I have been delving into the debt collection business for some time and thought it time to share with you, through a series of blog posts, what I’ve learned. In this first installment, we will explore the debt buying business.
I hear from clients often things such as “I’ve been sued by Portfolio Recovery and I’ve never done business with them, what should I do”. While you may not have transacted business with Portfolio Recovery, likely have never heard of them, they may have the right to collect money from you. Read on to understand why.
Maybe an example of the life of a debt you owe will help. Let’s suppose I loan you $1,000.00. Life happens and you are not able to repay the money you owe me. I try calling and asking for my money nicely, I write you letters, I even call and threaten legal action. But things have happened and you just can’t pay. After 6 months or so, I give up on collecting from you. But for me, not all of the $1,000.00 may be lost. I can sell your debt to another person. Let’s say I know Sam. Sam runs a business buying and collecting on debt. Sam offers me $80.00 to purchase the right to collect on the $1,000.00 debt you owe me. From my perspective, $80.00 is better than nothing so I give Sam the right to collect.
Now Sam doesn’t just buy from me, he buys thousands of debts at a time. For Sam, it is a numbers game. He will not be able to collect on all the debts but maybe he can collect something from some of them. Sam uses a bit more aggressive tactics. His collection shop calls you constantly. They tell you things like this is ruining your credit, we’ll send the Sheriff to serve you a warrant if you don’t pay, and we’re going to contact your employer. Then they make their offer, if you’ll pay $500.00, they will forgive the rest of the $1000.00. If you pay, Sam makes $500.00 for his $80.00 investment. As your debt gets older and Sam is not able to collect, Sam tires of trying to collect as well. Now Sam knows a guy name Frank. Frank offers to purchase the right to collect on the debt for $8.00 from Sam. For Sam, $8.00 is better than nothing so he sells the right to collect to Frank.
Frank runs a bit shadier company in the debt collecting market. Frank buys tens of thousands of these debts from people like Sam and will use whatever means he can to collect something. He stores all these tens of thousands of debts on his computer and hires banks of telephone collectors, often from other companies, to attempt to collect. Often these collectors will steal the debt lists from Frank and sale to other unscrupulous collectors. Now suddenly you are getting phone calls from several companies all of whom are trying to collect on the $1000.00 debt. These collectors threaten you with jail, they call at all hours of the night and day, they call your friends and family. They offer you a deal to settle the debt for $100.00. To them, $100 is a nice return on their $8 investment.
Finally Frank tires of trying to collect and sales the debt to Tammy. Tammy pays Frank just $1.00 for the right to collect the debt. It’s very possible by this time the debt will never be collected. Is in the hands of many people all trying to collect, and Tammy is willing to gamble her dollar.
Such is the life of consumer debt in the US. The debt buying business is growing by leaps and bounds. In 2009, four of the largest debt buyers collected just over $500 million. By 2012, those same companies collected just over $1 billion. The majority of the debts are old credit cards (65%) followed by Auto Loans, Utilities/Telecom, Consumer Loans, and Medical Debt. There is little regulation of this business and the Federal Trade Commission declared “Debt collection is a ‘broken system’ back in 2010.
Be watching for upcoming blog posts further exploring the debt collection business in the coming weeks.
If you are being harassed by a company about debt and you don’t know who they are, contact us before attempting to settle the debt. There may be many solutions to your problem you are not aware of. One of our Nashville Attorneys can help you understand all your options.
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