4 ms·
There used to be a few companies which did decision-tree style disposal of debts via the FDCPA and FCRA, which basically involve sending letters according to a
by patio11 11y ago
There used to be a few companies which did decision-tree style disposal of debts via the FDCPA and FCRA, which basically involve sending letters according to a flow chart and hoping one's counterparty is not as well-organized as oneself on the same flow chart. They worked. Very, very well.
The credit agencies, without any legal rationale for doing so as far as I am aware, started to simply ignore letters which they believed were being generated in an automatic fashion. The decision tree is still the same -- it's the law! -- but to be effective at using it you have to phrase your request in a way which doesn't suggest that you are an expert at writing that request (unless you are a lawyer).
The chief objection to decision-trees-as-a-business-model seems to be that the credit dispute industry was crooked-as-a-barrel-of-fishhooks (welcome to consumer credit, hope you enjoy your stay) and successful in getting people to accept terms like "Pay me $2,000 and I will successfully get you off the hook of $8,000 in debt. Although not particularly relevant to you, this will require writing three letters and waiting a bit."
- eru 11y agoShouldn't competition take care of the $2,000?
- drited 11y agoI happen to know a little about this because my fund is short a publicly-traded company that buys up defaulted credit card debt and goes after the defaulters using shady practices, threatening letters etc. Competition does affect this figure. Back in 2008-09 when the usual competitors in this space didn't have the balance sheet to operate, the few who could buy defaulted debt were making 40-50% returns by effectively buying up debt that they expected to recover $2,000 from for $1,333 (I'm simplifying here because it takes several years to recover the money and there is a present value calculation to be done). By contrast, fast-forward to last year and at best these companies will only make a 7 or 8% return, barely enough to cover their cost of capital. That return is lowered from the 50% return of the 08-09 era either by the companies bidding against each other and ultimately paying more than the $1,333 for the defaulted debt from the original issuer, or by accepting less than the $2,000 for settling with the debtor. It will not go to zero however - the lower limit is the cost of capital of the companies that buy this debt up. There is some good news in this space - recent U.S. legislation has targeted some of the shady practices used by these companies (which is one of the reasons we're short the publicly-traded company).
- eru 11y agoVery interesting. Thanks! In the long run shouldn't recovering more money from defaulted creditors lower interest rates for people before they default?
- pjc50 11y agoHang on, if it's legal for them to ignore letters if they feel like it why would they ever accept a letter which causes them to lose money? (Or is this just "consumer protection in the US does not work", again)
- tfgg 11y agoI think it's more that the letter only holds sway in the first place by the implied threat behind it. If the letter is from a bot, there is nothing to back up the threat.
- wangarific 11y agoCan't the bot account for this by stating that if there's no response, call your local attorney and bring them this summary of facts?
- johnpmayer 11y agoSure, but then you're paying an attorney, not a bot.
- jenno 11y agoThis is why you must send the letters certified mail with return receipt. After 30 days, if the creditors do not comply, you "win"