Debt Buyers in the US and Their Impact

Debt buyers in the US are a growing industry, with thousands of companies competing to buy and collect on debts. They're a big business, with some of the largest debt buyers purchasing over $100 billion in debt each year.

According to the article, debt buyers can purchase debts at a fraction of their original value, sometimes as low as 1-2 cents on the dollar. This means that a $1,000 debt could be sold for just $10 or $20.

Debt buyers often target debts that are past due or in collections, which can be stressful and overwhelming for consumers. Many consumers may not even realize they owe the debt, or may have already paid it off.

Debt buying is the practice of purchasing debt from original creditors at a discounted price. This debt can include unpaid credit card balances, medical bills, and other types of unsecured debt.

Debt buyers typically purchase debt in bulk, often from banks, credit card companies, and other financial institutions. They may also acquire debt from government agencies, such as the Department of Education.

The debt buying process usually involves a thorough review of the debt to identify potential issues, such as inaccuracies or lack of documentation. This helps debt buyers determine the validity and value of the debt.

Debt buying, a practice that's been around for centuries, has its roots in medieval Europe. Debtors would often sell their debts to wealthy merchants who would then collect the payments.

The modern concept of debt buying emerged in the United States in the mid-19th century. It was a way for creditors to offload their bad debts to companies that specialized in collecting them.

These companies, known as debt buyers, would purchase the debts at a fraction of their original value and then try to collect the full amount from the debtor.

A debt buyer is a company that purchases consumer charge-offs, typically in bulk and at a deep discount.

They acquire debts for an average of pennies on the dollar, often paying $250 for a debt with a face value of $5,000.

Debt buyers purchase all kinds of consumer debts, including credit card, auto loan, medical, mortgage, and utilities debt.

They may buy a debt from the original creditor or an intermediary, or even from another debt buyer.

The debt buyer then tries to collect on the debts, seeking the full amount of the debt and potentially adding on additional costs for interest, penalties, and attorney’s fees.

The debt collection process can be a complex and intimidating experience, but understanding how it works can help you navigate it more effectively. Debt buyers purchase bad debts at reduced amounts and then use various methods to collect on the monies owed.

Debt buyers often engage in creditor abuse and harassment tactics to force payment of debts, which is a serious issue. If you've been contacted by a debt buyer, it's essential to know that you have options to prevent improper collection.

To protect yourself, it's helpful to gather relevant information about your past debts, including correspondence, financial statements, and other pertinent documents. This information can be crucial in verifying the debt and disputing it if necessary.

Here are some key pieces of information you may need to provide:

Debt collection companies buy bad debts at greatly reduced amounts, usually from 30 to 90 days past due. They then use various methods to collect on the monies owed.

Debt buyers can 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 outsource the collection activities to a separate collection agency or law firm.

Purchased debts can include personal loans, utility bills, medical bills, primary and secondary mortgages, or any type of consumer or commercial credit account. Historically, smaller debt-buying firms would purchase their debt accounts from a larger buyer after that larger buyer had already attempted to collect on the account.

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. This documentation, known as "media" in the debt buying industry, may include the original account application, monthly statements, affidavits of sale, and charge-off statements.

Some debt buyers enter into "Forward Flow Agreements" with debt sellers to purchase a fixed amount of debt over a fixed period of time for a predetermined price. For example, a debt buyer and debt seller may agree to transact $20 million face value of debt each month for 12 months at a price of 7%.

Here are some key points to keep in mind when dealing with debt collection companies:

It's essential to keep track of correspondence, financial statements, and other pertinent information related to your past debts to protect yourself from improper collection.

Mass-produced lawsuits are a common phenomenon in the debt collection industry, where debt buyers and collectors file identical lawsuits against numerous debtors. This practice can lead to a significant increase in the number of lawsuits filed.

Debt buyers often purchase large portfolios of debts from creditors and then file lawsuits against debtors without verifying the accuracy of the debts. In some cases, debt buyers may not even have the original debt documents.

The use of mass-produced lawsuits can be time-consuming and costly for debtors, who may need to defend themselves against multiple lawsuits. Debtors may also be required to pay court fees and other expenses associated with defending themselves.

Debtors who are targeted by mass-produced lawsuits may not even owe the debt, and in some cases, the debt may be past the statute of limitations.

Creditors are a crucial part of the debt collection process, and understanding their role can help you navigate the system more effectively.

Creditors are responsible for collecting debts from consumers, but they often have more accurate information about the account compared to debt buyers.

The accuracy of the information creditors have on the account is one key difference between them and debt buyers, as creditors typically have access to more detailed documents like account statements.

Debt buyers, on the other hand, often only receive an electronic file with basic information when purchasing old debt, which can lead to collection problems.

Here are some key facts to keep in mind about creditors:

The NYC DCWP has clarified that creditors are still considered debt collectors under the amended definition, even though debt buyers are treated differently.

The regulatory environment for debt buyers is governed by the federal landmark Fair Debt Collection Practices Act (FDCPA) of 1977. This law was intended to be primarily self-enforcing, relying on private action rather than government law enforcement to promote industry compliance.

The FDCPA was amended in 2010, but its core principles remain the same.

The federal government has a landmark law, the Fair Debt Collection Practices Act (FDCPA), which was enacted in 1977. The FDCPA was intended to be primarily self-enforcing, relying on private action to promote industry compliance with the law.

In 2010, the FDCPA was amended to further regulate the debt collection industry. This amendment aimed to provide consumers with greater protection from abusive and deceptive practices.

The FDCPA sets a national standard for fair debt collection, providing consumers with rights and protections that are enforceable through private action. This means that consumers can take action against debt collectors who engage in unfair or deceptive practices.

Many states have their own laws regulating debt collection, often referred to as "mini-FDCPAs." These laws provide even greater protection for consumers and hold debt collectors accountable for their actions.

The state of Massachusetts, for example, has a debt collection law modeled after the FDCPA. This law includes debt buyers in its definition of a debt collector, ensuring that they are held to the same standards as other debt collectors.

Self-regulation is a crucial aspect of the receivables industry, and it's been implemented through the DBA International Receivables Management Certification Program.

The program was established in 2013 and became obligatory for DBA International members in certain membership categories by February 29, 2016.

Certified companies must conform to 20 standards, including data and document acquisition, chain of title, and data security.

These standards are designed to ensure that certified companies are complying with state and federal statutory requirements and following industry best practices.

Certified companies are subject to independent third-party audits and remediation agreements if they don't conform to the standards.

Failure to comply with program requirements will lead to the loss of certification.

The RMA recommended a number of self-regulatory options, including the adoption of standardized industry best practices to preserve data and document integrity in secondary market sales transactions.

Student loans have undergone significant changes in the past two decades. Navient acquired a massive portfolio of student loans from Sallie Mae in 2005, including private student loans, Direct Department of Education Loans, and student loans from the Federal Family Education Loan (FFEL) Program.

The U.S. Department of Education contracted out the management of its $744.3 billion portfolio of direct student loans to various federal accounts receivable collectors by 2015.

The law is on your side, but only if you know how to use it. In 2017, the Supreme Court ruled in favor of Midland Credit Management, Inc., a debt collection company, in the Johnson's Chapter 13 bankruptcy case, allowing them to file a proof of claim on a debt that was obviously time-barred.

Debt buyers often turn to the courts to collect on debts, and a 2020 report found that two giants in the debt buying industry, Encore Capital Group and Portfolio Recovery Associates, saw their legal collections grow 184% and 220%, respectively, from 2008 to 2018.

The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects consumers from abusive debt collection practices, but it's not always clear what constitutes a violation. In the Johnson case, the Court ruled that Midland's proof of claim did not violate Alabama law or the bankruptcy code.

Debt buyers often file claims in bankruptcy proceedings, hoping that no one notices that the debt is too old to be enforced by the courts. Justices Sotomayor, Ginsburg, and Kagan dissented from the Court's conclusion, calling this practice "unfair" and "unconscionable".

In some states, claims under consumer protection laws like the FCCPA (Florida Consumer Collection Practices Act) cannot be assigned. The Florida Court of Appeals held that personal claims under the FCCPA are not assignable in the case of KAC 2021-1, LLC v. Mary T. Matuskah Irrevocable Trust.

Default judgments can be a problem for debtors, as they can include accrued interest and court fees that together can exceed the original amount owed. A 2020 report found that debt lawsuits frequently result in default judgments.

The Sixth Circuit has confirmed that debt collectors can threaten legal action to collect debts that are still within the applicable statute of limitations without violating the Fair Debt Collection Practices Act (FDCPA).

This ruling was made in a recent case where a debt collector threatened legal action to collect debts that were still within the statute of limitations, and the court found that this action did not constitute a FDCPA violation.

In fact, the court's decision was in line with a previous Supreme Court ruling in the Johnson case, where the court found that a debt collection company's filing of a proof of claim on an obviously time-barred debt did not violate Alabama law or the bankruptcy code.

The Supreme Court's decision was criticized by Justices Sotomayor, Ginsburg, and Kagan, who argued that the practice of filing claims on stale debt is both "unfair" and "unconscionable".

The Sixth Circuit's ruling highlights the importance of understanding the statute of limitations in debt collection and the potential consequences of violating the FDCPA.

The CFPB Initiates FCRA Rulemaking is a significant development in the regulatory environment. On December 9, the Consumer Financial Protection Bureau (CFPB or Bureau) announced the launch of a rulemaking process.

This rulemaking process addresses credit reporting on survivors of domestic violence, elder abuse, and other forms of financial abuse.

The OCC recently released an updated UDAAP Supervision and Examination Procedures booklet. This update was issued on December 3.

The booklet, also known as the UDAAP booklet, was last updated in June 2020. Version 1.1 is the latest iteration of this important resource.

The OCC is the Office of the Comptroller of the Currency, a government agency responsible for regulating and supervising national banks and federal savings associations.

The UDAAP booklet provides guidance on unfair or deceptive acts or practices, as well as unfair, deceptive, or abusive acts or practices.

The NYC DCWP has clarified that the amended definition of "debt collector" still includes creditors. This is a crucial point for businesses and individuals involved in debt collection.

In 2010, the FDCPA was amended, and the NYC DCWP has been working to implement these changes. The amended rules were initially set to take effect on December 1, 2024, but were delayed to April 1, 2025, due to industry concerns and a legal challenge.

The NYC DCWP's decision to delay the effective date for the amended rules is aligned with the enforcement date, which is also April 1, 2025. This means that businesses and individuals will have a bit more time to adjust to the new regulations.

The amended definition of "debt collector" is a key part of the FDCPA, and it's essential to understand what it means. The NYC DCWP's clarification on this point will help businesses and individuals navigate the complex world of debt collection.

In the meantime, it's essential to stay up-to-date on the latest developments in the regulatory environment. By doing so, you can ensure that you're in compliance with the law and avoid any potential pitfalls.