What Seniors Should Know About Debt Buyers April 26, 2010

If you have ever considered why debt collectors continue to pursue debtors year after year, read the following:

FACT: Debt buying is a fast-growing business. According to an industry group, the Debt Buyers Association, “The face value of all such debt sold in 1993 was $1.3 billion. By 1997, that number had grown to $15 billion and sales reached approximately $25 billion in 2000. The Debt Buyers Association estimates that the amount of debt to be sold by the original debtors in 2002 will exceed $60 billion.” By 2007, the amount had risen to $110 billion per year.

FACT: Courts are aware of how the market for the sale of debt currently works, where large sums of defaulted debt are purchased by a small number of firms for between .04 and .06 cents on the dollar. The entire industry is a game of odds, and in the end, as long as enough awards are confirmed to make up for the initial sale and costs of operation, the purchase is deemed a successful business venture.

Why is this debt sold for such a cheap price? Certainly part of the reason is the poor prospects of payment these creditors expect from the defaulting individuals given their past delinquent payment history, while another part is undoubtedly to avoid additional costs associated with debt collection.

FACT: Debt buyers purchase old debts, generally for pennies on the dollar (in some cases, for less than a penny on the dollar). They then try to enforce them against the consumer. Some debt buyers do their own debt collection, some use third-party debt collectors, and some do both. Several of these firms (Arrow, NCO, Portfolio Recovery, etc.) are publicly traded companies, or subsidiaries of public companies.

FACT: Many debt buyers are abusive. In 2004, the Federal Trade Commission shut down a debt buyer called CAMCO headquartered in Illinois. The following is from a press release issued by the FTC in connection with that case:

In papers filed with the court, the agency charged that as much as 80 percent of the money CAMCO collects comes from consumers who never owed the original debt in the first place. Many consumers pay the money to get CAMCO to stop threatening and harassing them.

According to the FTC, CAMCO buys old debt lists that frequently contain no documentation about the original debt and, in many cases, no Social Security Number for the original debtor. CAMCO makes efforts to find people within the same geographic area and tries to collect the debt from them – whether or not they are the actual debtors. In papers filed with the court, the FTC alleged that CAMCO agents told consumers that they were legally obligated to pay. CAMCO told debtors they could have them arrested and jailed, seize their property, garnish their wages, and ruin their credit. All of these threats were false, according to the FTC.

Protect yourself from the illegal tactics of debt buyers.