Comments on: Debt collection math A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Jeff.Baldwin Wed, 26 Jan 2011 11:12:01 +0000 Again, if Encore, or any debt buyer, is operating efficiently, they are only litigating accounts that have a reasonable assurance that the consumer has an ability to pay. Perhaps society also suffers when the message is only pay those debts you find it convenient to pay, do not worry about the legal agreement you signed. Go ahead and enjoy that big screen HDTV even though you have not prioritized paying for it.

I understand the defense of debt buyers is difficult, given some of their tactics. To simply state that they buy debt with minimal information is patently irresponsible. There is a rigorous due diligence process for any portfolio of debt, and if there are doubts about the validity or chain of title to a portfolio, the debt buyers will walk. Like any business, there are good and bad players.

Having run two collection agencies, I can tell you my companies were meticulous about credit bureau reporting and complied with all laws pertaining thereto.

Dudeman, you have a very good point about the availability of credit, the lenders must always be held complicit in a certain percentage of the bad debt.

By: dudeman69 Wed, 26 Jan 2011 01:38:10 +0000 Jeff, my point was that debtors in these cases often make the strategic decision to stop paying a given creditor in order to continue paying other, higher priority debts. I don’t really see how that matters.

It still seems fair to ask whether we think this type of business is beneficial to society. Perhaps society is actually worse off forcing loads of debtors to pay a charged off credit card buyer when, for example, the debtor would prefer to continue paying on the car he drives to the job where taxes are taken out of his check and used to fund public services.

Debt buyers often say that they provide utility by making consumer credit cheaper and more widely available. But by providing inexpensive yet powerful collection tools to those that make credit cheaper, our courts simply encourage more irresponsible lending on the front end and more lawsuits against already strapped debtors on the back end.

By: FosterBoondog Tue, 25 Jan 2011 21:38:17 +0000 Those commenters who have judged that the collection firms are only attempting to enforce their legitimate rights are presuming quite a lot. These firms buy debt in bulk, with only the most minimal of detail on each one.

Having been on the receiving end of a collection attempt for an erroneous bill (for the grand sum of $12) from a medical lab, I can attest that the collectors have zero incentive to actually check and validate the particulars of any individual claim. Theirs is a business built on automation and volume. They are completely indifferent to the consequences for anyone they are trying to collect from of posting erroneous credit information to the three reporting firms, as I discovered to my dismay when I tried to refinance a mortgage.

But I don’t think making the cost of litigation higher will address that. I strongly suspect that most of these firms’ revenues come from non-litigated cases when, on occasion, a debtor finally responds to a form letter. Not too many have to pay off when they’re buying them for pennies on the dollar.

By: JohnOmeara Tue, 25 Jan 2011 21:25:16 +0000 I wish the government would finally establish a ListOfPeopleFelixThinksTheLawShouldApply To and of course a ListOfPeopleFelixThinksTheLawShouldNotAp plyTo so Felix can stop writing these regular features on another class of aggrieved citizens he feels shouldn’t pay their debts.

By: Jeff.Baldwin Tue, 25 Jan 2011 19:08:47 +0000 With all due respect, dudeman, this is what I’m trying to say. Your sense of what is happening is bereft of many, many factors. If Encore wants to be a profitable debt buyer, which they are, they cannot afford to litigate cases that have very low likelihood of paying. So, a sense that most claims that make it to court are against people who actually can’t afford to pay is very likely just that, a sense, not a fact.

The math referenced in the original post is per account that is litigated, it says nothing about the percentage of accounts purchased that are actually lititgated, there are an awful lot of assumptions you cannot draw from the data.

By: dudeman69 Tue, 25 Jan 2011 16:59:14 +0000 The notion that a company should not be encouraged to get into the business of buying legal claims is hardly new. At common law, the doctrine of champerty made it a crime for a “stranger” to buy a claim in consideration of the proceeds from a judgment. The practice probably would have prohibited the practice of buying debts if it only intended to sue on them.

It seems the present day concern is the sense that the people being sued in this context are being railroaded.
My sense is that most claims that make it to court are against people who actually can’t afford to pay. People who stopped paying because of a dispute can probably settle for far less than the face value of the account.

By all means, increase the filing fees for these claims (Felix’s concern that court still be a “place to go for justice” made me cackle). But use the increased filing fees to fix the problem underlying the concern. Provide court-appointed lawyers.

As a practical matter, using the higher filing fees to appoint counsel for debt buyer defendants would increase the costs of filing suit exponentially. Debtor’s counsel would increase the time and effort necessary to obtain a judgment by seeking proof in the discovery process, contesting robosigned affidavits, and taking undocumented claims to trial. Doing so would greatly increase the debt buyer’s staff and legal costs – rending many, if not most, of its claims uneconomical.

By: Jeff.Baldwin Tue, 25 Jan 2011 11:09:57 +0000 These numbers are misleading at best. They take into account only the accounts Encore chooses to litigate. They say nothing about the debt they buy and decide not to litigate, and say absolutely nothing about the overall profitability of Encore as a debt buyer. You cannot leave out the price paid for the debt and the overhead necessary to process it in determining the company’s agressiveness.

Every single person Encore sues signed a legal contract to pay back what they owed. If Encore is doing its due diligence properly, it does not sue people for whom there is little likelihood of recovery. I’m sorry to tell you this, but the courts still expect people to live up to their legal obligations.

By: johnhhaskell Tue, 25 Jan 2011 07:31:58 +0000 1. Well before the case goes to court, the credit card company is going to make some non-negligible effort to collect on its own. The fact that Encore is buying claims at 4 cents on the dollar makes that point pretty well.

2. There is a process, established in Article 1, Section 8 of the US Constitution, called ‘bankruptcy,’ which allows debtors to discharge debts. If Encore is suing you by definition you have not availed yourself of this longstanding legal remedy.

3. Notwithstanding the above, you and this dyslexic “y2kurtus” think that yet another remedy should be created for debtors, that of increasing filing/ regulatory fees such that these claims are worthless, and creditors thereby have no effective legal recourse against people who borrow relatively small amounts of money and then don’t pay them back.

I disagree.

By: y2kurtus Tue, 25 Jan 2011 04:33:54 +0000 Well this banker sees little sociatal benifit in allowing 2nd and 3rd parties buying up bad debts at 10 cents on the dollar so that they harass the irrisponsible into setteling for 20 cents. I don’t see much good comming from dozens of phone calls and clogging up the court system to get summary judgements that lead to wage garnishment and finally people being forced out of the banking system.

The goverment should set up a perminent bad bank responsible for buying up all legitimate unsecured debts that go beyond 90 days past due. The goverment would buy the bad debt at 0 and then share 50% of the recovery with the bank that made the bad loan. The goverment has every incentive to collect as much as possible… the treasury gets half the take… but they could also be much much more ethical in their collection practices. Unlike the commission based 3rd rate lawyers, the goverment workers would have no incentive to bend or break existing debt collection laws.

Recoveries would likely be higher than they are currently if you allowed the goverment to withold tax return funds. The cost of bad debt is built into the price of credit paid by those who pay as agreed. Lowering the cost of unsecured defaults should in theory reduce the cost of unsecured credit so if properly implemented such a system could be a huge benifit to working class borrowers rather than the bankers.

Banks would have even less incentive to originate questionable loans at >20% rates and sell off the 10% that defaults because it would be mandated that govermental bad bank be the only allowable buyer of non-performing consumer debt. This would allow bank regulators to immediatly identify bad lenders.

A larger issue than debt collection is the maximum allowed cost of credit. If you can’t make a loan work at %20 then I’m of the view that the borrower is better off without the loan. You can say that maximum interest rates just pushes the weakest borrowers out of the banking system towards even more predatory credit providers but if that’s your big fear then go after the loan sharks.