24 ms·

Inside the Dark, Lucrative World of Consumer Debt Collection

317 points by aet 12y ago

yonran 12y ago
When the collectors call the debtors, can the debtor demand a paper trail to prove that the collector is the actual owner of the debt? Why should a debtor pay any amount of money to a random person who calls them and says they bought an old debt?
- rosser 12y ago
  That's one of the ways a person can "erase" consumer debt: challenge the creditor to prove the debt is legitimate. If they can't, it's supposed to be removed from one's credit report. In the case of bad debt that has passed through multiple agencies, that can be incredibly difficult to do.
- delinka 12y ago
  In the USA: Yes, the alleged debtor can insist on proof. The bad news: If collector mails the debtor, and the debtor doesn't respond for 30 days, the collector can report the debt to the credit reporting agencies. And we all know what a pain it is to get anything corrected on a credit report.
  - a8da6b0c91d 12y ago
    I don't understand why people freak out so much about their credit reports. I have no idea what my credit score is and don't care. I guess it's poor people who need credit to scrape by on a regular basis? If you have a lot of cash it seems like a completely empty threat. The bank is not going to care about your $400 unpaid comcast bill when writing you a mortgage. People who have declared bankruptcy twice are getting low rates. Tell the collectors to fuck off and go ahead and tell experian. I got a $1200 medical bill, about half of which was BS. I sent a certified letter disputing the invalid charges. I never got a reply, so I never paid. I started getting calls from a collector. I blocked the numbers, end of story. I similarly never paid some bullshit charge from a landlord. These unpaid "debts" have never impacted me in the slightest. If someone is trying to screw you, just don't pay. I don't understand why people are such cowards about it.
    - pavel_lishin 12y ago
      > The bank is not going to care about your $400 unpaid comcast bill when writing you a mortgage. [citation needed] Sure, a single unpaid bill won't hurt you, but that's because it won't hurt your credit score much. If your credit score is low enough, your bank may still give you a loan to buy a house, but will demand a lot more money up front and charge you a much higher interest rate. If you can buy a house for cash, it might not matter, but there are plenty of non-"poor people" who can't just drop a quarter million dollars off in a suitcase.
      - a8da6b0c91d 12y ago
        I am telling you that people with multiple bankruptcies are getting the same rates on mortgages. It just doesn't matter like you think it does if you have a solid income and the down payment. The credit score is this bizarre hollow threat that has middle class people terrified into submission in many situations where they shouldn't submit.
        TheOtherHobbes 12y ago
        Until they try to get a phone contract, or a broadband contract, or even an electricity supply they can pay from a bank account. I know people who have had problems with all of the above because of poor credit. I agree that the credit industry relies on extortion. I also know for a fact that some debt collectors act as front men for 'legit' banks and credit card companies who use them to extort extra interest from written-off debt. So they get a double profit - a tax write-off, and some or all of the principal back, with interest. The lenders should - and I guess do - run actuarial models which give them a good idea what current and future default rates are. I know there's at least one credit card company in the UK that deliberately lends to people with poor credit - not because it's run by nice people, but because it knows it can maximise profit by taking defaulters to court and foreclosing on their houses. It's a vile, despicable business run by failed human beings.
    - Iftheshoefits 12y ago
      This is the worst possible advice a person could give. Collectors can and will go to court to get a Judgement (capital-J), which allows them to garnish wages (among other things) and in some cases is actually worse than declaring bankruptcy. "If you have a lot of cash" speaks volumes about where you're coming from, though. Congratulations on being one of the very privileged few in this country who can afford to do what you suggest. The vast majority of the rest simply cannot.
- saryant 12y ago
  You can demand a validation notice under the Fair Debt Collection Practices Act: http://www.consumerfinance.gov/askcfpb/1699/how-can-i-verify-whether-or-not-debt-collector-legitimate.html http://www.consumerfinance.gov/askcfpb/1699/how-can-i-verify...
- dbarlett 12y ago
  patio11's guide to doing exactly that: https://news.ycombinator.com/item?id=7135833 https://news.ycombinator.com/item?id=7135833
  - dlhavema 12y ago
    thanks, that was a good post to read, i also like the comments about the fact that you should really actually pay your debt when it is legitimate. I'm all for going after the unscrupulous collectors, but if you owe the debt.. pay it off...
- rondon2 12y ago
  Yes, and you can tell them to never contact you again in any way. Tell them that you refute all of the debt and will sue them if they file inaccurate information with a credit agency. I did that two years ago when a debt was incorrectly reported against me and I never heard from anyone again and it never showed up on my credit report. I'm not sure what would happen if they could prove the debt was accurate.
- njharman 12y ago
  > should a debtor pay any amount of money to a random person No. Debt is not a crime in the USA. And it is generally more profitable for collectors to sell your debt on to the next collector than to take any sort of civil legal action against you. Some exceptions include IRS and Student Loans. As the article indicated, the best reaction (assuming you don't intend to pay) is to hang up.
- mindslight 12y ago
  That's what it really comes down to. At the end of the day, receiving a call from a "debt collector" is no different than receiving a call from "Windows Support" or "Oil Fund of Nigeria" (or even sweepstakes / political campaigns). When enough seemingly-personal details match, gullible people get tricked into sending money. The only thing that solves this problem is for people to stop entertaining unsolicited calls of any form. How much are VOIP rates these days? Last time I looked, it took something like $50 to leave a short message for everyone in a phone prefix (10 kilopeople). In the case that one possibly does have an unpaid debt and wants to resolve it, then call up the original creditor and follow the debt's legitimate path from the source. And when you finally have someone to pay, insist on written documentation from every party in the chain, absolving you of the debt.
- lmkg 12y ago
  On the ground, a large portion of (consumer) debt collection is based on pulling fast ones. The people in debt are not aware of their rights and protects, and the debt collectors deceive, sometimes stretching the truth and sometimes outright lying. Threatening with prison sentences and even posing as cops are mentioned in the linked article, even though one is a fiction and the other an outright felony. So really, your question "why should a debtor pay...?" is always answered by "the collector convinces them to." Giving the consumer rights and protections is, at this point, insufficient. Their current rights and protections are not being exercised, due to ignorance. That's something that needs to be fixed.
enraged_camel 12y ago
I find it very scary that huge portions of our economy are basically houses of cards built upon more houses of cards. We're so desperate to generate circulation for money that we've invented an intricate set of rules where it's OK to pretend that you have money, as long as you promise to actually have it at some point in the future. And then of course another set of rules has to be invented to manage the risk of that particular future not coming to fruition. My mind bends, but cannot wrap around why this game is necessary.
- jfoutz 12y ago
  It's probably less of a house of cards than ever before. From kings mixing more nickel in with their currency, to giving loans based on reputation rather than earnings, that stuff is fading fast.
- innguest 12y ago
  Watch "The Century of the self". It makes the point that it's necessary because the government wants to control people's subconscious behavior through consumerism, which necessitates (I guess?) this skew in currency that you pointed out.
- qq66 12y ago
  Well, lending is a very important function in an economy. Without lending, you could never invest more capital than you had on hand... If you had a handmade widget that you were producing for $10, and could only sell for $5, but a million-dollar factory would let you produce 100,000 widgets a day for $2 each, lending is the only way to get into business. It's not the use of debt that's a problem, it's the misuse of debt.
  - TheOtherHobbes 12y ago
    That's not actually how it works. Money is not a thing. Money is a decision and a means of social punishment/reward. Lending is either an executive function based on (supposed) faith in the future, or it's gambling, or it's client patronage, or it's extortion. There is no financial business model which does not reduce to these relationships. In your example, the factory gets built if someone important decides it should be built. They charge 'interest' based on justifications assembled from some combination of gambling, extortion, or patronage. It's an entirely imaginary and delusional system, and completely faith-based.
fred_durst 12y ago
Father was a personal injury lawyer. Son was a debt collector. Solid family values over at the Seigels.
- omegaham 12y ago
  Both are perfectly legitimate practices if done correctly. People need a lawyer to sue if they've been injured by someone's negligence, and companies need debt collectors if they want to recoup some of their lost costs. Of course, there are a lot of scumbags in both professions, but I don't see any reason why there can't be decent people there as well.
nostromo 12y ago
I think that borrowers should have the right of first refusal when their debt is sold. For example, if you're about to sell $1.00 worth of my debt to someone for $0.10, first you must offer it to me at the same cost: $0.10.
- res0nat0r 12y ago
  Then why would anyone pay their bills if they can buy their debt back for 1/10th of what they owe?
  - ahh 12y ago
    Well, at a bare minimum, credit scores.
    - il 12y ago
      Most people on HN exist in a very different world from the unbanked population. Credit scores mean nothing to these people. Many can't even get approved for a checking account and rely primarily on cash equivalents and prepaid products.
      - jisaacks 12y ago
        Then wouldn't these individuals not even care to pay f their debt at .10 to the 1.00?
        Broken_Hippo 12y ago
        Sometimes getting rid of the debt means that you can begin to restart. Of course, it won't help you afford a non-free checking account nor pay bills, but it can lead to marginally better jobs and nicer housing for the price. Sometimes that price is worth it because it brings a bit more piece of mind - no more phone calls and letters. A good number of unbanked aren't even as poor as you might expect - things have happened and they can't get to a point to restart. And some people, no. No they wouldn't care. Like most people, it depends on life situation.
AdmiralAsshat 12y ago
Advice from someone who works on debt collection software for a living: never, ever let a check bounce. Returned checks operate in a legal loophole that circumvents most of the consumer protection afforded to regular debt. Collection agencies can begin pursuing it immediately, can begin reporting it to the credit bureaus immediately, and the interest rate they're allowed to charge on it is ridiculous.
- deleted 12y ago
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- opendais 12y ago
  Do you think its financially viable to run an ethical debt collection agency?
  - dllthomas 12y ago
    It might depend on what you mean by ethical. Certainly there's a world where treating people well makes them more interested in cooperating with you and that leads to a higher collection rate. I have no idea whether we inhabit that world.
    - opendais 12y ago
      Doesn't use the shady, illegal tactics + settles for less than the dollar value of the debt. For instance, they buy it for $.05 and settles for whatever the debtor can reasonably pay that covers costs plus a reasonable margin, like 100%. So they buy it at $.05 and let the debtor pay it off for $.10 + the collector's cost. I'd guess that is something like 25-50% of the value of face value of the debt.
      - jbigelow76 12y ago
        You idea of doesn't sound tenable. The "ethical" agency would need an extremely high conversion rate. Something probably in the 75% neighborhood, to cover operating expenses, the 25% that doesn't convert and then a little left over for profit. Judging by the value of write off debt (pennies on the dollar) the implicit conversion rate of collecting is probably closer to what you might see on a Facebook advertising campaign (3-5 percent??). To make that work the agencies need to charge close to the original charge off amount.
ams6110 12y ago
I was called by a collector once. Old medical bill, the clinic had sent it to an old address and the mail forwarding had expired. Why they never called or tracked me down I don't know, but they eventually sold it to a collector who had no trouble finding my phone number. When they called I was confused at first, then remembered and realized it was legit, paid it, end of story. They were utterly professional and courteous about everything.
- forca 12y ago
  Medical debt rankles me like nothing else. The US, supposedly the most advanced nation on Earth has the worst notion of all: health care for profit. Simply evil. Health care is a basic human right. Full stop. Health care should never be based on one's ability to pay. Never. I pray I see socialised medicine in the US in my lifetime. If Hilary Clinton gets elected, the push for this will be stronger than the thin edge of a wedge President Obama has managed. We need a full single-payer tax-based system. I pay the ridiculous sum of $700 US dollars a month for my family's health insurance. If we raise taxes by 10% for every American, we could have awesome health care. I'd gladly take the 10% tax over $8400 a year I pay now. Sick, capitalist theft. I feel I've been politely robbed every pay period.
  - prostoalex 12y ago
    Um, there are more not-for-profit hospitals than there are for-profit hospitals, which doesn't dramatically change the pricing equation. http://www.aha.org/research/rc/stat-studies/fast-facts.shtml http://www.aha.org/research/rc/stat-studies/fast-facts.shtml One man's profit is another man's stash for bonuses and building a new wing of the hospital.
    - forca 12y ago
      The goal is zero profit in health care.
      - prostoalex 12y ago
        Where does a dentist then raise money to buy a new XRay machine? Where do you find money if your top doctor wants a raise or threatens to leave for a competitor?
blhack 12y ago
This is one of the most unbelievable articles I've ever read. If you didn't read it all the way through, do so over lunch or something; it's amazing. The idea of "millions of dollars" worth of debt being traded for around on thumb drives, and that all those thumb drives really contain are excel spreadsheets is mind boggling. Those people in those spreadsheets are real people, and they're being completely duhumanized. Also the fact that debt is being purchased for 1/12 of a penny is completely just...unbelievable. Honestly this whole article reads like some dystopian nightmare. Shady former criminals trading peoples' lives around like it's nothing. Horrifying.
- shkkmo 12y ago
  Especially when you consider that those thumb drives contain sensitive PII (personally identifiable information) including SSN numbers.
- eli 12y ago
  Sure, but on the other hand, let's say you run a small business. At some point you have customers who don't pay. What do you do? Write it off as a total loss? 1/12 is better than nothing.
  - yogo 12y ago
    You can just sell it off on a site like judgmentmarketplace.com. sometimes trying to collect could end up costing you more.
  - shkkmo 12y ago
    It's not 1/12th of the debt, it's 1/1200th of the debt.
    - eli 12y ago
      OK, I agree that part is a little ridiculous but only in the "why bother" sense.
      - 12y ago
bengali3 12y ago
missed it the first time, but check out the link at the end article to play 'Bad Paper' http://static.fusion.net/badpaper/ http://static.fusion.net/badpaper/
- deleted 12y ago
  [deleted]
jqm 12y ago
Very interesting article. I'm sensing a collective consumer opportunity. Form a group, take donations, buy the bad paper (for pennies on the dollar) and forgive all the debts on it. No doubt many of the people would be simple deadbeats, but lots of them are probably just people who ran into problems, and something like this would help clear up their credit and give them a new start. What a gift! I'd kick in $25 for something like this. As a side effect, with cleaner credit the debtors would be able to start racking up more debt again and this would stimulate the economy!
- michaelochurch 12y ago
  lots of them are probably just people who ran into problems, and something like this would help clear up their credit and give them a new start. Unfortunately, once your account is in collections, your credit rating is damaged and paying the debt off doesn't improve it much. While that's arguably "fair" (the original creditor still got screwed, losing 60-95 cents on the dollar) it leaves the debtor with minimal reason to pay the debt, unless successfully sued, resulting in a judgment. As the OP discusses, most third-party collectors have lost proof of the debt and won't be able to successfully sue the debtor. Full recovery of the credit rating would be sufficient incentive for many people to repay, but that's not an option. The fact that you can't get your credit rating back (at least, not to what it was) is one of the problems with the system as it stands currently. If there was a system whereby people could make the original creditor whole and recover their credit rating, that'd probably better (if shitty for third-party collectors).
  - jqm 12y ago
    Ya, I'm sure you are correct. It was a bit of a flippant idea. But... it would still remove _some of the stain from their credit and at least prevent them being victimized by scummy collectors like those referenced in the article.
cnp 12y ago
And to think that I paid all of my debt last year only to be confronted on my latest credit check with an alert saying that it was all back, and had quadrupled in value.
BallinBige 12y ago
The CFPB has made the debt buying industry more difficult to operate in. for better or for worse
deleted 12y ago
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deleted 12y ago
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xSwag 12y ago
1. Get loan 2. Don't pay it back 3. Ask debt collector friend to buy debt 4. Pay him off Why would this not work?
- fred_durst 12y ago
  They are sold in parcels. There isn't like a list of debtors in default the bank maintains that you can go pick from. It's more like here's 1,287 loans defaulted on, worth a total of $4,342,230 that you can bid on.
- jdhawk 12y ago
  debt collector friend....ha
- jabagawee 12y ago
  Debt collectors usually do not have the ability to target specific people's debt in the debt packages that they buy.
- UrMomReadsHN 12y ago
  You still have a history of non payment and debt being sent to collections on your credit report.
sybhn 12y ago
entertaining read! and learn 2 important things: 1) don't ever go to collection, your personal data will circulate across the globe for many years, 2) look at statute of limitations before taking any collection call seriously.
newaccountfool 12y ago
Honest question here, where would I purchase some of this paper?
- newaccountfool 12y ago
  If any one wants to know I seem to have found some sort of debt marketplace. http://www.debtconnection.com/mastersearch.asp http://www.debtconnection.com/mastersearch.asp
thisone 12y ago
And then there's those of us who have non-existent debt sold on to these people. About 12 years ago, I started getting letters from a debt agency about a medical bill that I did not owe. Letters that I forwarded to the insurance company. Then the phone calls started, with people trying to convince me to pay a bill I didn't owe. It took about 9 months to get it sorted out. What had happened is that the doctor had improperly billed the insurance, for a fee they had already billed for, and the insurance refused to pay it. The doctor's office sent it to collections. And the collections agency would only stop harassing me if I got the doctors office to call them and admit they had billed incorrectly. That was not fun.
kclay 12y ago
Man, me and the wife are dealing with this right now (didn't read yet). One company sold to another to keep it going. We got it off but now the next company is trying to collect so we have to go through it again, but not until it hits her credit. Just BS if you ask me.
mrjaeger 12y ago
This seems like a problem that the bitcoin protocol could help to solve, at least the tracking part (aka no double selling of debtor lists, knowing who actually OWNS your debt). To try and retroactively do this is probably suicide but I could imagine where all new debt sold off is kept track of in a system like this and people can at least know they are paying to the correct collector.
nodetrend 12y ago
"Most negative information disappears from credit reports after seven years and, depending on state law, debts may be unrecoverable through a lawsuit after as little as three years" So all I have to do to get out of my loans is live off the grid for 7 years? I wonder if this is the same for student loans.
- BallinBige 12y ago
  in some cases, if you make a payment of any amount towards your debt, the statute of limitations resets... so keep that in mind!
- UrMomReadsHN 12y ago
  No. Federally subsidized student loans don't have a statute of limitations and can't be discharged during bankruptcy. And they have that much time to sue you. So they can and probably will sue you to win a judgment against you before the statute of limitations. If you don't show up to court to defend yourself you get a default judgement against you - you automatically lose.
ebiggs 12y ago
Debtors need to take control. They need to collectively seize the paper at the giant discount and then dismiss the debt. How to do such a thing? Seems impossible, but even a 4x or 5x overhead would be a giant bargain for the debtors next to the sharks, and the sharks wouldn't be able to compete on those margins.
Mz 12y ago
This is sort of funny stuff to me: Not long after getting out of prison, Wilson took a job as a debt collector. He proved quite good at it, and soon he bought some paper and opened his first agency. Later, he also became a debt broker or dealer, a type of role he knew quite well: “I used to buy pounds of weed, all right, and then break it down and sell ounces to the other guys, who were then breaking it down and selling dime bags on the corner, right? Well, that’s what [I’m] doing in debt.” I mean a lot of it has comical tones -- granted, darkly comical. But, hey, I have probably had more real financial problems then most folks on HN and my dad once collected about 98% of the defaulted debts kept in (probably) a shoe box at a small business he worked for. So I have seen kind of both sides of this quite close to home.
patio11 12y ago
This is actually something I think a startup could do a really good job at disrupting, but you'd have to have a very high tolerance for both a) schleps and b) dealing with poor peoples' problems. Billions of dollars are being thrown around at companies where the average level of technical sophistication is Excel spreadsheets and the prototypical competitor is a high-school graduate with an average of N weeks of experience in the industry.
- dllthomas 12y ago
  I wonder if you could tie it to disrupting credit reporting.
  - patio11 12y ago
    That's an interesting angle. The troublesome part is that credit reporting is a two-sided B2B marketplace. You need to convince people to report debts to you AND convince lenders to make lending decisions based on your reports. On top of this, you have to have a B2C facing function for FDCPA and FCRA compliance, and they're very toothy rules to fall afoul of.
    - dllthomas 12y ago
      All certainly true. I was thinking an interesting angle would be to provide better visibility to the debtors - no limits on the number of times you can check, notifications when things are reported - which might both make the data more accurate (and thus more valuable, one would hope) and make getting in touch with people easier, and make the whole thing less awful.
- osamet67 12y ago
  That's exactly why we started working on this problem.
  - Chronic29 12y ago
    A startup is not the solution to this problem.
uberjon 12y ago
There is an interesting startup in the space, trying to do things right. https://www.trueaccord.com/ https://www.trueaccord.com/
- osamet67 12y ago
  Thanks for the mention! I'm one of the cofounders. We're already making a huge difference in debt collection for several leading technology companies. We had to rethink a lot of the core solutions and technologies for debt collection to not fall into the same traps.
deleted 12y ago
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ahi 12y ago
"It remained unsaid, of course, that this “paper” had often been purchased for as little as one penny on the dollar, and there was no mention of the fact that many of the debts that Wilson specialized in were too old to appear on a credit report or to be sued for in court. Most negative information disappears from credit reports after seven years and, depending on state law, debts may be unrecoverable through a lawsuit after as little as three years."
justifier 12y ago
The people's bailout was a form of protest that resonated with me: they take donations to buy debt and instead of then trying to call in that debt, they just forget it, absolving the original debtor http://rollingjubilee.org/ http://rollingjubilee.org/
wtbob 12y ago
It's a bit of a pipe dream, but it seems to me that this is a perfect use-case for digital signatures. If I sign over debt to Bill, and he signed it over to Jim and Nancy, and then Jim collects it and Nancy signs it over to Stu, and then Stu find that it's already been collected, then Stu and Jim can compare provenances and sue/beat-up/whatever Bill. The real question is how to make digital signatures work for people at that level. That's a really tough question; I don't have the answer there. Maybe Excel could have some sort of row-signature cell type, which could stack (e.g. First Martian Bank would sign each row upon issuance, then each seller would just sign it again). It'd be even better if it weren't just a statically-signed document, but could also document stuff like 'Joe Smith paid down $320 in principal.' Gosh, almost sounds like Bitcoin or a similar protocol would make sense here …

317 points by aet 12y ago

When the collectors call the debtors, can the debtor demand a paper trail to prove that the collector is the actual owner of the debt? Why should a debtor pay any amount of money to a random person who calls them and says they bought an old debt?

rosser 12y ago
That's one of the ways a person can "erase" consumer debt: challenge the creditor to prove the debt is legitimate. If they can't, it's supposed to be removed from one's credit report. In the case of bad debt that has passed through multiple agencies, that can be incredibly difficult to do.
delinka 12y ago
In the USA: Yes, the alleged debtor can insist on proof. The bad news: If collector mails the debtor, and the debtor doesn't respond for 30 days, the collector can report the debt to the credit reporting agencies. And we all know what a pain it is to get anything corrected on a credit report.
- a8da6b0c91d 12y ago
  I don't understand why people freak out so much about their credit reports. I have no idea what my credit score is and don't care. I guess it's poor people who need credit to scrape by on a regular basis? If you have a lot of cash it seems like a completely empty threat. The bank is not going to care about your $400 unpaid comcast bill when writing you a mortgage. People who have declared bankruptcy twice are getting low rates. Tell the collectors to fuck off and go ahead and tell experian. I got a $1200 medical bill, about half of which was BS. I sent a certified letter disputing the invalid charges. I never got a reply, so I never paid. I started getting calls from a collector. I blocked the numbers, end of story. I similarly never paid some bullshit charge from a landlord. These unpaid "debts" have never impacted me in the slightest. If someone is trying to screw you, just don't pay. I don't understand why people are such cowards about it.
  - pavel_lishin 12y ago
    > The bank is not going to care about your $400 unpaid comcast bill when writing you a mortgage. [citation needed] Sure, a single unpaid bill won't hurt you, but that's because it won't hurt your credit score much. If your credit score is low enough, your bank may still give you a loan to buy a house, but will demand a lot more money up front and charge you a much higher interest rate. If you can buy a house for cash, it might not matter, but there are plenty of non-"poor people" who can't just drop a quarter million dollars off in a suitcase.
    - a8da6b0c91d 12y ago
      I am telling you that people with multiple bankruptcies are getting the same rates on mortgages. It just doesn't matter like you think it does if you have a solid income and the down payment. The credit score is this bizarre hollow threat that has middle class people terrified into submission in many situations where they shouldn't submit.
      - TheOtherHobbes 12y ago
        Until they try to get a phone contract, or a broadband contract, or even an electricity supply they can pay from a bank account. I know people who have had problems with all of the above because of poor credit. I agree that the credit industry relies on extortion. I also know for a fact that some debt collectors act as front men for 'legit' banks and credit card companies who use them to extort extra interest from written-off debt. So they get a double profit - a tax write-off, and some or all of the principal back, with interest. The lenders should - and I guess do - run actuarial models which give them a good idea what current and future default rates are. I know there's at least one credit card company in the UK that deliberately lends to people with poor credit - not because it's run by nice people, but because it knows it can maximise profit by taking defaulters to court and foreclosing on their houses. It's a vile, despicable business run by failed human beings.
  - Iftheshoefits 12y ago
    This is the worst possible advice a person could give. Collectors can and will go to court to get a Judgement (capital-J), which allows them to garnish wages (among other things) and in some cases is actually worse than declaring bankruptcy. "If you have a lot of cash" speaks volumes about where you're coming from, though. Congratulations on being one of the very privileged few in this country who can afford to do what you suggest. The vast majority of the rest simply cannot.
saryant 12y ago
You can demand a validation notice under the Fair Debt Collection Practices Act: http://www.consumerfinance.gov/askcfpb/1699/how-can-i-verify-whether-or-not-debt-collector-legitimate.html http://www.consumerfinance.gov/askcfpb/1699/how-can-i-verify...
dbarlett 12y ago
patio11's guide to doing exactly that: https://news.ycombinator.com/item?id=7135833 https://news.ycombinator.com/item?id=7135833
- dlhavema 12y ago
  thanks, that was a good post to read, i also like the comments about the fact that you should really actually pay your debt when it is legitimate. I'm all for going after the unscrupulous collectors, but if you owe the debt.. pay it off...
rondon2 12y ago
Yes, and you can tell them to never contact you again in any way. Tell them that you refute all of the debt and will sue them if they file inaccurate information with a credit agency. I did that two years ago when a debt was incorrectly reported against me and I never heard from anyone again and it never showed up on my credit report. I'm not sure what would happen if they could prove the debt was accurate.
njharman 12y ago
> should a debtor pay any amount of money to a random person No. Debt is not a crime in the USA. And it is generally more profitable for collectors to sell your debt on to the next collector than to take any sort of civil legal action against you. Some exceptions include IRS and Student Loans. As the article indicated, the best reaction (assuming you don't intend to pay) is to hang up.
mindslight 12y ago
That's what it really comes down to. At the end of the day, receiving a call from a "debt collector" is no different than receiving a call from "Windows Support" or "Oil Fund of Nigeria" (or even sweepstakes / political campaigns). When enough seemingly-personal details match, gullible people get tricked into sending money. The only thing that solves this problem is for people to stop entertaining unsolicited calls of any form. How much are VOIP rates these days? Last time I looked, it took something like $50 to leave a short message for everyone in a phone prefix (10 kilopeople). In the case that one possibly does have an unpaid debt and wants to resolve it, then call up the original creditor and follow the debt's legitimate path from the source. And when you finally have someone to pay, insist on written documentation from every party in the chain, absolving you of the debt.
lmkg 12y ago
On the ground, a large portion of (consumer) debt collection is based on pulling fast ones. The people in debt are not aware of their rights and protects, and the debt collectors deceive, sometimes stretching the truth and sometimes outright lying. Threatening with prison sentences and even posing as cops are mentioned in the linked article, even though one is a fiction and the other an outright felony. So really, your question "why should a debtor pay...?" is always answered by "the collector convinces them to." Giving the consumer rights and protections is, at this point, insufficient. Their current rights and protections are not being exercised, due to ignorance. That's something that needs to be fixed.

enraged_camel 12y ago

I find it very scary that huge portions of our economy are basically houses of cards built upon more houses of cards. We're so desperate to generate circulation for money that we've invented an intricate set of rules where it's OK to pretend that you have money, as long as you promise to actually have it at some point in the future. And then of course another set of rules has to be invented to manage the risk of that particular future not coming to fruition. My mind bends, but cannot wrap around why this game is necessary.

jfoutz 12y ago
It's probably less of a house of cards than ever before. From kings mixing more nickel in with their currency, to giving loans based on reputation rather than earnings, that stuff is fading fast.
innguest 12y ago
Watch "The Century of the self". It makes the point that it's necessary because the government wants to control people's subconscious behavior through consumerism, which necessitates (I guess?) this skew in currency that you pointed out.
qq66 12y ago
Well, lending is a very important function in an economy. Without lending, you could never invest more capital than you had on hand... If you had a handmade widget that you were producing for $10, and could only sell for $5, but a million-dollar factory would let you produce 100,000 widgets a day for $2 each, lending is the only way to get into business. It's not the use of debt that's a problem, it's the misuse of debt.
- TheOtherHobbes 12y ago
  That's not actually how it works. Money is not a thing. Money is a decision and a means of social punishment/reward. Lending is either an executive function based on (supposed) faith in the future, or it's gambling, or it's client patronage, or it's extortion. There is no financial business model which does not reduce to these relationships. In your example, the factory gets built if someone important decides it should be built. They charge 'interest' based on justifications assembled from some combination of gambling, extortion, or patronage. It's an entirely imaginary and delusional system, and completely faith-based.

fred_durst 12y ago

Father was a personal injury lawyer. Son was a debt collector. Solid family values over at the Seigels.

omegaham 12y ago
Both are perfectly legitimate practices if done correctly. People need a lawyer to sue if they've been injured by someone's negligence, and companies need debt collectors if they want to recoup some of their lost costs. Of course, there are a lot of scumbags in both professions, but I don't see any reason why there can't be decent people there as well.

nostromo 12y ago

I think that borrowers should have the right of first refusal when their debt is sold. For example, if you're about to sell $1.00 worth of my debt to someone for $0.10, first you must offer it to me at the same cost: $0.10.

res0nat0r 12y ago
Then why would anyone pay their bills if they can buy their debt back for 1/10th of what they owe?
- ahh 12y ago
  Well, at a bare minimum, credit scores.
  - il 12y ago
    Most people on HN exist in a very different world from the unbanked population. Credit scores mean nothing to these people. Many can't even get approved for a checking account and rely primarily on cash equivalents and prepaid products.
    - jisaacks 12y ago
      Then wouldn't these individuals not even care to pay f their debt at .10 to the 1.00?
      - Broken_Hippo 12y ago
        Sometimes getting rid of the debt means that you can begin to restart. Of course, it won't help you afford a non-free checking account nor pay bills, but it can lead to marginally better jobs and nicer housing for the price. Sometimes that price is worth it because it brings a bit more piece of mind - no more phone calls and letters. A good number of unbanked aren't even as poor as you might expect - things have happened and they can't get to a point to restart. And some people, no. No they wouldn't care. Like most people, it depends on life situation.

AdmiralAsshat 12y ago

Advice from someone who works on debt collection software for a living: never, ever let a check bounce. Returned checks operate in a legal loophole that circumvents most of the consumer protection afforded to regular debt. Collection agencies can begin pursuing it immediately, can begin reporting it to the credit bureaus immediately, and the interest rate they're allowed to charge on it is ridiculous.

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opendais 12y ago
Do you think its financially viable to run an ethical debt collection agency?
- dllthomas 12y ago
  It might depend on what you mean by ethical. Certainly there's a world where treating people well makes them more interested in cooperating with you and that leads to a higher collection rate. I have no idea whether we inhabit that world.
  - opendais 12y ago
    Doesn't use the shady, illegal tactics + settles for less than the dollar value of the debt. For instance, they buy it for $.05 and settles for whatever the debtor can reasonably pay that covers costs plus a reasonable margin, like 100%. So they buy it at $.05 and let the debtor pay it off for $.10 + the collector's cost. I'd guess that is something like 25-50% of the value of face value of the debt.
    - jbigelow76 12y ago
      You idea of doesn't sound tenable. The "ethical" agency would need an extremely high conversion rate. Something probably in the 75% neighborhood, to cover operating expenses, the 25% that doesn't convert and then a little left over for profit. Judging by the value of write off debt (pennies on the dollar) the implicit conversion rate of collecting is probably closer to what you might see on a Facebook advertising campaign (3-5 percent??). To make that work the agencies need to charge close to the original charge off amount.

ams6110 12y ago

I was called by a collector once. Old medical bill, the clinic had sent it to an old address and the mail forwarding had expired. Why they never called or tracked me down I don't know, but they eventually sold it to a collector who had no trouble finding my phone number. When they called I was confused at first, then remembered and realized it was legit, paid it, end of story. They were utterly professional and courteous about everything.

forca 12y ago
Medical debt rankles me like nothing else. The US, supposedly the most advanced nation on Earth has the worst notion of all: health care for profit. Simply evil. Health care is a basic human right. Full stop. Health care should never be based on one's ability to pay. Never. I pray I see socialised medicine in the US in my lifetime. If Hilary Clinton gets elected, the push for this will be stronger than the thin edge of a wedge President Obama has managed. We need a full single-payer tax-based system. I pay the ridiculous sum of $700 US dollars a month for my family's health insurance. If we raise taxes by 10% for every American, we could have awesome health care. I'd gladly take the 10% tax over $8400 a year I pay now. Sick, capitalist theft. I feel I've been politely robbed every pay period.
- prostoalex 12y ago
  Um, there are more not-for-profit hospitals than there are for-profit hospitals, which doesn't dramatically change the pricing equation. http://www.aha.org/research/rc/stat-studies/fast-facts.shtml http://www.aha.org/research/rc/stat-studies/fast-facts.shtml One man's profit is another man's stash for bonuses and building a new wing of the hospital.
  - forca 12y ago
    The goal is zero profit in health care.
    - prostoalex 12y ago
      Where does a dentist then raise money to buy a new XRay machine? Where do you find money if your top doctor wants a raise or threatens to leave for a competitor?

blhack 12y ago

This is one of the most unbelievable articles I've ever read. If you didn't read it all the way through, do so over lunch or something; it's amazing. The idea of "millions of dollars" worth of debt being traded for around on thumb drives, and that all those thumb drives really contain are excel spreadsheets is mind boggling. Those people in those spreadsheets are real people, and they're being completely duhumanized. Also the fact that debt is being purchased for 1/12 of a penny is completely just...unbelievable. Honestly this whole article reads like some dystopian nightmare. Shady former criminals trading peoples' lives around like it's nothing. Horrifying.

shkkmo 12y ago
Especially when you consider that those thumb drives contain sensitive PII (personally identifiable information) including SSN numbers.
eli 12y ago
Sure, but on the other hand, let's say you run a small business. At some point you have customers who don't pay. What do you do? Write it off as a total loss? 1/12 is better than nothing.
- yogo 12y ago
  You can just sell it off on a site like judgmentmarketplace.com. sometimes trying to collect could end up costing you more.
- shkkmo 12y ago
  It's not 1/12th of the debt, it's 1/1200th of the debt.
  - eli 12y ago
    OK, I agree that part is a little ridiculous but only in the "why bother" sense.
    - 12y ago

bengali3 12y ago

missed it the first time, but check out the link at the end article to play 'Bad Paper' http://static.fusion.net/badpaper/ http://static.fusion.net/badpaper/

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jqm 12y ago

Very interesting article. I'm sensing a collective consumer opportunity. Form a group, take donations, buy the bad paper (for pennies on the dollar) and forgive all the debts on it. No doubt many of the people would be simple deadbeats, but lots of them are probably just people who ran into problems, and something like this would help clear up their credit and give them a new start. What a gift! I'd kick in $25 for something like this. As a side effect, with cleaner credit the debtors would be able to start racking up more debt again and this would stimulate the economy!

michaelochurch 12y ago
lots of them are probably just people who ran into problems, and something like this would help clear up their credit and give them a new start. Unfortunately, once your account is in collections, your credit rating is damaged and paying the debt off doesn't improve it much. While that's arguably "fair" (the original creditor still got screwed, losing 60-95 cents on the dollar) it leaves the debtor with minimal reason to pay the debt, unless successfully sued, resulting in a judgment. As the OP discusses, most third-party collectors have lost proof of the debt and won't be able to successfully sue the debtor. Full recovery of the credit rating would be sufficient incentive for many people to repay, but that's not an option. The fact that you can't get your credit rating back (at least, not to what it was) is one of the problems with the system as it stands currently. If there was a system whereby people could make the original creditor whole and recover their credit rating, that'd probably better (if shitty for third-party collectors).
- jqm 12y ago
  Ya, I'm sure you are correct. It was a bit of a flippant idea. But... it would still remove _some of the stain from their credit and at least prevent them being victimized by scummy collectors like those referenced in the article.

cnp 12y ago

And to think that I paid all of my debt last year only to be confronted on my latest credit check with an alert saying that it was all back, and had quadrupled in value.

BallinBige 12y ago

The CFPB has made the debt buying industry more difficult to operate in. for better or for worse

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xSwag 12y ago

1. Get loan 2. Don't pay it back 3. Ask debt collector friend to buy debt 4. Pay him off Why would this not work?

fred_durst 12y ago
They are sold in parcels. There isn't like a list of debtors in default the bank maintains that you can go pick from. It's more like here's 1,287 loans defaulted on, worth a total of $4,342,230 that you can bid on.
jdhawk 12y ago
debt collector friend....ha
jabagawee 12y ago
Debt collectors usually do not have the ability to target specific people's debt in the debt packages that they buy.
UrMomReadsHN 12y ago
You still have a history of non payment and debt being sent to collections on your credit report.

sybhn 12y ago

entertaining read! and learn 2 important things: 1) don't ever go to collection, your personal data will circulate across the globe for many years, 2) look at statute of limitations before taking any collection call seriously.

newaccountfool 12y ago

Honest question here, where would I purchase some of this paper?

newaccountfool 12y ago
If any one wants to know I seem to have found some sort of debt marketplace. http://www.debtconnection.com/mastersearch.asp http://www.debtconnection.com/mastersearch.asp

thisone 12y ago

And then there's those of us who have non-existent debt sold on to these people. About 12 years ago, I started getting letters from a debt agency about a medical bill that I did not owe. Letters that I forwarded to the insurance company. Then the phone calls started, with people trying to convince me to pay a bill I didn't owe. It took about 9 months to get it sorted out. What had happened is that the doctor had improperly billed the insurance, for a fee they had already billed for, and the insurance refused to pay it. The doctor's office sent it to collections. And the collections agency would only stop harassing me if I got the doctors office to call them and admit they had billed incorrectly. That was not fun.

kclay 12y ago

Man, me and the wife are dealing with this right now (didn't read yet). One company sold to another to keep it going. We got it off but now the next company is trying to collect so we have to go through it again, but not until it hits her credit. Just BS if you ask me.

mrjaeger 12y ago

This seems like a problem that the bitcoin protocol could help to solve, at least the tracking part (aka no double selling of debtor lists, knowing who actually OWNS your debt). To try and retroactively do this is probably suicide but I could imagine where all new debt sold off is kept track of in a system like this and people can at least know they are paying to the correct collector.

nodetrend 12y ago

"Most negative information disappears from credit reports after seven years and, depending on state law, debts may be unrecoverable through a lawsuit after as little as three years" So all I have to do to get out of my loans is live off the grid for 7 years? I wonder if this is the same for student loans.

BallinBige 12y ago
in some cases, if you make a payment of any amount towards your debt, the statute of limitations resets... so keep that in mind!
UrMomReadsHN 12y ago
No. Federally subsidized student loans don't have a statute of limitations and can't be discharged during bankruptcy. And they have that much time to sue you. So they can and probably will sue you to win a judgment against you before the statute of limitations. If you don't show up to court to defend yourself you get a default judgement against you - you automatically lose.

ebiggs 12y ago

Debtors need to take control. They need to collectively seize the paper at the giant discount and then dismiss the debt. How to do such a thing? Seems impossible, but even a 4x or 5x overhead would be a giant bargain for the debtors next to the sharks, and the sharks wouldn't be able to compete on those margins.

Mz 12y ago

This is sort of funny stuff to me: Not long after getting out of prison, Wilson took a job as a debt collector. He proved quite good at it, and soon he bought some paper and opened his first agency. Later, he also became a debt broker or dealer, a type of role he knew quite well: “I used to buy pounds of weed, all right, and then break it down and sell ounces to the other guys, who were then breaking it down and selling dime bags on the corner, right? Well, that’s what [I’m] doing in debt.” I mean a lot of it has comical tones -- granted, darkly comical. But, hey, I have probably had more real financial problems then most folks on HN and my dad once collected about 98% of the defaulted debts kept in (probably) a shoe box at a small business he worked for. So I have seen kind of both sides of this quite close to home.

patio11 12y ago

This is actually something I think a startup could do a really good job at disrupting, but you'd have to have a very high tolerance for both a) schleps and b) dealing with poor peoples' problems. Billions of dollars are being thrown around at companies where the average level of technical sophistication is Excel spreadsheets and the prototypical competitor is a high-school graduate with an average of N weeks of experience in the industry.

dllthomas 12y ago
I wonder if you could tie it to disrupting credit reporting.
- patio11 12y ago
  That's an interesting angle. The troublesome part is that credit reporting is a two-sided B2B marketplace. You need to convince people to report debts to you AND convince lenders to make lending decisions based on your reports. On top of this, you have to have a B2C facing function for FDCPA and FCRA compliance, and they're very toothy rules to fall afoul of.
  - dllthomas 12y ago
    All certainly true. I was thinking an interesting angle would be to provide better visibility to the debtors - no limits on the number of times you can check, notifications when things are reported - which might both make the data more accurate (and thus more valuable, one would hope) and make getting in touch with people easier, and make the whole thing less awful.
osamet67 12y ago
That's exactly why we started working on this problem.
- Chronic29 12y ago
  A startup is not the solution to this problem.

uberjon 12y ago

There is an interesting startup in the space, trying to do things right. https://www.trueaccord.com/ https://www.trueaccord.com/

osamet67 12y ago
Thanks for the mention! I'm one of the cofounders. We're already making a huge difference in debt collection for several leading technology companies. We had to rethink a lot of the core solutions and technologies for debt collection to not fall into the same traps.

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ahi 12y ago

"It remained unsaid, of course, that this “paper” had often been purchased for as little as one penny on the dollar, and there was no mention of the fact that many of the debts that Wilson specialized in were too old to appear on a credit report or to be sued for in court. Most negative information disappears from credit reports after seven years and, depending on state law, debts may be unrecoverable through a lawsuit after as little as three years."

justifier 12y ago

The people's bailout was a form of protest that resonated with me: they take donations to buy debt and instead of then trying to call in that debt, they just forget it, absolving the original debtor http://rollingjubilee.org/ http://rollingjubilee.org/

wtbob 12y ago

It's a bit of a pipe dream, but it seems to me that this is a perfect use-case for digital signatures. If I sign over debt to Bill, and he signed it over to Jim and Nancy, and then Jim collects it and Nancy signs it over to Stu, and then Stu find that it's already been collected, then Stu and Jim can compare provenances and sue/beat-up/whatever Bill. The real question is how to make digital signatures work for people at that level. That's a really tough question; I don't have the answer there. Maybe Excel could have some sort of row-signature cell type, which could stack (e.g. First Martian Bank would sign each row upon issuance, then each seller would just sign it again). It'd be even better if it weren't just a statically-signed document, but could also document stuff like 'Joe Smith paid down $320 in principal.' Gosh, almost sounds like Bitcoin or a similar protocol would make sense here …