3 ms·

The term Moral Hazard is relevant here.

• malandrew 14y ago
  A better question is why the original lender doesn't just try to give the original lender the chance to buy his own debt at pennies on the dollar more than what they are selling it for. i.e. "Hey we're about to sell your $10k in debt to company X for $500, but we'll sell it to you for $2000. Do you want to buy it or should we sell it off to Company X?"
  • mseebach 14y ago
    First, if the delinquent party has $2000 lying around for an expense like this, the debt agency is probably better off trying to recover the full sum. It's not like they can just loan it to them. Second, if you're years behind on your debt, you're probably not in the habit of reading letters from debt collection agencies. Third: the moral hazard: get deep in debt, set aside 20% in a high interest savings account, wait for offer.
    • gpvos 14y ago
      Well, if the banks can have moral hazard, why can't we?
    • kalms 14y ago
      A few years back, when the credit crisis happened, several investment companies bought up debt, and then offered people to pay it off, with half or less, compared to what they owed before that. I don't know if they actually earned anything from that type of investment, but it went on for a while. It was in Denmark.
  • michaelt 14y ago
    Company X might value the debt at $500 on the assumption there's a 25% chance they'll recover $2000 and a 75% chance they'll recover $0. Filter out the 25% who can pay and the value of the debt would presumably drop significantly!