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Debt Collectors Are Transforming the Business of State Courts
- brenden2 6y agoIt bums me out that people who need the most help in life receive the least
- toomuchtodo 6y agoHave you considered finding ways to channel those feelings into help for those who need it?
- brenden2 6y agoI do every day.
- ceejayoz 6y agoI've donated to organizations that pay bail for those who can't afford it and others that buy medical debts for pennies on the dollar in order to forgive them. It's both great to know "man, that dollar went a long way"... and still feels like a tiny drop in a very large bucket.
- toomuchtodo 6y agoProgress requires both short term tactical and long term strategic actions. Thanks to you and sibling comment for your efforts!
- cabaalis 6y agoI assume you're talking about RIP Medical Debt. As I've found success in the healthcare technology industry, they were IMO a good choice for a portion of a recent windfall. I recommend donating to them as well!
- lykr0n 6y agohttps://debtcollective.org/ https://debtcollective.org/
- refurb 6y agoWhat do you mean "receive the least"? Pretty much all the social programs we have target the poor, not the rich. The poor are the ones that receive the most.
- coliveira 6y agoThe only "social programs" that work in this country are the ones serving Wall Street. Socialism for the rich is a reality.
- jkaptur 6y agoPrograms that benefit richer people aren't framed as "social programs" and generally aren't saddled by Kafkaesque bureaucracy and scrutiny. Compare the sheer toil of using food stamps vs using the mortgage tax deduction.
- pmiller2 6y agoForget mortgage interest deductions. Take a look at cash back rewards cards. Cash-using households ultimately end up transferring money to card-using households this way, because merchants don't usually set higher prices for card users to compensate for fees. See https://www.bostonfed.org/publications/public-policy-discussion-paper/2010/who-gains-and-who-loses-from-credit-card-payments-theory-and-calibrations.aspx https://www.bostonfed.org/publications/public-policy-discuss... I get an average of 1-2% off of almost everything I buy simply because I can use a cash back rewards card to do it. It's sickening.
- WD-42 6y agoImagine working for a company that buys up poor people’s debt in order to sue them.
- linuxftw 6y agoIs there good money in it? There's actually a good startup opportunity here. Many of these debt collectors are unethical. You could buy these bad debts for pennies on the dollar, settle them for a very modest margin, and help the poor people fix their credit without filing for bankruptcy.
- mmastrac 6y agohttps://symend.com/ https://symend.com/ is doing something similar to this (no connection, but I met the local team a while back). I like the approach of "ethical debt collection from real humans with real backstories". They just raised a good chunk of change as well.
- adrianN 6y agoIt seems like that strategy is difficult in an efficient market of unethical debt collectors, as intuitively they would be able collect a larger fraction of the debts than the friendly debt collector.
- darkwizard42 6y agoI think this is the hardest part. You would have to pay the same price for the debt as the unethical collectors and then make less off of it than the unethical ones probably putting you in the red :/
- larrywright 6y agoContext: I worked for 16 years for a company that did, among other things, debt collection. It was a small but profitable part of their business. We’re talking relatively low dollar bills - cell phone, cable, power, etc - rather than student loans, medical, or credit card. There are different levels of debt collection. The first level is generally done by the guarantor. Someone falls behind on a bill, service is shut off, and the company tries to get the consumer to pay the bill. The next level is when a company sends the bill to an outside collection agency to attempt to collect on it. The collection agency will get some commission on that if they manage to collect. The debt is maybe 6-12 months old at this time. If the first agency fails, sometimes it will get sent to a second or third agency to see if they have more luck. At some point in time the company will decide that the debt is unlikely to be collected and they will write it off. It’s at this point that debt may get sold. The debt is likely years old at this point. The company that buys it will buy for pennies on the dollar (it’s like any market, sometimes it’s more, sometimes it’s less). They are then the owner of the debt and any money they collect they get to keep. They’re able to settle for much lower amounts. If you have a $1000 debt that was bought for $50, you can settle for $250 and still make a profit. The consumer is able to clear the debt from their credit report for a fraction of what they owed (though it still shows they paid it to a collection agency and that still hurts their credit, but not as much as an unpaid debt). Long answer to your question, but yes there can be good money in it, and there is probably an opportunity here to do some good.
- D13Fd 6y agoIt’s not surprising that the percentage of debt claims has doubled when, as the article notes, consumer debt levels tripled over the same period.
- SpicyLemonZest 6y agoIt's not surprising when you think about it, but it's still an important problem to think about. It has the potential to cause some problems if state courts become seen as a vehicle for debt collectors more than an authority for righting wrongs.
- rayiner 6y agoNot paying a debt is a "wrong" and enforcing contractual obligations is one of the core functions of courts.
- JamesBarney 6y agoI think we all agree you should be able to collect on a debt. (if you can't it's not a debt) And I imagine most of us agree collection should be pursuant to due process. I don't really see any other options.
- eli_gottlieb 6y ago> I think we all agree you should be able to collect on a debt. (if you can't it's not a debt) Nah, not really. Depends on the debt, honestly.
- JamesBarney 6y agoIn what since is a debt that I am unable to try pursue or collect on a debt? Maybe a concrete example would help.
- eli_gottlieb 6y agoI just don't agree that you ought to be able to legally go after anyone for more than the principal on things like "consumer" debt.
- netcan 6y agoThere have been journalists & researchers who covered these debt collectors at court. When defendants showed up, organised, they usually won. The debt collectors' lawyers didn't arrive prepared to win, because most people didn't show up. If you can win 85% of cases just by showing up, why bother. A court system that allows these dynamics to dominate isn't serving well.
- JoeAltmaier 6y agoAnd it only gets to court after harassment hasn't worked. Anecdata: guy I know had a common name. Debt collector fastened on him because he'd lived in the same town as a deadbeat with that name too. Guy would call day and night demanding payment.
- oh_sigh 6y agoAt least in America, you can demand that all correspondence goes through certified mail, with big fines if they don't.
- pmiller2 6y agoNot precisely "certified mail," but just "mail." They can choose to use certified mail if they want, but it's not required. You should always use certified mail to communicate with a debt collector, no matter if the debt is legitimate or not.
- briffle 6y agoI have done that twice for family members, along with asking for proof of the debt, and that they are authorized to collect it. Both times, never, ever heard from the collector again.
- milesvp 6y agoMy understanding with debt collectors, is that they usually purchase a spreadsheet with very limited data, and there is almost never a paper trail for said debt. Which also means debt has a habit of showing up on multiple spreadsheets that keep getting resold. I think planet money did a podcast on this topic. Patio11 also wrote about talking to debt collectors with regards to identity theft. https://www.kalzumeus.com/2017/09/09/identity-theft-credit-reports/ https://www.kalzumeus.com/2017/09/09/identity-theft-credit-r...
- Aloha 6y agoThe single largest thing we can do is undo the changes to bankruptcy law signed in 2005, it removed bankruptcy as a tool of the poor to discharge excess debt. It's caused there to be very little downside to lending, and lead to an explosion of debt.
- ashtonkem 6y agoEspecially since excessive lending usually requires public spending to fix once it gets too bad.
- 1-more 6y agoI'm begging on hands and knees for everyone in this thread to read Graeber's "Debt: the first 5,000 years." The notion that debts have to be paid is very odd. If I went to a bank and asked for a loan to bet on a horse, they'd laugh me out of the building. But if they knew that no matter what they could get the money back from me, they'd cut the check. That's where we are right now with non-dischargeable debts. Who holds risk for making loans is not an iron clad law of nature; it's a matter of political will that we have changed over time.
- anitil 6y agoI tried hard to read that book, but really struggled to get through it unfortunately. It seemed right down my alley but I couldn't get in to it. Might be time to dig it out and try again
- mannanj 6y agoWould you recommend against the newest addition: Debt - Updated and Expanded: The First 5,000 Year or the 2012 release?
- barry-cotter 6y agoDon’t read it. Save your brain for a book that isn’t riddled with so many errors Brad DeLong wrote ten articles on the errors in Chapter 11. https://www.econlib.org/archives/2012/07/hummel_on_graeb.html https://www.econlib.org/archives/2012/07/hummel_on_graeb.htm... > I have read David Graeber’s Debt: The First 5000 Years thoroughly and despite Graeber’s readability, scholarship, and erudition, it is a very bad book. Its tone is much too polemical. More important, when it gets to the more recent history that I know well, it is riddled with errors and distortions. Beyond that, it suffers from serious conceptual confusions, and in his excellent critique, Robert Murphy has only scratched the surface. https://www.bradford-delong.com/2012/02/gabriel-rosser-on-david-graebers-debt-the-first-5000-years.html https://www.bradford-delong.com/2012/02/gabriel-rosser-on-da... >> How the poor debtors still sell their daughters, How in the drought men still grow fat « Code and Culture: At Unfogged there’s a review (and a very funny comments thread) pointing out that the following sentence contains six factual claims all of which are incorrect: > Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other’s garages The above is a quote from Debt about Apple. Here is the index of posts about errors in Chapter 11. https://www.bradford-delong.com/.services/blog/6a00e551f08003883400e551f080068834/search?filter.q=Graeber https://www.bradford-delong.com/.services/blog/6a00e551f0800...
- ilamont 6y agoI took a company to small claims court about 10 years ago. In my state at that time, the max you could sue for was a few thousand dollars (now it's $7k, https://www.mass.gov/service-details/small-claims-court https://www.mass.gov/service-details/small-claims-court). It was run by a magistrate, not a judge, and AFAIK no ordinary citizens who had brought cases (including myself) had a lawyer to represent us. No surprise there ... the small claims courts are designed to work this way, so ordinary people can bring cases if relatively small sums are involved. Most of the defendants (which were small or large companies, some local and some national) in these citizen-brought cases didn't even show, but those who did typically brought a lawyer to deny the charges, and were usually asked by the magistrate to work out a settlement in the hallway. Excluding the local small claims plaintiffs such as myself, about half the docket consisted of national credit card companies suing local debtors. The lawyer for say BOA would come in with a list of 10 local people being sued for amounts under the small claims threshhold. Maybe 1 in 4 defendants in these cases did show up, and were asked to work out a settlement in the hallway. If the local person being sued didn't show, the default judgement was for the credit card company with treble damages, putting these people further in the hole.
- Thorentis 6y agoWow, it's the Court of Chancery all over again.
- Finnucane 6y ago"Civil caseloads dropped more than 18 percent from 2009 to 2017. Although no research to date has identified the factors that led to this decline, " I might make a guess that the efforts of our corporate overlords to force everyone into nonjuducial arbitration has something to do with it.
- everybodyknows 6y ago> Texas is the only state that reports on all types of cases, including outcomes, across all courts. Texas leads the USA in judicial transparency! Sacramento, you got some 'splainin to do.
- llsf 6y agoSeems like there are some money left on the table. Should someone build a small company to defend all those people solely based on some contingency fee (well a tiny percentage of what they owe or would pay if they lose). If I owe $5,000, a lawyer takes the case, and prevent me to pay the $5,000 for a $500 fee, and I never hear again about the debt collector, that seems a win-win. Those debt collector would start to think twice before going to court, and if really working, debt collector would start to think twice before buying debts at the first place. It could be automated, with a single website, where I enter few details about my case (or the website contacts me based on scrawling the dockets), give me free advices to fight it myself (e.g. ask debt collector for all communication to only be done by mail, as allow by law, ask them for proof of debt, etc.). And if it escalate to court, then a lawyer would be assigned to represent me. Looks like some software could fight this court scaling issue, by fighting before it goes to court, and then making it less predictable for debt collector to go the court route.
- bequanna 6y agoHow would this differ from existing debt settlement firms?
- imtringued 6y agoYou seem to misunderstand something. Debt collectors aren't winning cases of illegitimate debt. They are winning legitimate court cases that the defendant simply ignored. Even if you bring a lawyer to court that doesn't mean that you won't have to pay the debt. That $5000 debt was probably bought for less than $500 by the debt collector and the debt collector is willing to settle for something like $1000 which is still significantly less than the original debt.
- DanBC 6y agoIf people don't know about the debt and it goes to court and a default judgment is issued, well, we don't know if the original debt is real or not because it didn't get tested in the court.
- joshuaheard 6y agoI do commercial collections (B2B). The article states, "Unlike most court rulings, these judgments are issued, as the name indicates, by default and without consideration of the facts of the complaint—and instead are issued in cases where the defendant does not show up to court or respond to the suit." I am licensed in California and Texas, and in both states one must "prove-up" a default before judgment is entered by presenting a "prima facie" case. In other words, you must prove your case before a judgment is entered, even if the defendant does not show up.
- beervirus 6y agoI was under the impression that a well-plead complaint was sufficient if the defendant doesn't show up. What rule says you have to actually put on a case to get a default judgment?
- joshuaheard 6y agoIn California, it's CCP 585. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=CCP§ionNum=585 https://leginfo.legislature.ca.gov/faces/codes_displaySectio.... It's a two step process. First your get the default entered if they don't respond, then you ask for judgment for damages. Maybe that's where the confusion lies. The default is entered by request almost automatically if they don't respond. Getting your judgment for damages requires evidence to prove your case.
- pnw_hazor 6y agoDon't forget the third step, collecting on the judgment. This is often the hardest part.
- makomk 6y agoThe article specifically mentions later on that California has stricter proof requirements in order for debt collectors to get default judgments. Unfortunately, most other states apparently don't do this.
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- pnw_hazor 6y agoMany debt collection cases will disappear if the alleged debtor files an answer (in court) to a debt collection complaint. Filing answers is relatively simple and doesn't cost anything. Depending on the jurisdiction, filing an answer basically puts the brakes on the case because it is not worth it for the debt collector to pursue it any further. Their business model is based on default judgments. Eventually, after a year or so, if no action has been taken, the court is likely to dismiss the case (or you can ask them to). Also, debt collection law has a lot of federal consumer protections and often more protections at the state level. Thus, it is not uncommon to run into debt collectors that are violating fed or state laws. Raising such issues also makes the case go away. Of course, your mileage may vary depending on local laws and the nature of the debt or contract breach. But when I practiced little people law (before I sold out and went into IP law) I did this a few times and it worked without issue. Thinking about it now, I guess a debtor-side lawyer should be involved, but defending such cases require hardly any effort on the part of the lawyer, so again I wonder why there are not debt relief orgs doing this. I believe fighting back just a little would significantly reduce the predatory practices of the volume debt collectors. I imagine debt relief agencies don't fight because I think many are funded by the credit industry. So they direct debtors into payment plans rather than trying to shut down the predators.
- FireBeyond 6y ago> I imagine debt relief agencies don't fight because I think many are funded by the credit industry. So they direct debtors into payment plans rather than trying to shut down the predators. Or they require money up front to help you. They already know you are (likely) a default risk, so “cash in advance, please”. And as you allude to, a lot of times the “real” value in services like this is relief from the stress of the calls and letters. They’re not passionately involved or connected, they just have the calls directed to them and put up with it and give you a settlement offer that you could have reached in the first place.
- hash872 6y agoI'd be interested to understand how this works in practice, especially small claims court (which is probably where many credit card debts end up at). From my understanding, small claims judgments are very tough to actually enforce, no longer show up on your credit report, and the court system does nothing to help you collect. Without getting into moralizing and just from a pure P&L perspective- how can it make financial sense for a big company to have one of its attorneys spend the day in court, when you're probably not going to collect on the debt....?
- 6510 6y agoWhat a depressing topic. Since one is responsible for his own debt and just forgiving it is unfair to those pulling their own weight perhaps the small amounts the article talks about should play part in setting the height of an initial basic income. If the income is guaranteed it can at least pay the interest over debt. It could become more interesting to get payments rather than sell peoples property and ruin their lives (and potentially their income) with all the burdens on society it brings.
- pests 6y agoHow is it unfair to forgive debt? What? Other people don't affect you.
- 6510 6y agoIt is only fair in the sense that people need to be able to move on. Unfair is perhaps not the right word but I struggle to think of a better description. Ill try a perhaps stupid example I guess.. If I agree to borrow my car to you I kinda want it back eventually? In bankruptcy it becomes a conversation about who needs my car more? uhh?? Others should learn from that not to allow anyone else to drive their car (even if they badly need it) and that having the keys mean you don't have to give it back. Banks creating money out of thin air does change the topic a lot. I'd like to see a [small] basic income that pulls a substantial number of people out of the paycheck-to-paycheck horror movie.
- Sacho 6y agoUm, they literally do? In aggregate, it's a similar effect as a VC-backed company burning capital to push out competitors. You're spending money you don't have, which drives the economy, raising demand and prices. The people who don't do the same can now afford less. Then the balloon pops, and your debt is forgiven, while you've reaped all the benefits from having the extra capital that your peers didn't. Even in a simple terms, it hurts people's sense ethical and societal obligations. Why should I deprive myself of consumption and be a responsible economic participant, when I can spend money I don't have and then have my debt forgiven?
- Spearchucker 6y agoIt would be hilarious if it wasn't so tragic. Taking someone to court for not paying a debt and then (if severe enough) sending them to prison ends up costing the state, and tax payer, a lot more than just writing off the debt. It's a vicious circle where (on average) only the debt collector wins. It's one of many scenarios (another being healthcare) that point towards a social (not communist) solution being the only way. Civil War usually starts when a significant portion of a population can no longer feed itself...
- LatteLazy 6y agoI actually think the current system works well. The only people having a bad time are people who borrow AND don't repay AND refuse to work with their lender AND refuse to come to court. And remember, there is no free lunch here. Making life easier for borrowers who can pay but won't just means the rest of us have to pay more for out legitimate borrowing.