'Bad Paper' Explores the Underworld of Debt Collection(npr.org)
npr.org
'Bad Paper' Explores the Underworld of Debt Collection
http://www.npr.org/2014/10/09/354846672/bad-paper-explores-the-underworld-of-debt-collection
7 comments
The story is about debt collectors selling to one another, so I imagine the "there's not a lot of regulation" line is in reference to the debt market itself.
There are also a couple of interesting articles about this. Here's one that I think was submitted to HN a few months ago:
http://www.nytimes.com/interactive/2014/08/15/magazine/bad-p...
Fascinating stuff.
http://www.nytimes.com/interactive/2014/08/15/magazine/bad-p...
Fascinating stuff.
Also recommend that article. I couldn't believe there was a market place for trading collections between debt collectors.
That is the article they are discussing in the interview
Planet Money recently did a show about this as well, called "The Buffalo Talk-Off" http://www.npr.org/blogs/money/2014/10/08/354591198/episode-...
I think this is more or less the same story (by Jake Halpern) being double-dipped by NPR.
Halpern seems to have been doing (or getting?) a huge press push. I don't mean that to criticize; everything I've read/heard related to this has been really interesting and I really want to read his book.
whoops, book here: http://www.amazon.com/Bad-Paper-Chasing-Street-Underworld/dp...
The idea that there's a moral obligation, beyond any legal one, to pay one's debts is probably something that's invaluable to folks who do this collection.
Do you guys feel debts are morally bound? I'm not sure how I feel about it, because on one hand you've given your word to pay, but on the other hand you didn't necessarily consent to this level of collection effort, and though I guess it makes sense that debt is transferrable, you didn't make your original agreement with the person actually collecting the debt, so it doesn't feel good to pay a stranger so they don't harm you (via your credit).
Do you guys feel debts are morally bound? I'm not sure how I feel about it, because on one hand you've given your word to pay, but on the other hand you didn't necessarily consent to this level of collection effort, and though I guess it makes sense that debt is transferrable, you didn't make your original agreement with the person actually collecting the debt, so it doesn't feel good to pay a stranger so they don't harm you (via your credit).
In the broadest sense, no.
Given that debt (aka. leverage) is the fuel that makes industrial-scale capitalism possible, we are in big trouble if defaulting on debt is somehow morally deficient. Defaulting on debt is built-in to the system. Without that possibility, there would be no risk, there could be no interest, and we might as well be trading in actual commodities. This includes credit card, car, and home debts.
I think there might be a moral dimension to debts to family and friends, but that's more closely related to telling the truth than debt in the sense of this story.
Given that debt (aka. leverage) is the fuel that makes industrial-scale capitalism possible, we are in big trouble if defaulting on debt is somehow morally deficient. Defaulting on debt is built-in to the system. Without that possibility, there would be no risk, there could be no interest, and we might as well be trading in actual commodities. This includes credit card, car, and home debts.
I think there might be a moral dimension to debts to family and friends, but that's more closely related to telling the truth than debt in the sense of this story.
Whatever idealistic moral obligation I would otherwise feel to virtually any for-profit corporation has been destroyed by the sum of common disregard for humanity that so many corporations display on a daily basis.
IOW, you want fiduciary duty to be the overriding guiding principle when it comes to business? Fine, it is my personal fiduciary duty to not pay you a dime if I can legally get away with it consequence-free. Enjoy!
IOW, you want fiduciary duty to be the overriding guiding principle when it comes to business? Fine, it is my personal fiduciary duty to not pay you a dime if I can legally get away with it consequence-free. Enjoy!
Right? Would people react any differently if it was one company's accounts receivable trying to get money out of the other's accounts payable and the one owing the money was going bankrupt?
When you take out a loan the contract specifies what happens so long as you keep paying, and also what happens if you stop paying either out of choice or inability. I can't see how it's a moral matter in the slightest. You literally can't be violating the contract if the contract has language which addresses the situation you're in. You might be in default, but that's not a moral issue, it's a contractual one.
When you take out a loan the contract specifies what happens so long as you keep paying, and also what happens if you stop paying either out of choice or inability. I can't see how it's a moral matter in the slightest. You literally can't be violating the contract if the contract has language which addresses the situation you're in. You might be in default, but that's not a moral issue, it's a contractual one.
I feel morally bound to pay back the entity I borrowed from. That gets attenuated substantially when the debt is resold and I'm having to deal with a company I never chose to deal with.
Especially when the debt was resold for a small percentage of what you owed, and entity you borrowed from absolutely refused to negotiate with you in any way that would allow you to pay them back at a reduced cost, or even at less than 20%+ interest and late fees. (Eg: Standard Operation Procedure at Bank of America.)
I feel very similarly, and even though I can rationally understand how I'm still morally on the hook, the disreputable nature of the debt industry changes my outlook on the scenario substantially.
Even if debt were non-transferable, the person with whom you signed the original contract, Alice, could separately contract with another person, Bob, to pay Bob when you pay Alice, and the credit reporting could be done through Alice in the bargain, which would have exactly the same effect as Alice being able to sell the debt to Bob directly, except with a little extra transaction cost which would factor into loan interest and availability.
I must buy water for my home from one company. There is no choice. That company has a bizarre corporate setup (much more complex than the regular funneling money to Ireland or Luxemborg). It also has high rates.
The combination of monopolistic, tax avoiding, immensely wealthy and expensive is hard to bare.
They've had £37m fines for overcharging and misreporting data to their regulators http://www.theguardian.com/sustainable-business/severn-water...
The combination of monopolistic, tax avoiding, immensely wealthy and expensive is hard to bare.
They've had £37m fines for overcharging and misreporting data to their regulators http://www.theguardian.com/sustainable-business/severn-water...
Morally bound? Ha. I once had debt collectors come after me while I was unemployed and living off savings and unemployment checks -- counting down the days until I would be homeless. The company in question attempting to collect the debt made over a billion in profits that year alone, while I owed them not even $200.
If anything, they were morally bound to forgive the debt in it's entirety. They could easily absorb the loss without even blinking, while the money owed meant the difference between being able to afford a few more weeks of food or begging for it.
If anything, they were morally bound to forgive the debt in it's entirety. They could easily absorb the loss without even blinking, while the money owed meant the difference between being able to afford a few more weeks of food or begging for it.
Unsecured debt backed by my full faith and credit are as secure as my ability to generate money.
If some personal or professional tragedy affected my ability to pay, there is a pecking order of things I will pay for, at that point, too bad, I'm insolvent.
There's no moral hazard if you borrowed money in good faith. It's not immoral to fail to repay a credit card if the alternative is to leave my family without some necessity.
If some personal or professional tragedy affected my ability to pay, there is a pecking order of things I will pay for, at that point, too bad, I'm insolvent.
There's no moral hazard if you borrowed money in good faith. It's not immoral to fail to repay a credit card if the alternative is to leave my family without some necessity.
This is especially true when your insolvency is the direct product of a criminal enterprise conducted by the lenders on such a massive scale that it threatened to wreck the entire global economy.
In other words, my obligation to pay is contingent on your not demolishing my ability to pay.
In other words, my obligation to pay is contingent on your not demolishing my ability to pay.
I'm surprised by how few people on HN feel contracts have a moral obligation aspect to them, but once you believe there is no morality in a legal contract, then a whole lot of things become permissible, specifically related to pirating and other kinds of legal trespasses.
Do you believe in individual responsibility, then? That is, if I, your friend, promise to give you a ride to the store and then don't follow through, am I morally culpable?
Do you believe in individual responsibility, then? That is, if I, your friend, promise to give you a ride to the store and then don't follow through, am I morally culpable?
Individual responsibility cuts both ways. You are responsible for picking up your friend. Your friend is responsible for assessing your reliability.
I would argue that most people who think they're talking about morality are actually talking about risk.
I would argue that most people who think they're talking about morality are actually talking about risk.
You're not seriously debating the validity of the social contract with regard to banks that operated multiple interlocking frauds on such deep and massive scales that they just about wrecked the entire global economy, are you?
In situations like yours, I don't see any issue with going on a plan or letting them keep the juice running while you get back on your feet. But the idea that they were morally bound to forgive the debt because they're rich and you were poor is reprehensible.
>If anything, they were morally bound to forgive the debt in it's entirety
well, that's debatable. Imagine the consequence if agencies were obliged to forgo demands like that. They would do the opposite of what they set out to do, which they surely deem highly immoral.
well, that's debatable. Imagine the consequence if agencies were obliged to forgo demands like that. They would do the opposite of what they set out to do, which they surely deem highly immoral.
Given the massive bailout provided by the taxpayers - to say nothing of total de facto immunity from criminal prosecution - yeah, writing off the economy-chocking overhang from the credit bubble is the least that should be expected.
> Do you guys feel debts are morally bound?
No.
No.
Business would be much more expensive if there were not social pressure (I don't know how that relates to morality) to pay back debts. I think large corporations doing strategic defaults badly damages this social contract and is effectively big business profiting by depleting our communal well of public trust.
> Do you guys feel debts are morally bound?
Yes. You'll read a lot of hamstering about how morally bankrupt those big, bad corporations are. If they're so terrible, why are you doing business with them in the first place?
Ultimately the bottom line is that you made a deal, as surely as if you'd shaken hands on it. Regardless of your evaluation of the counterparty's moral fortitude, YOU made a deal, and it's up to you to keep your end.
I am endlessly shocked at how in this community of logical minds, "well they were dicks, so I should get a free ride" is a valid justification.
Yes. You'll read a lot of hamstering about how morally bankrupt those big, bad corporations are. If they're so terrible, why are you doing business with them in the first place?
Ultimately the bottom line is that you made a deal, as surely as if you'd shaken hands on it. Regardless of your evaluation of the counterparty's moral fortitude, YOU made a deal, and it's up to you to keep your end.
I am endlessly shocked at how in this community of logical minds, "well they were dicks, so I should get a free ride" is a valid justification.
What if they (the big, bad corporation, that is) didn't keep up their end and the only recourse you have is to not pay? From what I understand this does happen from time to time, or maybe even a lot!
Do you think it's possible for a company to keep perfect records and never make a mistake?
I once worked for a company that absolutely had to keep track of physical items for our customers. We barcoded everything the second it came through the door and scanned everything before it left. Even so items occasionally went missing. If we handled 20k items in a month and "only" lost 0.02% that's still 4 items that can't be accounted for. 0.02% is 1/50th of 1% and a 1% error rate in many, many types of businesses is quite acceptable. So we did a 50x better than an acceptable error rate but it would still be unacceptable if it was your items that got lost.
Now what if it's your debt that accidentally didn't get canceled out but should have, and it's for $137 and it would cost you $400 an hour to get a decent lawyer (you live in a big city, say) to write that company a letter telling them to go to hell? What should you do in that circumstance?
Do you think it's possible for a company to keep perfect records and never make a mistake?
I once worked for a company that absolutely had to keep track of physical items for our customers. We barcoded everything the second it came through the door and scanned everything before it left. Even so items occasionally went missing. If we handled 20k items in a month and "only" lost 0.02% that's still 4 items that can't be accounted for. 0.02% is 1/50th of 1% and a 1% error rate in many, many types of businesses is quite acceptable. So we did a 50x better than an acceptable error rate but it would still be unacceptable if it was your items that got lost.
Now what if it's your debt that accidentally didn't get canceled out but should have, and it's for $137 and it would cost you $400 an hour to get a decent lawyer (you live in a big city, say) to write that company a letter telling them to go to hell? What should you do in that circumstance?
> What if they didn't keep up their end and the only recourse you have is to not pay?
Then there is no debt. The company may mistakenly think there is, but that's a difference scenario than the one we're discussing here.
Then there is no debt. The company may mistakenly think there is, but that's a difference scenario than the one we're discussing here.
Whether there is or is not any debt is the matter of the dispute! That's what a lot of cases are.
What about a mortgage that states that they take the house back if you can't pay. In that case is there still a debt once you stop paying and give the bank back the keys?
The problem here is that the language gets really slippery really fast. How many "debts" are truly legitimate? How is one even able to tell the legitimacy of a debt? We don't have a perfect oracle to tell us, only an imperfect court system. Even that doesn't necessarily get the RIGHT judgement, just A judgement.
If I sign up for a gym membership and that gym makes it impossible to cancel technically I agreed to it so I owe them, according to your logic. But we as human being also have notions of "reasonableness" which people must adhere to in order to not get sued out of existence.
For example, let's suppose that a large nationwide chain of gyms will sign you up for a membership at any local branch. And let's suppose that their corporate policy is that you can only cancel by going to the corporate headquarters in person between the hours of 10am and 2pm and to take a number and stand in line until your number is called. Is that reasonable? What if the only way to cancel is to mail a notarized cancellation form to corporate? Why won't they just let you cancel in person, with your membership card as proof of you being the account holder?
It's not as though the idea of bankruptcy just got invented and everyone is struggling to wrap their brains around it. It's been around for thousands of years. What's the difference between a general default and a specific default? What makes it OK to tell all your creditors "I can't pay, tough noogies!" but not OK to tell one particular creditor?
When I say it's OK to do that in general what I mean is that there are laws which say that it's OK and nobody is pushing to have them repealed. Further there are laws which limit the statute of limitations for individual debts, which also aren't seeing a huge movement to reform or repeal.
Would you argue that the two are different? Or maybe that they're the same and both are morally reprehensible? Or maybe something else entirely?
What about a mortgage that states that they take the house back if you can't pay. In that case is there still a debt once you stop paying and give the bank back the keys?
The problem here is that the language gets really slippery really fast. How many "debts" are truly legitimate? How is one even able to tell the legitimacy of a debt? We don't have a perfect oracle to tell us, only an imperfect court system. Even that doesn't necessarily get the RIGHT judgement, just A judgement.
If I sign up for a gym membership and that gym makes it impossible to cancel technically I agreed to it so I owe them, according to your logic. But we as human being also have notions of "reasonableness" which people must adhere to in order to not get sued out of existence.
For example, let's suppose that a large nationwide chain of gyms will sign you up for a membership at any local branch. And let's suppose that their corporate policy is that you can only cancel by going to the corporate headquarters in person between the hours of 10am and 2pm and to take a number and stand in line until your number is called. Is that reasonable? What if the only way to cancel is to mail a notarized cancellation form to corporate? Why won't they just let you cancel in person, with your membership card as proof of you being the account holder?
It's not as though the idea of bankruptcy just got invented and everyone is struggling to wrap their brains around it. It's been around for thousands of years. What's the difference between a general default and a specific default? What makes it OK to tell all your creditors "I can't pay, tough noogies!" but not OK to tell one particular creditor?
When I say it's OK to do that in general what I mean is that there are laws which say that it's OK and nobody is pushing to have them repealed. Further there are laws which limit the statute of limitations for individual debts, which also aren't seeing a huge movement to reform or repeal.
Would you argue that the two are different? Or maybe that they're the same and both are morally reprehensible? Or maybe something else entirely?
Aren't you agreeing to all these nonsense terms when you do business with the entity? By giving the entity money to enter their gym or use their money to pay for a house, aren't you saying, "I accept the terms you've set, even if they're absurd"?
Why do you have a right to their goods if their terms aren't reasonable, and are you the judge of what's reasonable?
Can you imagine a scenario where the "you" in question is someone who has a mental disorder or otherwise is incapable of accurately estimating value?
Why do you have a right to their goods if their terms aren't reasonable, and are you the judge of what's reasonable?
Can you imagine a scenario where the "you" in question is someone who has a mental disorder or otherwise is incapable of accurately estimating value?
> By giving the entity money to enter their gym or use their money to pay for a house, aren't you saying, "I accept the terms you've set, even if they're absurd"?
Yes, that's precisely the point. At that point it's a contract playing out the way the contract was worded. In the case of the mortgage, the bank gets the keys and you don't get to keep living there.
Why should you both give up the house and continue to make payments on the loss of value that the house incurred between the purchase and what the bank eventually was able to sell the house for? That's what a secured loan is; the bank is betting that even if you default the security for the loan has value in excess of the loan balance. In this case the bank lost that bet. There's no morality involved.
Yes, that's precisely the point. At that point it's a contract playing out the way the contract was worded. In the case of the mortgage, the bank gets the keys and you don't get to keep living there.
Why should you both give up the house and continue to make payments on the loss of value that the house incurred between the purchase and what the bank eventually was able to sell the house for? That's what a secured loan is; the bank is betting that even if you default the security for the loan has value in excess of the loan balance. In this case the bank lost that bet. There's no morality involved.
To people, yes. To institutions and the like, no, because you need to be a human being or other sentient to be a moral actor.
We use a startup called TrueAccord at WePay - they're trying to disrupt this industry using data: https://www.trueaccord.com/
Thanks for the mention, Bill! We're working hard to make a difference.
As someone that has been involved on the IT side of the collections industry for about 12 years now, I feel like I need to point out some common misconceptions about the industry that this article highlights.
One is there is a difference between debt buyers and collection companies. Some agencies do buy the debt (usually as a different division or a different corporate entity), but when you talk about collection agencies, they are usually working on a contingency to collect the debt. There are also 2 different ways that agencies work for debt owners, which are 1st party and 3rd party. 1st party they are calling as a contractor for the debt owner using the debt owner’s name, they usually have direct access to the clients systems . 3rd party they are calling you to collect on a debt and using their agency name and working entirely off their own systems.
3rd party collection companies are extremely easy to sue. Most of them would do criminal background checks and would not hire someone with a record (other than maybe DUI/DWI). They also fall under the FDCPA, which as a poster above mentioned, makes they incredibly easy to sue. The FDCPA is so out of date and open to interpretation that even if you do everything right, you still get sued. It is very similar to patent trolling in the software industry. The cost of litigation is so much more than the cost of a settlement that pretty much every agency is just going to settle.
Now what the article does talk about with how the paper that is being sold to debt buyers is unfortunately true and the data from some of these is awful (I have seen some, but the companies I have worked for usually don’t work this kind of stuff). And the article is also correct that most of they will not have itemized statements that prove that you owe the debt. Most of the debt that is being talked about in the article would be out of the statute of limitations to sue (this varies state to state usually 2-6 years), and would also be considered to not be eligible to be reported to the credit bureaus (being over 7 years old). At that point there is legally nothing a collection company can do to you, except keep trying to contact you, and once you request them to cease contact they legally have to (if you do this verbal it is also best to follow up in writing by certified mail, it will make you lawsuit stronger).
I will say that there are good people and good companies working in this space, but you never hear about them. The collections side of the industry does provide a valuable function and really does not need more regulation. They already have different laws in almost every state, the FDCPA (which does need to be updated for technology, its ancient at this point) which is enforced by the FTC, and now the industry is also dealing with the CFPB.
What I do agree with is that there needs to be more regulation to debt buying. There need to be better controls in place to protect private data. Excel files (that often are mangled because some idiot didn’t import them right from a csv export) are passed around way too much. While the good agencies and debt buyers do take data security seriously, most of the smaller ones don’t. I can say that as someone that has worked in this industry, that I would not want my person data treated the way some of the companies I have worked with do (Not the collection agency itself, because I have usually been in charge of that side of the system, and I have always done my best to protect that data like it was my own).
One is there is a difference between debt buyers and collection companies. Some agencies do buy the debt (usually as a different division or a different corporate entity), but when you talk about collection agencies, they are usually working on a contingency to collect the debt. There are also 2 different ways that agencies work for debt owners, which are 1st party and 3rd party. 1st party they are calling as a contractor for the debt owner using the debt owner’s name, they usually have direct access to the clients systems . 3rd party they are calling you to collect on a debt and using their agency name and working entirely off their own systems.
3rd party collection companies are extremely easy to sue. Most of them would do criminal background checks and would not hire someone with a record (other than maybe DUI/DWI). They also fall under the FDCPA, which as a poster above mentioned, makes they incredibly easy to sue. The FDCPA is so out of date and open to interpretation that even if you do everything right, you still get sued. It is very similar to patent trolling in the software industry. The cost of litigation is so much more than the cost of a settlement that pretty much every agency is just going to settle.
Now what the article does talk about with how the paper that is being sold to debt buyers is unfortunately true and the data from some of these is awful (I have seen some, but the companies I have worked for usually don’t work this kind of stuff). And the article is also correct that most of they will not have itemized statements that prove that you owe the debt. Most of the debt that is being talked about in the article would be out of the statute of limitations to sue (this varies state to state usually 2-6 years), and would also be considered to not be eligible to be reported to the credit bureaus (being over 7 years old). At that point there is legally nothing a collection company can do to you, except keep trying to contact you, and once you request them to cease contact they legally have to (if you do this verbal it is also best to follow up in writing by certified mail, it will make you lawsuit stronger).
I will say that there are good people and good companies working in this space, but you never hear about them. The collections side of the industry does provide a valuable function and really does not need more regulation. They already have different laws in almost every state, the FDCPA (which does need to be updated for technology, its ancient at this point) which is enforced by the FTC, and now the industry is also dealing with the CFPB.
What I do agree with is that there needs to be more regulation to debt buying. There need to be better controls in place to protect private data. Excel files (that often are mangled because some idiot didn’t import them right from a csv export) are passed around way too much. While the good agencies and debt buyers do take data security seriously, most of the smaller ones don’t. I can say that as someone that has worked in this industry, that I would not want my person data treated the way some of the companies I have worked with do (Not the collection agency itself, because I have usually been in charge of that side of the system, and I have always done my best to protect that data like it was my own).
The FDCPA is so out of date and open to interpretation that even if you do everything right, you still get sued. It is very similar to patent trolling in the software industry. The cost of litigation is so much more than the cost of a settlement that pretty much every agency is just going to settle.
Nah, it's the exact opposite. The FDCPA is clear and violations are obvious. That is why the collection agencies settle. Litigation would not only be costly, it would be costly and futile when the collector inevitably loses.
The FDCPA, formally, 15 U.S.C s. 1692 et seq., is abundantly clear about what activities are forbidden. There is some legal jargon in it, but it is clearly written. If anyone cares to read it, it is less than 20 pages long.
The FDCPA does not leave violations open to interpretation. It explicitly lists false representations and unfair practices that are unlawful, including such unambiguous things as 1) Claiming the debt collector is affiliated with the government, 2) Claiming the debtor has committed a crime, 3) Claiming that a debt that the statute of limitation ran out on can still be sued on, 4) Not putting certain notices in collections letters; said notices are provided using the exact words that are compliant (enabling cut-and-paste compliance), 5) Threatening to sue when you do not intend to sue, etc.
Mostly, obvious things like this are the kind of violations that debt collectors actually commit. Note that they are often the most efficient collection methods, because they terrify people or leave them ignorant of their rights. Without the law, every collection agency / law firm would be forced to use these techniques in order to compete. That would mean many consumers would be terrified out of their wits, instead of having the mildly unpleasant experience of interacting over the phone with used-car-salesman types.
I think most collection agencies and collection firms are aware of the law and actively avoid doing this stuff. The ones that violate the FDCPA are not doing so because the law is outdated and hard to understand. Their behavior is an intentional choice or willful ignorance.
You want outdated and hard to understand? That would be the various patchwork of laws regulating telephone calls.
Nah, it's the exact opposite. The FDCPA is clear and violations are obvious. That is why the collection agencies settle. Litigation would not only be costly, it would be costly and futile when the collector inevitably loses.
The FDCPA, formally, 15 U.S.C s. 1692 et seq., is abundantly clear about what activities are forbidden. There is some legal jargon in it, but it is clearly written. If anyone cares to read it, it is less than 20 pages long.
The FDCPA does not leave violations open to interpretation. It explicitly lists false representations and unfair practices that are unlawful, including such unambiguous things as 1) Claiming the debt collector is affiliated with the government, 2) Claiming the debtor has committed a crime, 3) Claiming that a debt that the statute of limitation ran out on can still be sued on, 4) Not putting certain notices in collections letters; said notices are provided using the exact words that are compliant (enabling cut-and-paste compliance), 5) Threatening to sue when you do not intend to sue, etc.
Mostly, obvious things like this are the kind of violations that debt collectors actually commit. Note that they are often the most efficient collection methods, because they terrify people or leave them ignorant of their rights. Without the law, every collection agency / law firm would be forced to use these techniques in order to compete. That would mean many consumers would be terrified out of their wits, instead of having the mildly unpleasant experience of interacting over the phone with used-car-salesman types.
I think most collection agencies and collection firms are aware of the law and actively avoid doing this stuff. The ones that violate the FDCPA are not doing so because the law is outdated and hard to understand. Their behavior is an intentional choice or willful ignorance.
You want outdated and hard to understand? That would be the various patchwork of laws regulating telephone calls.
And that's why FDCPA litigation is decreasing and TCPA litigation is growing. Path of least resistance. Though, you have to admit, practices and law governing UDAAP isn't as clear as the FDCPA examples you bring here.
Is there a template for a letter or a tutorial to challenge the debt?
If ever a debt collector is fucking with you, google for collection agency lawsuits. :)