7 ms·

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.
    - opendais 12y ago
      You are probably right. I just wish there were better options, I suppose.
    - osamet67 12y ago
      What assumptions are you making regarding operating costs?
  - dllthomas 12y ago
    I wonder if you could run it as a non-profit, offering reductions in exchange for classes on budgeting, &c, (where appropriate) and making up some of the shortfall with donations.
shkkmo 12y ago
What about a non-profit that purchases this debt and then targets the debtors with the tools and support to get them back on their feet to the point where they CAN pay off the debt?
- opendais 12y ago
  http://rollingjubilee.org/ http://rollingjubilee.org/ ? That is likely close enough.
  - rcraft 12y ago
    Anyone know of any other similar type organizations?
  - jeangenie 12y ago
    Unfortunately they are no longer accepting donations.
    - jeangenie 12y ago
      What on earth would possess someone to downvote a statement of fact.
- judk 12y ago
  Non-profit "debt counselors" is actually a huge scam industry that operates in the loopholes of nonprofit debt-counseling law.
  - wpietri 12y ago
    Does anybody know more about this? I've seen ads for places like that and they set off my scam-o-meter, but I've never dug in to see how he scam worked.
    - FireBeyond 12y ago
      You pay them a big fee, upfront (they know you have debt repayment issues, they're sure as hell not going to risk not getting -their- money), they contact your creditors with a form letter saying that they are authorized to act on your behalf and any communications should be through them (this is the biggest relief most people find, the phone calls, letters, all stop). But then you get burned, because they settle all your debts, just as you could have yourself, and your credit is (even more) toasted, because yes, you'll pay less, but everything on your credit record is marked as 'settled' rather than 'paid in full'. They have some emotional distance and apathy regarding the negotiation that might help, but there's nothing magical that they do that you yourself could not.
zem 12y ago
this guy sems to be trying: http://blogs.hbr.org/2013/08/the-debt-collection-company-th/ http://blogs.hbr.org/2013/08/the-debt-collection-company-th/
- opendais 12y ago
  Ya, that sounds like a workable solution :)
- lotharbot 12y ago
  This is one of the most remarkable companies I've ever heard of. And I read about all sorts of remarkable companies here on HN. I don't know how legit they really are, but the article sure got my attention!
AdmiralAsshat 12y ago
You'd have to first define what constitutes "ethical" as distinct from "legal". If you're of the opinion that the very practice of collecting debt is scummy or unethical, then no. Assuming you will allow for at least SOME form of "ethical" debt collection, we'd have to narrow down what kinds. For instance, just off the top of my head, you've got: - Commercial Debt - Medical Debt - Student Loans - Bad Checks Within that you conceivably have debts whose collection is perhaps ethical by nature but not ethical in practice. For instance, as I said earlier, collection on bad checks circumvent many normal collection laws, and you can thus have interest rates of 200% or higher. Another example would be Student Loans, which have their own set of ridiculous loopholes that allow the debt to persist past bankruptcy, past retirement, etc. As someone who was still in college myself only a few years ago, the idea of the financial burden imposed on me for the rest of my life simply for doing the thing that society practically strong-armed me into doing seems, to me, ridiculous; for that reason I am hesitant to call any form of Student Debt collection "ethical" simply because the laws which govern it are atrocious. With that said, I have dealt with many agencies who at least tried to operate on an "ethical" model (usually they collected on medical debt), and they seemed polite and reasonable in their collection efforts. Remember, they're in the business to make money. Some agencies will go for the "Make the debtor's life as miserable as possible to make them pay up" tactic, which includes harassment, lawsuits, garnishments, etc. I deal with them frequently, and I think they're the scum of the Earth (primarily because they talk to me in what I imagine is the same tone as they talk to debtors). Others, however, will simply try to get what they can, and if they CAN'T--i.e. they realize that continuing to call a guy about a debt when he's already stated that he has no job and no savings would be like squeezing blood from a stone--they'll stop wasting their time and move on to an account that would be more profitable. Much of the work done by agencies these days is not only getting people to pay, but finding out who is more LIKELY to pay so that the agency can focus its efforts accordingly. This analysis might include things like the line of business, their credit score, their location (they usually figure that areas with a higher average income are more likely to pay), etc. To answer your question succinctly: probably. It would center primarily on whether the percentage of the portfolio that actually pays can sustain the percentage that you're willing to let go when pursuing them further would entail questionable tactics.
- 12y ago
kazinator 12y ago
What does your question mean? Let's assume that we accept that "it is financially viable to run a possibly unethical debt collection agency". So then you must be thinking of some behaviors that the agency will not engage in, which will cut into its profitability compared to an agency which will do those things, possibly to the extent of making it not financially viable. What behaviors do you have in mind?
osamet67 12y ago
Absolutely possible - just need to have the right mindset and tools. As someone who started a startup that's reinventing how debt collection gets done, I see a lot of old-school collectors who'd never be able to break the mold because their financial incentives aren't aligned. They don't have the technology, thus do not have the efficiency and margin, to operate ethically. They have to make money off of fees and interest so they end up focusing on people who can pay, making their lives harder, and having them end up in worse financial standing than if they chose not to pay.

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.
  - opendais 12y ago
    You are probably right. I just wish there were better options, I suppose.
  - osamet67 12y ago
    What assumptions are you making regarding operating costs?
- dllthomas 12y ago
  I wonder if you could run it as a non-profit, offering reductions in exchange for classes on budgeting, &c, (where appropriate) and making up some of the shortfall with donations.

shkkmo 12y ago

What about a non-profit that purchases this debt and then targets the debtors with the tools and support to get them back on their feet to the point where they CAN pay off the debt?

opendais 12y ago
http://rollingjubilee.org/ http://rollingjubilee.org/ ? That is likely close enough.
- rcraft 12y ago
  Anyone know of any other similar type organizations?
- jeangenie 12y ago
  Unfortunately they are no longer accepting donations.
  - jeangenie 12y ago
    What on earth would possess someone to downvote a statement of fact.
judk 12y ago
Non-profit "debt counselors" is actually a huge scam industry that operates in the loopholes of nonprofit debt-counseling law.
- wpietri 12y ago
  Does anybody know more about this? I've seen ads for places like that and they set off my scam-o-meter, but I've never dug in to see how he scam worked.
  - FireBeyond 12y ago
    You pay them a big fee, upfront (they know you have debt repayment issues, they're sure as hell not going to risk not getting -their- money), they contact your creditors with a form letter saying that they are authorized to act on your behalf and any communications should be through them (this is the biggest relief most people find, the phone calls, letters, all stop). But then you get burned, because they settle all your debts, just as you could have yourself, and your credit is (even more) toasted, because yes, you'll pay less, but everything on your credit record is marked as 'settled' rather than 'paid in full'. They have some emotional distance and apathy regarding the negotiation that might help, but there's nothing magical that they do that you yourself could not.

zem 12y ago

this guy sems to be trying: http://blogs.hbr.org/2013/08/the-debt-collection-company-th/ http://blogs.hbr.org/2013/08/the-debt-collection-company-th/

opendais 12y ago
Ya, that sounds like a workable solution :)
lotharbot 12y ago
This is one of the most remarkable companies I've ever heard of. And I read about all sorts of remarkable companies here on HN. I don't know how legit they really are, but the article sure got my attention!

AdmiralAsshat 12y ago

You'd have to first define what constitutes "ethical" as distinct from "legal". If you're of the opinion that the very practice of collecting debt is scummy or unethical, then no. Assuming you will allow for at least SOME form of "ethical" debt collection, we'd have to narrow down what kinds. For instance, just off the top of my head, you've got: - Commercial Debt - Medical Debt - Student Loans - Bad Checks Within that you conceivably have debts whose collection is perhaps ethical by nature but not ethical in practice. For instance, as I said earlier, collection on bad checks circumvent many normal collection laws, and you can thus have interest rates of 200% or higher. Another example would be Student Loans, which have their own set of ridiculous loopholes that allow the debt to persist past bankruptcy, past retirement, etc. As someone who was still in college myself only a few years ago, the idea of the financial burden imposed on me for the rest of my life simply for doing the thing that society practically strong-armed me into doing seems, to me, ridiculous; for that reason I am hesitant to call any form of Student Debt collection "ethical" simply because the laws which govern it are atrocious. With that said, I have dealt with many agencies who at least tried to operate on an "ethical" model (usually they collected on medical debt), and they seemed polite and reasonable in their collection efforts. Remember, they're in the business to make money. Some agencies will go for the "Make the debtor's life as miserable as possible to make them pay up" tactic, which includes harassment, lawsuits, garnishments, etc. I deal with them frequently, and I think they're the scum of the Earth (primarily because they talk to me in what I imagine is the same tone as they talk to debtors). Others, however, will simply try to get what they can, and if they CAN'T--i.e. they realize that continuing to call a guy about a debt when he's already stated that he has no job and no savings would be like squeezing blood from a stone--they'll stop wasting their time and move on to an account that would be more profitable. Much of the work done by agencies these days is not only getting people to pay, but finding out who is more LIKELY to pay so that the agency can focus its efforts accordingly. This analysis might include things like the line of business, their credit score, their location (they usually figure that areas with a higher average income are more likely to pay), etc. To answer your question succinctly: probably. It would center primarily on whether the percentage of the portfolio that actually pays can sustain the percentage that you're willing to let go when pursuing them further would entail questionable tactics.

12y ago

kazinator 12y ago

What does your question mean? Let's assume that we accept that "it is financially viable to run a possibly unethical debt collection agency". So then you must be thinking of some behaviors that the agency will not engage in, which will cut into its profitability compared to an agency which will do those things, possibly to the extent of making it not financially viable. What behaviors do you have in mind?

osamet67 12y ago

Absolutely possible - just need to have the right mindset and tools. As someone who started a startup that's reinventing how debt collection gets done, I see a lot of old-school collectors who'd never be able to break the mold because their financial incentives aren't aligned. They don't have the technology, thus do not have the efficiency and margin, to operate ethically. They have to make money off of fees and interest so they end up focusing on people who can pay, making their lives harder, and having them end up in worse financial standing than if they chose not to pay.