What are Debt Buyers?
Debt buyers are simply collection agencies or private debt collectors looking to collect on debt that businesses or other collection agencies are willing to sell. The largest debt buyer in the U.S. is Encore Capital Group and the largest release of debt just recently happened on the John Oliver television show that forgave almost $15 million in out-of-statute debt. The debt collection industry is self-regulated and is can be different across each state.
If you are dealing with debt collectors, below is information on how debt buyers and sellers work.
Debt Buying Process
The Debt buying industry is not one that is currently federally regulated and therefore what these companies can and cannot do varies widely from state to state. In some states there is no license required to buy, sell or collect debt. In these states, any incorporated company can enter into the debt buying process.
When consumers start to default on debt from credit cards or consumer retail cards such as Visa, MasterCard, store credit and others, the lender of the credit can sell the debt. Generally, the banks that underwrite the debt will sell the debt to a debt buying company after taking a tax write off. In this way, the debt seller can get a write off for the loss while also recouping some of that loss from the sale of the debt.
The debt buying company then is provided with the current information on the debtors and can proceed to attempt collections on the outstanding money. If the debt buying company fails to collect, they can then sell the debt again. This process can continue even after a debtor passes away or the debt is out of statute. Out of statute refers to the time period when a consumer is not required legally to pay off the debt.
Getting Sued by a Debt Buyer
Debt buyers are the single largest user of the civil court system in the U.S. with a default award rate of 90% and higher. This means that a debt buyer can sue you for an outstanding debt and does so with many of the debts they purchase. As consumers do not typically show up for these court cases, the debt is awarded to the debt buyer legally and you are now firmly and legally entrenched in owing the full value of the debt to the debt buyer.
However, a debt buyer will have less access to the original proof of the debt as many debt sellers provide minimal details to debt buyers. If more consumers stood up for their rights and attended these court cases, there is potential to have the debt reduced, forgiven or thrown out of court for lack of evidence.
Dealing with Debt
If you owe debt, the best way to ensure you are not preyed upon by these debt buyers is to set up a payment plan for the debt with the original debt holder. If you cannot and the debt gets sold, you should still seek immediate help. Free debt counselling services and free legal aid organizations will be able to fight on your behalf against these predatory companies. As most of these companies do not expect a fight, you may be able to get the debt lowered significantly and get a debt payment agreement put in place.
Stopping the Harassment
As mentioned the laws and regulation in regards to debt collection will differ from state to state - understanding what is legally acceptable and not is important. There have been horror stories where cowboy operators push the boundaries of professional/legal debt collection. Speaking with your states community action agency can be a great first step in getting info on debt collectors. CAA’s may also be able to put you in touch with free legal assistance should your situation be serious.
Never ever accept harassment from debt buying companies and report to the local police any harassment behaviours such as threatening you, your family or friends in order to collect on the debt. These police reports could help tremendously during any legal actions.
What do you do if the info is incorrect and you don’t owe
The first thing is to not ignore the letter as it can escalate to a bigger problem should they try and take you to court based on the information they have. You may be free of paying any money should their info be inaccurate; however, this can take up a lot of your time and even affect your credit.
Contact the debt collector letting them know that you do not believe the information they are working from is accurate and to send you proof of the debt and their ownership of it. The government’s consumer finance department provides professional templates on how to do this – Review their action letters here. Sending the letters certified ensures there is a paper trail.
Check your credit report to verify the claim a debt collector may be making as mistakes do happen, not to mention identity theft. Many services provide free credit checks.
Be sure to also reply to any lawsuits that may be filed against you from debt collectors. Ignoring legal processes will only complicate things. As mentioned earlier, there are free legal services to help low or no income individuals or families that need assistance.