Debt buyer (United States): Understanding the Industry and Its Impact

Debt buyers play a significant role in the US debt collection industry, purchasing millions of dollars' worth of debt each year. They acquire debt from creditors, such as banks and credit card companies, and then attempt to collect the debt from the original debtor.

The debt buying industry is a multi-billion dollar market, with some of the largest debt buyers in the US collecting over $10 billion in debt annually. Debt buyers use various methods to collect debt, including phone calls, letters, and in-person visits.

Debt buyers often purchase debt at a fraction of its original value, sometimes as low as 1-5 cents on the dollar. This means that if a creditor sells a $1,000 debt to a debt buyer, the debt buyer may only pay $5 or $10 for it.

The debt buying industry is a multibillion-dollar business in the United States.

Debt buyers purchase delinquent or charged-off debts from lenders at a fraction of the debt's face value, typically just cents on the dollar. They may buy debts from the original creditor or an intermediary, or from another debt buyer.

The largest debt buyers, such as Encore Capital Group and Portfolio Recovery Associates, have purchased the rights to collect over $200 billion in defaulted consumer debts.

The US debt buying industry is a multibillion-dollar business, with debt buyers recovering and returning billions of dollars in delinquent debt to card issuers and other creditors annually.

Debt buyers like Encore Capital Group and Portfolio Recovery Associates purchase delinquent or charged-off accounts for a fraction of the value of the debt, often paying only pennies on the dollar.

According to the Consumer Financial Protection Bureau, these two companies have purchased the rights to collect over $200 billion in defaulted consumer debts on credit cards, phone bills, and other accounts.

The largest debt buyer, Encore Capital Group, enjoyed soaring revenues from $316 million in 2009 to $773 million in 2013.

The debt buying industry provides over 230,000 jobs nationwide, according to the American Collectors Association, a trade group representing collection agencies, creditors, debt buyers, collection attorneys, and debt collection industry service providers.

Debt buyers typically purchase debt for pennies on the dollar, with the goal of collecting enough of the debt to offset what they paid the original creditor.

Here's a breakdown of the largest debt buyers in the US:

The debt buying industry is regulated by the Consumer Financial Protection Bureau, which has shown interest in regulating debt collectors and debt buyers more robustly pursuant to the Fair Debt Collection Practices Act.

The debt buying industry has a long and complex history. It dates back to the 19th century when debt collectors would buy and sell debts for profit.

One of the earliest recorded debt buying companies was formed in the 1870s in the United States. The company, known as the Dun & Bradstreet Credit Bureau, was founded by a man named Lewis Tappan.

Debt buying gained popularity in the early 20th century, particularly during the Great Depression. As people fell behind on their debts, companies began to buy up these debts at a fraction of their original value.

By the 1960s, the debt buying industry had become a multi-billion dollar business. This was largely due to the introduction of new technologies, such as credit reporting agencies, that made it easier to track and manage debts.

The 1970s saw the rise of specialized debt buying companies that focused on buying and collecting specific types of debts, such as medical debts or credit card debts.

In some cities, debt collection agencies face regulations that limit their ability to collect debts. New York City, for example, enacted a law in 2009 that prohibits debt collection agencies from collecting debts that are past the statute of limitations.

This law requires debt collection agencies to provide consumers with information about their legal rights before attempting to collect a debt that's past the statute of limitations.

Debt buyers in the United States acquire debt from original creditors, often for pennies on the dollar, and then try to collect the full amount from consumers.

The majority of debt buyers are private companies, with some of the largest players being Encore Capital Group, Asset Acceptance Capital Corp, and Midland Credit Management.

These companies use a variety of methods to locate consumers, including online searches, public records, and purchased lists of individuals who have missed payments.

Debt buyers often claim to have a right to collect debt that is years old, but in reality, many of these debts are invalid or unenforceable.

According to the Consumer Financial Protection Bureau, debt buyers are required to follow the Fair Debt Collection Practices Act, which prohibits abusive and deceptive practices.

Despite these regulations, many consumers have reported receiving harassing phone calls and letters from debt buyers, and some have even been sued over debts they don't owe.

It's not easy to win a debt buyer lawsuit on your own. Unrepresented defendants often come to court with virtually no understanding of the law or their rights.

Defendants face a daunting task in articulating viable defenses against debt buyers, who are often represented by top-tier collections law firms or experienced in-house counsel. Debt buyers tend to have a significant advantage in court.

Judges may also exacerbate the problem by failing to address the inequality of arms in debt buyer cases, and instead approach the cases in a way that makes it even harder for defendants to succeed.

Flooding can have devastating effects on communities, causing widespread damage to homes and infrastructure.

Heavy rainfall can lead to flash flooding, which can occur in as little as 30 minutes, as seen in the article's discussion on "Rapid Urbanization".

Flooding can also lead to the spread of waterborne diseases, such as cholera and typhoid fever, due to contaminated water sources.

In areas with poor drainage systems, flooding can persist for days or even weeks, as noted in the article's section on "Inadequate Infrastructure".

Flooding can also cause power outages, leaving communities without access to essential services.

The financial costs of flooding can be substantial, with some communities experiencing costs of up to $1 billion per year, as highlighted in the article's section on "Economic Impacts".

Poverty is a significant obstacle for individuals facing debt buyer lawsuits. In Arizona, the presiding judge of the Maricopa County Justice Courts attributed the low rate of defendant participation in debt buyer cases to "despair" on the part of alleged debtors who feel helpless in the face of debts they cannot afford to pay.

The financial burden of debt can be overwhelming, leading to a sense of hopelessness. Defendants in debt buyer cases often face daunting obstacles to a meaningful day in court.

In many cases, defendants are sued by debt buyers without ever being notified of the lawsuit. This lack of notice can make it difficult for defendants to respond or contest the debt.

The silence of alleged debtors in debt buyer cases is a complex phenomenon with underlying causes that are widely debated.

Debt collectors can sue you if you don't pay, and they can take action anytime until the statute of limitations on the debt has run out.

A debt buyer is considered a debt collector, which means they're subject to the same laws and regulations as traditional debt collection agencies.

Default judgments are a big problem in debt collection cases, with up to 95% of cases ending in favor of the plaintiff without ever going to trial.

In many cases, defendants don't even show up to court or respond to the lawsuit, which can lead to a default judgment being issued against them.

The Supreme Court has ruled in favor of debt collectors, including a case where a debt collection company was allowed to file a claim on a debt that was too old to be enforced by the courts.

This can be devastating for individuals who are already struggling with debt, and it's a major concern for many people who are trying to navigate the debt collection system.

Debt collectors can be a bit sneaky, but there are some rules they have to follow. Under the federal Fair Debt Collection Practices Act, debt collectors are considered the same as debt buyers and collection agencies.

You might be wondering if a debt collector can charge you interest on your debt. The answer is yes, but only under the terms of the original contract. They can't increase the interest rate or impose additional fees beyond what that contract allowed.

Debt collectors have to be transparent about who they are and what they're doing. If you receive a notice from a debt collector, it's essential to understand your rights and the debt collector's responsibilities.

You have the right to know who is trying to collect the debt and what the original contract said about interest rates and fees.

Judgeless Rooms are a major concern in the debt collection process.

Courts like those in Maryland and Philadelphia have been observed to have "judgeless courtroom" proceedings where debt buyer attorneys engage in unsupervised discussions with unrepresented defendants on court premises.

This can lead to coercive "negotiations" that favor the debt buyer.

State legislatures should enact legislation to prohibit debt buyer attorneys from engaging in such unsupervised discussions unless a judge, neutral mediator, or other designated officer of the court is present.

Court systems should adopt rules to this effect on their own if state law permits it.

This would ensure that defendants have access to fair and impartial negotiations, rather than being taken advantage of by debt buyer attorneys.

In the US, courts often rubber stamp corporate suits against poor individuals. This means that defendants face daunting obstacles to a meaningful day in court.

Between 60 and 95 percent of debt collection lawsuits end with default judgments in favor of the plaintiffs, with most defendants either not answering the case or not appearing to defend themselves.

Unrepresented defendants often come to court with virtually no understanding of the law, their rights, or what a debt buyer should have to prove in court. This puts them at a significant disadvantage against debt buyers who are represented by top-tier collections law firms or experienced in-house counsel.

Courts should not require or encourage unrepresented defendants to enter into unsupervised negotiations with debt buyer attorneys on court premises. This can lead to coercive "negotiations" that favor the debt buyer.

If you don't pay a debt collector or collection agency, it can sue you at any time until the statute of limitations on the debt has run out. Even then, it can continue its attempts to collect the debt through other legal means.

Debt buyers are considered debt collectors under the federal Fair Debt Collection Practices Act, just like debt collection agencies and companies, as well as lawyers engaged in debt collection.

Debt buyer lawsuits have been marred by a unique combination of profound evidentiary problems. Debt buyers do not always possess evidence in support of their legal claims, and the evidence they do possess has sometimes been explicitly flagged as unreliable by the creditors who generated it.

Many judges issue default judgments to debt buyers with alarming automaticity and speed, without asking for evidence in support of the claims or subjecting them to scrutiny. In fact, many courts issue judgments in favor of debt buyers without knowing whether the plaintiffs even have access to any evidence in support of their claims.

One Arizona justice of the peace told Human Rights Watch that he had processed 60 default judgments in debt buyer cases at home over the course of about four hours on a Sunday afternoon, a rate of one default judgment every four minutes assuming that he worked without pause. In many courts, default judgments are actually processed—and for all practical purposes decided—by clerks or other non-judicial court personnel.

The courts that adjudicate debt buyer lawsuits are central to the problem and bear direct responsibility for the translation of defective lawsuits into court judgments that hurt poor families. Many low-level courts across the country churn out judgments in favor of debt buyer plaintiffs without asking for any meaningful evidence—and indeed without subjecting the plaintiffs’ claims to any real scrutiny at all.

Debt buyers tend to be represented by top-tier collections law firms or experienced in-house counsel, while unrepresented defendants often come to court with virtually no understanding of the law, their rights, or of what a debt buyer should have to prove in court in order to prevail against them.

The Fair Debt Collection Practices Act (FDCPA) of 1977 was a landmark legislation aimed at regulating the debt collection industry. It was intended to be a self-enforcing statute, relying on private action to promote industry compliance.

In 2010, the FDCPA was amended, but the federal government still has limited power to change the behavior of state court systems. This is why Human Rights Watch's recommendations for governments, courts, and debt buyers are crucial in addressing the problems in the debt buying industry.

Regulators have taken steps to restrict the sale of charged-off debt to buyers who have some capacity to collect and litigate responsibly, and to restrict debt buyers' ability to re-sell debt on to other firms. The Consumer Financial Protection Bureau is also engaged in a rulemaking process to better regulate debt buyers and other debt collectors.

The National Consumer Law Center's Model Family Financial Protection Act includes concrete legislative language that could address many of the most salient issues in the debt buying industry.

Governments at all levels have a crucial role to play in regulating the debt buying industry and protecting consumers from abusive practices. The US federal government has taken some steps towards better regulation, such as putting pressure on banks to restrict the sale of charged-off debt to responsible buyers.

Regulators have also restricted debt buyers' ability to re-sell debt on to other firms, which is a welcome development. The Consumer Financial Protection Bureau is engaged in a lengthy rulemaking process to better regulate debt buyers and other debt collectors.

State governments and court systems have a more significant role to play in addressing the problems described in this report. Many states have similar laws to the FDCPA on fair debt collection, called "mini-FDCPAs", which give consumer debtors more extensive protection from abusive practices.

Some states have taken concrete steps to address these issues, such as New York, which introduced court rules in 2014 requiring debt buyers to provide meaningful evidence in support of their claims. This is an important step towards ensuring that courts have the staff and resources they need to apply meaningful scrutiny to the claims at issue.

Here are some key recommendations for governments to consider:

The federal government has taken steps to regulate the debt buying industry. The Fair Debt Collection Practices Act (FDCPA) of 1977 was amended in 2010.

The FDCPA is a self-enforcing statute, relying on private action to promote industry compliance. This means that debt collectors are held accountable for their actions, and consumers have recourse if they are treated unfairly.

The FDCPA has heavily influenced the debt collection industry, including debt buyers, and has protected consumers from abusive debt collection practices. The Consumer Financial Protection Bureau (CFPB) has taken over the administration and enforcement of the FDCPA, and has shown a strong interest in regulating debt collectors and debt buyers.

Here are some key regulations that have been proposed or implemented:

These regulations aim to protect consumers from abusive debt collection practices and ensure that debt buyers are held accountable for their actions.

Debt collection is a process that can be triggered when a lender is unable to collect payment on an outstanding debt after a certain period of time, often once a debt has been delinquent for 120 or 180 days.

The lender may then write off the debt on its books, referred to as a charge-off, and close the account, but the borrower remains legally responsible for the debt until it has been paid off, settled, or discharged through a bankruptcy proceeding.

Debt buyers are used to recoup at least some of the lender's money by purchasing the debt from the lender. This can happen through a forward flow agreement, where a debt buyer and debt seller agree to transact a fixed amount of debt over a fixed period of time for a predetermined price.

The statute of limitations on debt collection varies by state, but it's often between three and six years. After that, the debt collector can no longer sue the debtor, but it may still attempt to collect on the debt in other ways as long as it complies with the law.

Defendant locations can be a challenge in debt collection cases. In Arizona, the presiding judge of the Maricopa County Justice Courts has attributed the low rate of defendant participation to "despair" among alleged debtors.

Debt buyers and their attorneys often view defendants' failure to respond to a lawsuit as a lack of personal responsibility.

In the debt collection process, it's essential to understand who is considered a collector. Debt buyers are considered debt collectors under the federal Fair Debt Collection Practices Act.

Debt buyers, along with debt collection agencies and companies, and lawyers engaged in debt collection, are all considered debt collectors. This means they are subject to the rules and regulations outlined in the Act.

Debt collectors must adhere to these rules to avoid any potential consequences.

Debt collectors can still charge interest on debts that have gone to collections, but only under the terms of the original contract.

The interest rate, however, cannot be increased or additional fees imposed beyond what that contract allowed.

Debt buyers, on the other hand, can charge extremely high interest rates, often above 25 percent, but there's no compelling policy reason to allow this in debt buyer cases.

Legislation could bar debt buyers from charging contract rates of interest on purchased credit card debt, which would likely impact the prices they pay for debt portfolios, but not put them out of business.

In some cases, debt buyers choose not to add interest to the account, which can eliminate the frustrating experience of debt continuing to grow despite payments being made.

The federal government can pass legislation to address this issue, and state governments can lower or eliminate post-judgment interest rates in consumer credit cases.

Here are some potential actions the US Federal Government can take:

Collection agencies play a significant role in the debt collection process. They are considered debt collectors under the federal Fair Debt Collection Practices Act, along with debt collection agencies and companies, as well as lawyers engaged in debt collection.

Debt buyers, who purchase debts from creditors, may be classified as "active" or "passive." Active debt buyers attempt to collect on the accounts they purchase, while passive debt buyers invest in the debt and then outsource the collection activities to a separate collection agency or collection law firm.

There are different types of collection agencies, including first-party collection agencies, which tend to nurture more constructive relationships with consumers and are involved in the early months before selling or passing the debt on to a third-party.

First-party creditors are outside companies hired by a creditor to collect on accounts that are between 30 and 90 days past due but not yet charged off as losses by the creditor.

Debt buying has historically taken place via the purchase and sale of whole portfolios consisting of a static group of accounts. Debt issuers usually prefer to sell their entire portfolio to a single debt buyer because the issuer is responsible for supplying the debt buyers with the documentation to prove the validity of the account.

Here are some types of debts that are commonly purchased by debt buyers:

Debt buyers may charge high interest rates on purchased debts, often pegged at higher than 25 percent, but this practice is being debated and may be subject to change.

State court systems play a crucial role in ensuring that debt collection lawsuits are fair and just. To achieve this, they can adopt rules that require debt buyers and other creditors to provide meaningful evidence in support of their legal claims.

Debt buyers often purchase old debts, which can be past the statute of limitations. This means that the debt may be too old to be collected, but debt buyers may still try to sue the consumer for it.

Courts can adopt rules that empower and require them to apply meaningful and proactive scrutiny to the claims at issue in all debt collection lawsuits and requests for post-judgment remedy. This includes reviewing the evidence provided by the creditor to ensure it's accurate and reliable.

Here are some specific rules that courts can adopt to improve the debt collection process:

By adopting these rules, courts can help ensure that debt collection lawsuits are fair and just, and that consumers are protected from abusive practices.

A debt is sold to a debt buyer after a lender has been unable to collect payment for 120 or 180 days.

The lender may write off the debt on its books, known as a charge-off, at this point. This can have serious consequences for the borrower's credit score.

The charge-off will remain on the borrower's credit reports for seven years from the date of their first delinquency.

A debt collector can still attempt to collect on the debt in other ways, even if they can no longer sue the debtor, as long as they comply with the law.

Some states have statutes of limitation on how long a creditor or collection agency may attempt to collect on a debt, which is often between three and six years.

The Fair Debt Collection Practices Act (FDCPA) is a cornerstone of US federal law that protects debtors from abusive collection practices. It was passed in 1977 to eliminate abusive debt collection practices by debt collectors.

Debt collectors are subject to both state and federal laws regarding the lengths they can go to collect on a debt. The FDCPA lays out rules to protect debtors from harassment by debt collectors.

If debt collectors violate the rules, debtors can sue them for damages. The FDCPA is administered and enforced by the Consumer Financial Protection Bureau (CFPB), which has shown interest in regulating debt collectors more robustly.

Many US states have similar laws to the FDCPA on fair debt collection, called "mini-FDCPAs" by some. These laws regulate the debt collection industry and give consumer debtors more extensive protection from abusive and deceptive practices.

Some states, like Massachusetts, have laws that specifically include debt buyers in the definition of a debt collector. This means that debt buyers must follow the same rules as other debt collectors.

If you're dealing with a debt buyer, you have the right to dispute the debt and request documentation from the collector. You should also be aware of the statute of limitations on debt collection, which varies by state.

Here are some key rights you have when dealing with debt collectors:

If you're struggling with debt, you may be able to negotiate a settlement or get help from a credit counseling agency. You can also report unfair practices to your state's attorney general or the CFPB.

Debt buyers purchase delinquent debt from original creditors for pennies on the dollar.

These debts can be sold for a fraction of their original value because the original creditor has given up on collecting the full amount.

Debt buyers are subject to state and federal laws that protect borrowers from harassment.

To earn a profit, debt buyers aim to collect at least a portion of the debt, even if it's not the full amount.

Having a debt go into collections can severely damage a borrower's credit score.

Here are some key facts about debt buyers: