I’d LIKE to pay you, but I don’t know who you are (attack of the Debt-buyers)

The Center for Responsible Lending (CRL) is a fantastic resource for Consumers.  If you have ANY questions about Consumer borrowing or how the lending industry works, go to their website and troll around.   Their series of reports on the different types of lending (The State of Lending) is unspeakably helpful to attorney-types and folks who are not used to dealing with Consumer laws.  The latest update is a chapter on the Debt-Buying industry caught our attention.    

What’s a ‘Charge-off’ and how does it create debt-buying?  

When banks and credit card companies have accounts on their books where the consumers who owe them the money have stopped paying, it looks bad.  In order to make them seem healthier to the government regulators that come by every once in a while, the lender is able to ‘reclassify’ the accounts by making them a ‘charge-off’.   Accounting rules require that whoever owns the debt must take it off of their books, if they have gone 6 months or so, without receiving a payment.  So, they do this neat little trick called a ‘charge-off.’  When an account is charged-off, the lender pretends like the account no longer exists.  This is the point when they stop chasing you.  The past-due balances just sit…….and wait.  Unfortunately, for the borrower a charge-off doesn’t mean it’s over.  You still owe the money; the ‘past-due account’ language stays on your credit report and the balance due is still hanging out there. 

Enter the ‘Debt-buyers.’ 

The lender can sell the account to anybody they want.  The new company gets to ask for the entire balance due (plus interest) as if they were the ones that lent you the money in the first place.   Typically, debt-buyers pay a teeny fraction of the total amount due. (somewhere between 3 and 8 cents for every dollar that is owed)  The bank closes its books and the debt-buyer gets a bunch of past-due accounts with the largest profit-margin known to man.  

Here’s where it gets nasty 

There are very few ways to get money out of Consumers who don’t want to pay, and none of them are pleasant.  They start with letters and phone calls and they end with lawsuits, wage garnishments and bank attachments. As if that weren’t bad enough, when collectors are trained, they are told to keep these ideas in mind:

    1. The people you’re calling have the money.  They’ll SAY that they don’t.  But, your job is to get them to think that YOU will make their life miserable….;
    2. ‘You catch more bees with honey….’  But, you’re not catching bees, you’re collecting money.  Don’t use honey, use vinegar and whatever else stings;
    3. These people are not grandmas, sisters, mothers, brothers or friends….they are deadbeats;
    4. Your bonus check depends on the money you get these people to pay.  If nobody pays, you don’t get a bonus;
    5. Don’t cuss at, threaten, use abusive language or lie. (But, if you do, do NOT put it into the notes) That way, we won’t be able to deny it;
    6. Wear nice clothes to work (we’re not animals, you know);

Debt-buyers are in the business to make money.  If they call you, it’s because your name is on a list.  They don’t care if that list is accurate or not. They only care if they can get you to pay. 

What kind of information about you did their 8 cents get them?

According to the CRL (on page 8 of their report) “When debt-buyers purchase debt portfolios, they receive an electronic database or spreadsheet (or access to such a database) summarizing the debts included in the portfolio….These files often include only a name, last known address….the amount allegedly owed, the charge-off date, and the date and amount of the last payment. …very few portfolios include documentation for the debts being sold.”  

In 2009, the FTC studied 3.9 Million accounts that had been purchased by six of the largest debt buyers.   Of those accounts, only 6 % (!) were sold with ANY documents.  In other words, 19 out of every 20 past-due accounts that are sold to a debt-buyer come with NO documents at all - NO contract; NO monthly statements; NO invoices.  And, NOTHING that has the borrower’s signature.  

So what’s the big deal? Pay your bills!

Yes, pay your bills.  But, if the name of the company that calls you is different from the one you are used to dealing with; if it has been years since you’ve talked to them; and if they aren’t able to send you anything about the account - how do you know that bill is actually yours?  The data they have could be perfectly accurate; it could be completely made up or somewhere in-between.  The problem is: you have no way to prove what’s what.

Here’s a list of the questions (some of which we have discussed before) that Consumer Courage thinks you should ask to anybody who calls you (or sends you a letter) for payment on a bill that is due: 

    • “Can you tell me the last time I used the Credit Card?” or
    • “Can you tell me the last time I made a payment on this account?”
    • “Everything is on computers these days.  How’s about if you send me a printout of an itemized bill, or a payment history for this account?”
    • “Just to verify, can you tell  a few of the places where I used this card?” or
    • “I am not sure this is me, can you send me the application for this card (or loan), so I can see if it’s my signature and not some Identity Thief who only pretended to be me?” or
    • “Can you send me information that proves that YOU have the right to collect this money from me? (like an ‘assignment’ from the original creditor)”
    • If the balance is from a loan “Can you please send me the original loan agreement, the application or anything with my signature?”

Courts are overwhelmed

The CRL points out that because tons of the accounts that are sold to debt-buyers wind up in Court, the courts are struggling to keep up with the caseloads.  As a result, the Courts are used to letting them slide, because it’s too much work to focus on the details of every collections case that is filed.   The debt-buying industry has taken to certain ‘short-cuts’ when they file lawsuits.  Such as: Showing up without the proper records; submitting sworn statements without having their employees look at the file or the computer to verify anything that the statement says; suing people when the debts are so old that a lawsuit is not allowed and lying to the Court about whether they actually sent you a copy of the lawsuit. 

These problems are magnified by the fact that most of these cases end in default judgment. (which is when the Consumers do not show up to defend themselves)  Do Consumers not show up because they know that they owe the money, or because they look at the complaint and say “I have NO idea who these people are,” or because they never get a copy of the complaint in the first place?  If the first time you hear that you’ve been sued is when they take 25% of your take-home pay in a wage-garnishment, you’re in a heap of trouble. 

Editor’s Note of Hypocrisy: It’s possible that we should lay off of the debt-buying industry.  After all, they are ‘job creators…….’ 

What CAN you do? 

    • First things first: NEVER ignore papers that come to your house from the Court.  If you are being sued (or getting mail from a lawsuit) the best thing you can do is show up and straighten it out.  If you have to get a judgment overturned and all you can say is “Oh yeah. I did get a copy of that years ago. But, I ignored it,” things will not end well; 
    • Remember to ask anyone who calls you for money how long it’s been since you (supposedly) paid them last.  There are time-limits on how long the lender has to sue you on a past-due bill.  But, that time-limit is not absolute.  If the window has closed and you make a payment, afterwards (even if you just send them pennies) you re-open the window and they can sue you. So, tread very carefully if you’re strategy is just to pay them something to keep them off your back;
    • If it gets to Court, show up and go to every hearing.  Even if the Court is drowning in cases, they are much more likely to sympathize with somebody who cares enough to show up.  Before you go, memorize this speech:
      • “Your honor, without proof from this account, I can’t tell you if I’m the person they’re looking for or not.  And without an original contract (or some signature of mine) they can’t prove who they’re chasing.  Everyone has computers judge, make them bring a payment history for this account and/or an itemized invoice.”

Posted by: Mark Wiseman (who regrets that what he knows about debt-buyers came from working along side them and has stayed with him despite years of intensive therapy)