If you have never heard the term “debt buyer,” you might be amazed to learn that large companies exist solely for the purpose of buying and selling consumer debt. These companies buy and sell billions of dollars of debt. Some are part of public companies that trade shares of stock on stock exchanges.
In other words, credit card companies, hospitals, personal loan companies, banks and other lenders regularly sell and resell debt – and this may include debt owed by you.
Here’s how it works. Let’s say that you open a Mastercard or Visa account with a local bank. Over the years you may start running a balance – perhaps $2,000 or $3,000. You are able to make the minimum monthly payment but the balance grows slowly. At some point, you find yourself with a problem – you miss one or two monthly payments and your account becomes two or three months past due. The credit card company cancels your account and starts sending you collection letters.
At that point, the credit card company may decide that it would rather sell your delinquent debt for cash before it gets too much older. Depending on how delinquent the debt is, a debt buyer may pay only 4 or 5 cents on the dollar. Your 2 month delinquent debt of $3,000 will be packaged along with other similar debt and sold in bulk to a debt buyer at this discounted rate.
The debt buyer may attempt to collect the debt by dunning you (calling repeatedly) or the buyer may retain a lawyer and sue you.
Debt buying is a perfectly legitimate business as long as the debt buyer follows the rules. Debt buyers also know that most consumers do not know the rules so the debt buyers often take advantage of a consumer’s ignorance of the law and inattention to what is going on.
Some of the illegal tactics used by debt buyers include:
- repeated collection calls that violate the Fair Debt Collection Practices Act ban on harrassment and after hours calls
- misleading consumer into consenting to autodialed calls
- failure to respond to consumer disputes of debt
- farming debt to law firms for litigation without appropriate documentation
- threatening consumers with lawsuits for debts where the statute of limitations has run
- collecting on debt where the debt buyer has no documentation
Debt buyers know that most consumers will not respond to collection lawsuits. High volume collection law firms may file hundreds or even thousands of lawsuits each month, often with little or no lawyer oversight, yet the collection firms win most of these lawsuits by default when the consumer/defendant fails to answer.
The Consumer Financial Protection Bureau is starting to go after debt buyers who pursue shady practices. Recently, for example, the CFPB imposed a $79 million penalty against to large debt buyers – Encore Capital Group and Portfolio Recovery Associates.
According to the Collections and Credit Risk web site:
The CFPB found that Encore and Portfolio Recovery Associates attempted to collect debts that they knew, or should have known, were inaccurate or could not legally be enforced based on contractual disclaimers, past practices of debt sellers or consumer disputes. The companies also filed lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves. The alleged practices violated the Fair Debt Collection Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Even more recently a federal judge in the Northern District of Georgia declared Georgia’s post judgment garnishment statute unconstitutional because it failed to include various consumer protection safeguards having to do with funds that are not subject to seizure. Whether this judge’s ruling holds up on appeal remains to be seen.
While I applaud the CFPB’s actions, you should not assume that the debt buying and collection lawyer industries will suddenly change their ways. The profit in buying and selling debt is so great that some debt buyers may look at CFPB’s fines as a cost of doing business.
- If you are receiving collection phone calls, you do not have to put up with harassment even if you owe the creditor money.
- If a sheriff’s deputy knocks at your door and hands you paperwork do not put that paperwork in a drawer and hope that the problem will go away.
- Most importantly, do not assume that the only reason to call a bankruptcy lawyer is to file a bankruptcy. If you live in the Atlanta metro area, I invite you to call my office at 770-393-4985 to talk with Susan Blum or myself about any debt issue you may be facing. Sometimes the Bankruptcy Code may offer a solution but many times, a strongly worded letter, advice about how to respond to a collection lawsuit or even an explanation about the collection letter you have received will help you decide how to proceed.
Collection agents rely on your ignorance of the law and your fear of challenging their apparent authority to intimidate you into acting for their benefit. You do not have to play their game anymore.
More about the debt collection business: click here