The idea of debt can seem at times like a shadow. It is the absence of something, usually money. It is a promise or understanding that future payments will be made. But debt is a very real and tangible thing. Nothing proves this more than the ability to buy and sell debt. Like stocks, cars or wheat, debt is a commodity that is purchased and traded all over the country to the detriment of those who owe money. This debt ends up becoming “zombie debt,” debt that was thought to have gone away but comes back stronger.
Why Would Anyone Buy Debt?
Credit card companies, lenders, retailers that finance and any other company that people can be indebted to, sell their debt to avoid having to collect it. Outstanding debts that prove difficult, costly and too long to obtain may end up being more trouble than they are worth.
That’s why these companies sell this debt to others for pennies on the dollar. One could buy millions of dollars’ worth of debt for only a few thousand dollars. It is then the buyer’s responsibility to collect the debt. Since they bought it, they are entitled to any further payments made towards the debt.
How Does This Happen?
Companies, but also individuals, can buy debt off of other companies. Generally, collection agencies and companies purchase debts from credit card companies, hospitals or other lenders. The type of debt that gets bought and traded around are just as varied. Credit card debt, medical bills, car loans, mortgages and more are all sold on the trading floor.
Companies can get into buying debt portfolios, or large blocks of debt, easily as there is no license required. The take on the debt of hundreds or thousands of people from many different companies. Once they have it, the people in debt must then pay the new collection agency the amount owed. This sale happens without the person’s consent or knowledge.
Not only that, but debt buyers usually sell off the debt after they have had it for a while. They do not need to complete the collection, just get enough money to cover the cost of the debt they paid, plus a profit. Then they can sell the debt to another debt buying company, and they can do the same thing and so on.
What’s Wrong with It?
This practice may seem odd but not illegal. After all, nobody forced these people into debt. Companies should be able to turn a profit after providing goods and services that they weren’t paid back for, right? Well in theory that is true, but not in practice. Let’s ignore for the moment that not everyone gets into debt by choice. Unexpected medical bills, collapsing economies and student loans are inescapable parts of life that throw people into debt every day. Let’s instead focus on how these debt-buying companies operate.
As stated above, no license is required to buy debt, and the industry is barely regulated. The collection companies who purchase debt are specialists in making people pay. They use intimidation and scare tactics like calling at all hours of the day, sending threatening letters and contacting employers or loved ones. These methods may just seem like slimy, yet legal moves but debt buyers and collectors often cross the line. The illegally mislead their victims, threatening to have them arrested and often invade their privacy.
They are also prone to mistakes. As there is no governing body over this industry and little regulation, there are no standards to follow when the debt is bought and transferred. No one is guaranteeing that the transactions are correct, and it’s the people in debt who pay the price for these mistakes.
Say, for example, Mr. Doe owes a credit card company, and they sell his debt of $1,000 to a debt buyer. He pays that company $500, but then that company sells his credit card debt to yet another collection company. When the sale is made, they record the debt as its original value of $1,000 and do not register that Mr. Doe paid the $500 towards the debt. The new company now comes at Mr. Doe and demands he pay them $1,000.
Maybe Mr. Doe doesn’t understand what’s going on, is overwhelmed and does not receive the notice or just flat out can’t afford a lawyer. Either way, the company can take Mr. Doe to court and win because they have a legal team and he doesn’t. There might not be a record to prove Mr. Doe’s innocence because there’s no oversight.
How Can I Protect Myself?
Unfortunately, if a company wants to sell your debt, there is little you can do about it. But, if they use illegal tactics to try and intimidate you into paying, you can report them to the authorities. It will take a knowledge of your state’s laws, but if you are unable to do the research, there may be some law firms that can help. If you can’t afford them, they may work pro bono.
If a debt buying company makes a mistake and tries to force you to pay money you have already handed over, there’s something you can do about that, too. Keep a detailed record of all of the money you pay towards your debt because you never know when you will need it. Many victims have successfully sued debt buying and collection companies for harassment and wrongful collection.
If a company comes to you asking that you pay a debt you have already taken care of, don’t feel compelled to pay it. Don’t ignore it, either. Contact the company explaining your issue and check your paper trails to find proof that you paid. Then check your credit report to see what the company may be doing to your credit.
Don’t ignore lawsuits and demands for payments. Debt collection companies can have your case thrown out if you don’t show up or provide evidence for your innocence. They win by default. Protect yourself and get proactive to fight these predatory practices.