5 ms·

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 f

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.
    - encoderer 12y ago
      The median credit score is over 700. The people you're talking about are certainly toward the left edge of the bell curve.
- pavel_lishin 12y ago
  I can also just wait out the debt period, until it passes the statute of limitations, and not pay anything at all - but I don't, because I prefer having a decent credit score and businesses who will do business with me.
  - eli 12y ago
    They could also exercise their option to sue you before then.
    - dannypgh 12y ago
      I would suspect most of the people who are defaulting on debts don't have significant assets or income to make it easy to recover debts, even with a court order. The option to sue is reasonable because otherwise people who are too rich to need credit would often find themselves in positions where there's little-to-no incentive to pay back. But these aren't the bulk of debts that these agencies are working with - the bulk of people who are defaulting on loans aren't people with money, they're people without money. Frankly the harassment techniques that a lot of debt collectors use are disgusting and they prey on those who already are suffering. The FDCPA makes a lot of these techniques illegal, but the protections the law provides aren't widely known.
- Iftheshoefits 12y ago
  In addition to the credit issues the other commenters noted, there is the issue of taxes in the case of "chargeoffs." One will get an income statement from the credit issuer for the fraction of the debt they write off. Odds are if one is in the position of having debt collectors come after them they'll be unlikely to afford the taxes on the "income."
  - pavel_lishin 12y ago
    Sometimes the debt is bullshit, but it might be easier to buy it for a small percentage than to pay it off. We get letters for a medical debt that's factually wrong, but by the time we convince Debt Agency N that we don't actually owe it, they've sold it off to Debt Agency N+1 for 1/10th of what they claim we owe them (which is already 1/10th of what was originally 'owed'.) It would be well worth paying 1/100th of the original bill to not have to check the mail anymore, and throw that garbage away, but if we were to actually PAY the 1/10th settlement amount, it would open us to liability for the WHOLE amount. tldr, I'm willing to be extorted, but not ludicrously so.
    - encoderer 12y ago
      I'll tell you, you're playing that game wrong. It's not your job to convince them of anything. The next time they sell, and you get the initial dunning letter, you should write back a simple letter with your name and address stating that you refute this debt, and demand that they validate the debt as they are required to do under § 809 of the FDCPA [15 USC 1692g]. The burden of proof is on them. You only have 30 days to do a so-called "timely" validation, but you can force past CA's to validate as well -- the only hitch is that they can continue to collect on you while they validate, something they cannot do if you demand timely validation. One more tip: Don't sign your name on letters to CAs, and don't ever give them ANY information they don't already own. Ever. Especially your bank account information. If you do decide to pay them (hopefully strategically as part of a pay-for-deletion-from-credit-report arrangement), don't pay them on a bank draft. And send it certified mail return receipt requested.
      - 12y ago
- donpdonp 12y ago
  If 1/10th is what the debt is 'worth', then who cares who buys it?
  - seanflyon 12y ago
    Because it incentivizes being difficult to collect from.
  - brandonmenc 12y ago
    A lender hopes the purchaser retrieves the rest, thus sending a signal to borrowers that they should expect to be on the hook for the full amount.
- dragonwriter 12y ago
  > Then why would anyone pay their bills if they can buy their debt back for 1/10th of what they owe? If self-purchase looked on a credit report just like settlement-for-less-than-full-amount (and was taxed like forgiveness), there'd still be considerable reason to in order to maintain creditworthiness.
- rdtsc 12y ago
  > Then why would anyone pay their bills if they can buy their debt back for 1/10th of what they owe? For the same reason why they might not pay to start with. They don't pay and bank sells the debt to someone. Or the don't pay and then choose to pay later a smaller amount. Option 1 sounds not too far off option 2. It would be minus the hassle to fend of collection agencies.
encoderer 12y ago
Worst. Moral hazard. Ever.
opendais 12y ago
The moral hazard involved [wait 181 days for them to sell it on all debts] is huge. Its a workable system if and only if you are willing to basically cut off credit for anyone who hits that 181 days on a debt milestone. Because no one will loan to them again for years.
Terr_ 12y ago
That seems simple and fair at first, but I think it actually creates more problems than it solves. First, you get a horrible incentive to not repay debts: 1. A relatively innocent and good-natured Bank lends a jerk $1.00 2. The jerk refuses to pay it back, knowing the bank can't transfer it to someone who isn't a pushover without giving him a steeply-discounted offer first 3. In response all loan requirements and interest rates rise for everybody Secondly, it fucks up the negotiations, because would-be buyers can infer something when the creditor doesn't snap up their own debt: 1. The Bank offers the debt for $0.10 2. The debtor doesn't repay because he legitimately can't scrape up that much 3. The Bank offers the debt for $0.10, but nobody wants to buy it, because they can infer that the debtor has nothing 4. The Bank offers the debt for $0.09... (begin loop) Thirdly, it's a logistical nightmare. The Bank can't just combine the debt of it's 1000 deadbeat debtors and sell it off to a debt collection agency for a lump sum. No, it needs to send 1000 mailing notifications and 1000 second-notifications and wait 30 days, etc... And then 120 of them buy their own debts, and the bank can't re-price it's set of 880 accounts without sending 880 mailing notifications (begin loop) Fourth, what happens if it's not a straight sale? Suppose the Bank barters your debt to a collection agency for a thing (like privately-held stock) in the collection agency? You can't buy your debt because you can't provide what the Bank is looking for... And then the bank can just sell whatever-it-is later. TLDR: Exploding legal complexity combined with shady/manipulative actions from everybody.
- TheOtherHobbes 12y ago
  But you're getting shady/manipulative actions already. The only difference is that this approach would favour debtors, not lenders. It's not as if banks don't expect exactly the benefits you're not allowing debtors when their own debts blow up. If banks get bail-outs - and do they ever - why shouldn't ordinary people?
  - hnal943 12y ago
    It favors deadbeats against responsible lenders because the costs of borrowing would necessarily go up to protect the bank against additional losses.
- 12y ago
deleted 12y ago
[deleted]

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.
  - encoderer 12y ago
    The median credit score is over 700. The people you're talking about are certainly toward the left edge of the bell curve.
pavel_lishin 12y ago
I can also just wait out the debt period, until it passes the statute of limitations, and not pay anything at all - but I don't, because I prefer having a decent credit score and businesses who will do business with me.
- eli 12y ago
  They could also exercise their option to sue you before then.
  - dannypgh 12y ago
    I would suspect most of the people who are defaulting on debts don't have significant assets or income to make it easy to recover debts, even with a court order. The option to sue is reasonable because otherwise people who are too rich to need credit would often find themselves in positions where there's little-to-no incentive to pay back. But these aren't the bulk of debts that these agencies are working with - the bulk of people who are defaulting on loans aren't people with money, they're people without money. Frankly the harassment techniques that a lot of debt collectors use are disgusting and they prey on those who already are suffering. The FDCPA makes a lot of these techniques illegal, but the protections the law provides aren't widely known.
Iftheshoefits 12y ago
In addition to the credit issues the other commenters noted, there is the issue of taxes in the case of "chargeoffs." One will get an income statement from the credit issuer for the fraction of the debt they write off. Odds are if one is in the position of having debt collectors come after them they'll be unlikely to afford the taxes on the "income."
- pavel_lishin 12y ago
  Sometimes the debt is bullshit, but it might be easier to buy it for a small percentage than to pay it off. We get letters for a medical debt that's factually wrong, but by the time we convince Debt Agency N that we don't actually owe it, they've sold it off to Debt Agency N+1 for 1/10th of what they claim we owe them (which is already 1/10th of what was originally 'owed'.) It would be well worth paying 1/100th of the original bill to not have to check the mail anymore, and throw that garbage away, but if we were to actually PAY the 1/10th settlement amount, it would open us to liability for the WHOLE amount. tldr, I'm willing to be extorted, but not ludicrously so.
  - encoderer 12y ago
    I'll tell you, you're playing that game wrong. It's not your job to convince them of anything. The next time they sell, and you get the initial dunning letter, you should write back a simple letter with your name and address stating that you refute this debt, and demand that they validate the debt as they are required to do under § 809 of the FDCPA [15 USC 1692g]. The burden of proof is on them. You only have 30 days to do a so-called "timely" validation, but you can force past CA's to validate as well -- the only hitch is that they can continue to collect on you while they validate, something they cannot do if you demand timely validation. One more tip: Don't sign your name on letters to CAs, and don't ever give them ANY information they don't already own. Ever. Especially your bank account information. If you do decide to pay them (hopefully strategically as part of a pay-for-deletion-from-credit-report arrangement), don't pay them on a bank draft. And send it certified mail return receipt requested.
    - 12y ago
donpdonp 12y ago
If 1/10th is what the debt is 'worth', then who cares who buys it?
- seanflyon 12y ago
  Because it incentivizes being difficult to collect from.
- brandonmenc 12y ago
  A lender hopes the purchaser retrieves the rest, thus sending a signal to borrowers that they should expect to be on the hook for the full amount.
dragonwriter 12y ago
> Then why would anyone pay their bills if they can buy their debt back for 1/10th of what they owe? If self-purchase looked on a credit report just like settlement-for-less-than-full-amount (and was taxed like forgiveness), there'd still be considerable reason to in order to maintain creditworthiness.
rdtsc 12y ago
> Then why would anyone pay their bills if they can buy their debt back for 1/10th of what they owe? For the same reason why they might not pay to start with. They don't pay and bank sells the debt to someone. Or the don't pay and then choose to pay later a smaller amount. Option 1 sounds not too far off option 2. It would be minus the hassle to fend of collection agencies.

encoderer 12y ago

Worst. Moral hazard. Ever.

opendais 12y ago

The moral hazard involved [wait 181 days for them to sell it on all debts] is huge. Its a workable system if and only if you are willing to basically cut off credit for anyone who hits that 181 days on a debt milestone. Because no one will loan to them again for years.

Terr_ 12y ago

That seems simple and fair at first, but I think it actually creates more problems than it solves. First, you get a horrible incentive to not repay debts: 1. A relatively innocent and good-natured Bank lends a jerk $1.00 2. The jerk refuses to pay it back, knowing the bank can't transfer it to someone who isn't a pushover without giving him a steeply-discounted offer first 3. In response all loan requirements and interest rates rise for everybody Secondly, it fucks up the negotiations, because would-be buyers can infer something when the creditor doesn't snap up their own debt: 1. The Bank offers the debt for $0.10 2. The debtor doesn't repay because he legitimately can't scrape up that much 3. The Bank offers the debt for $0.10, but nobody wants to buy it, because they can infer that the debtor has nothing 4. The Bank offers the debt for $0.09... (begin loop) Thirdly, it's a logistical nightmare. The Bank can't just combine the debt of it's 1000 deadbeat debtors and sell it off to a debt collection agency for a lump sum. No, it needs to send 1000 mailing notifications and 1000 second-notifications and wait 30 days, etc... And then 120 of them buy their own debts, and the bank can't re-price it's set of 880 accounts without sending 880 mailing notifications (begin loop) Fourth, what happens if it's not a straight sale? Suppose the Bank barters your debt to a collection agency for a thing (like privately-held stock) in the collection agency? You can't buy your debt because you can't provide what the Bank is looking for... And then the bank can just sell whatever-it-is later. TLDR: Exploding legal complexity combined with shady/manipulative actions from everybody.

TheOtherHobbes 12y ago
But you're getting shady/manipulative actions already. The only difference is that this approach would favour debtors, not lenders. It's not as if banks don't expect exactly the benefits you're not allowing debtors when their own debts blow up. If banks get bail-outs - and do they ever - why shouldn't ordinary people?
- hnal943 12y ago
  It favors deadbeats against responsible lenders because the costs of borrowing would necessarily go up to protect the bank against additional losses.
12y ago

deleted 12y ago

[deleted]