent Utility Accounts webpage and our blog article on Collecting Delinquent Water Bills. In addition, shut-off may not be available for other types of utilities, such as sewer and surface water.

Can a government entity assign the debt of another government entity to collections pursuant to RCW 19.16.500?

Probably not. RCW 19.16.500(1)(a) authorizes assignment of public debts “owed by any person.” Under RCW 19.16.100(11), “person” includes individuals, partnerships, associations and corporations, but does not mention government entities. 

Questions? Comments?

If you have comments about this blog post, please comment below or email me at orey@mrsc.org. If you have questions about this or other local government issues, please use our Ask MRSC form or call us at (206) 625-1300 or (800) 933-6772.