
Inside the Dark, Lucrative World of Consumer Debt Collection (nytimes.com)
317 points by aet on Aug 15, 2014 | hide | past | web | favorite | 260 comments

This is one of the most unbelievable articles I've ever read.

If you didn't read it all the way through, do so over lunch or something; it's amazing.

The idea of "millions of dollars" worth of debt being traded for around on thumb drives, and that all those thumb drives really contain are excel spreadsheets is mind boggling. Those people in those spreadsheets are real people, and they're being completely duhumanized.

Also the fact that debt is being purchased for 1/12 of a penny is completely just...unbelievable.

Honestly this whole article reads like some dystopian nightmare. Shady former criminals trading peoples' lives around like it's nothing.



It seems that the particular deal you're referring to was a fraudulent transaction. It had been sold (at least) twice, and having paid $41K for $50M worth of debt, the agency lost money on it. It doesn't sound like legitimate deals are offered this cheaply.

However, you are right that insanity runs rampant in the industry, even among the banks themselves. There is an interesting documentary called "Queen of Versailles". In it, time share king David Siegel is shown telling friends at a party that he offered to keep making interest only payments on an $18M debt he owed until the economy improved. The bank said no, and that they were going to auction the debt. He sent a third party under his control to the auction, where he was able to purchase his own entire $18M debt for $3.2M. He concludes the conversation saying "I'm glad they did it, but who the hell makes decisions like that?"

That's really smart. Do banks have some way of detecting if the buyer isn't associated with the debtor?

They might not care. It's money now, versus an asset that would still be technically in default. It was a liquidity crisis, or at least that was the official line... $3.4 million in cash might be worth more to them than $18m in bad debt even if it was repaid - it isn't good on balance sheets, and with all the regulations about how much money has to back what and what counts as backing (and private contractual obligations - how do the credit default swaps outstanding treat something that's paying interest only vs a total writeoff), without knowing the details almost anything could be the case.

Your observation reminds me of the http://rollingjubilee.org project that buys up consumer debt for pennies on the dollar and then simply cancels it.

I hadn't heard of this project before. Thanks for the link and the heads up.

Does the debtor owe taxes on amount cancelled?

From the page:

> Will the Rolling Jubilee have to file a 1099-C Cancellation of Debt form with the IRS? No. The Rolling Jubilee will earn no income from the lending of money and is therefore exempt from filing a Form 1099-C under the Internal Revenue Code Section 6050P.

That doesn't necessarily mean you aren't supposed to report it as income when you file for your tax returns even if they don't file a 1099 for you

I'm not sure that there would be any incentive to. Once they've decided to sell, a high bidder is a high bidder (though it's obviously frowned upon, otherwise he would have gone himself).

You are totally right! +1.

The article had me at "stolen".

If you owe a bit of money, some of the dipshits that call you may actually have misappropriated the collection account and are not connected to the original debtor in any way, who did not receive and will not receive a red cent.

This passing of the buck helps to explain why numerous agencies may be involved: people get calls from various toms, dicks and harrys about the same debt.

The fact that debt is being purchased cheaply is totally believable. Because when people don't want to pay, it takes work to extract money from them. Some people really don't want to pay, because they believe they have been wronged. No matter how much effort you sink into it, there won't be any income. Some people will pay the full debt, after a bit of effort. But that effort cuts into the revenue. If it costs $400 worth of effort to collect $1000, then you only collected $600 in reality. There is a very real risk that it may cost $999 to collect $1000, so you're left with a buck. Because of this uncertainty, it makes perfect sense to sell the $1000 debt to someone for a mere $83 and make it their problem. The $83 is a sure thing, and better than nothing, whereas the $1000 debt could well be nothing.

This reminds me a lot of when the department of education sold my student loans to a couple private firms. Out of the blue, I just received a couple emails from a couple companies I've never heard of asking me to give them all my information (including my SSN) in order to create an account. I deleted them immediately, assuming there was a new phishing scheme in vogue, and didn't realize what had happened until I checked my accounts a few months later and realized they had been paid off, with no information about who did the paying off. I couldn't even find one of the emails afterward to figure out who actually owned the debt, and had to call someone at DOE loan servicing to figure it out. I was flabbergasted.

Curious, what did you end up doing? Did you pay the firm who bought your debt?

Yep, just had to re-set-up all my direct deposit stuff. To summarize, the owner of my debt was allowed to sell it to a third party, with non-existent or at least extremely poor notification, in a way that required extra effort on my part to avoid accidental default! Not a great system in my opinion, but perhaps being at the mercy of those you have borrowed from is a disincentive to borrowing that is quite properly built into the system.

Something's missing here - who actually paid the loan?

No one "paid" the loan, the debt was sold to a private creditor and OP's account was then considered settled in the eyes of the DOE. They can't delete the account in order to keep an audit trail, so the amount owed is adjusted to zero.

Sorry, wasn't clear. When the private lender bought the debt, it showed up in my original account as a payment in full. But of course it had just been transferred elsewhere.

It's most likely to have been written off?

That was seems like the most bizarre thing about this whole business to me. The collection agencies that the debt has been sold to have no real legal basis or practical resources for doing anything other than calling the debtor and asking them to pay. They have no idea what the debt was for, how legitimate it is, what the debtor's situation is, or even if some clerk at the original company fat-fingered a data entry form somewhere and the information is completely wrong.

Which conversely means that, as a debtor, you can basically convince them you have no money and ignore them, and there's nothing they can do. Any kind of investigation or strong-arming would blow their budget for turning a profit on their debts. It's not like any of the money is actually going to the company you supposedly owe to anyways

Collection agencies will attempt to bully you into paying. They'll call you repeatedly, call your partner, family members, probably your job. They might even show up at your place and try to use scare tactics.

It's funny because my cell phone # used to be owned by some debtor. I had to install a call blocking app because I get constant calls trying to reach some guy I've never heard of and they will never give up no matter how many times I tell them I've never heard of the guy.

I suspect the crap keeps getting recycled endlessly.

That's increasingly an issue with phone number transfers. I've had multiple work numbers get rung constantly by debt collectors. Apparently a big problem with cell phones too.


that explains why many years ago some collector hung up on me when I kept on explaining to them that I had lost the bills and if they could resend... they couldn't do that.

Yeah, if I ever get a call from a collector I'm just going to ask them if they have my signature on a contract. If they don't they don't actually own anything and I'm free to ignore them.

Yeah, force them to take you to court and show that they own the debt. None of this "passing the paper" non-sense, there has to be a legal contract or some document saying that your debt was given to someone else. Otherwise, it's just some guy claiming you owe him money, because of "paper".

Sure, but on the other hand, let's say you run a small business. At some point you have customers who don't pay. What do you do? Write it off as a total loss? 1/12 is better than nothing.

I feel like I would be safe saying 99%(if not all) of this paper is not small business paper. These are the debts that are sold off in large parcels by banks and credit card companies.

Small businesses typically use flat fee collection agencies and rarely charge of the debt like this. Part of the reason is because to a small business charging off $10K in debt is going make them a couple hundred bucks at most.

There is no "little guy" getting stiffed by bad debtors in this story.

Whats interesting is that most small collection agencies are getting squeezed out, due to the high cost of regulation.

It's not 1/12th of the debt, it's 1/1200th of the debt.

If someone sells you debt at 1/1200, that simply means they believe the debt is very bad and unlikely to collect. Even at that price, you could be a total sucker, since perhaps you will not collect a penny.

OK, I agree that part is a little ridiculous but only in the "why bother" sense.

It's probably the same thing like gambling to those people. Or penny stock trading. The reasoning is probably like this: at 1/1200 rate, I can cheaply buy a whole crapload of debt. And based on the time-honored principle "if you throw enough shit at a wall, some of it will stick", if just a small percentage of those debts pays out, I will make a profit even if the rest are junk.

At that rate, why didn't the creditor try sell the debt to the debtor? Effectively saying "you pay me 1/1200th, then your debt is owed to yourself and you can call it quits."

This is a very common misunderstanding in this thread, so I will answer it here once. The portfolio is worth a penny on the dollar because it is a mix of quarter debts, dime debts, and "not even worth a 1/1000th of a penny" debts, and the mix is known to be skewed towards crap. If the mix were known to be largely collectible debts, it would have been priced near 30 cents or more. The portfolio has been worked and the easily collectible debts - working phone numbers, responsible debtors with capability to pay - has been collected already.

Even calling people to offer terms isn't profitable at 1/1200th of a $250 AT&T receivable and much of the portfolio is physically incapable of paying the two cents! The collector is hoping to get literally three in a hundred to pick up the phone and take an offer of $150, the bulk of which goes to labor to call them.

This. People don't understand the (bad) economics of current debt collection efforts.

It's not gambling if the law of large numbers is on your side. It's more like running a casino, where the loss on a single transaction could be high, but overall you're almost certain to make money.

It's actually 12 basis points... that is 0.12%.

on interest accruing that penalises payments that fail to meet a time deadline or a premium amount a company can very quickly make the money back that they lent out while still having the individual held under crippling debt,

if i use a credit card foolishly and put myself into 2500$ debt, and over time receive a number of fees due to my late payments, my 2500$ debt can rise to 5000$ effortlessly,

at this point if i pay the bank 4000$, they made 1500$ off me already, then they decide to sell the remaining 1000$ for 1/12 its worth the original lender has been given 4083$ for an original 2500$ loan, and now the credit adjuster or whoever bought the debt could make 917$ by collecting the 1000$

i'd like to see statistics on how much an original debt was, how much has been paid into it, and how much it sold for

then we can discuss potential for 'total loss'

i wonder if you went to the lender and offered to pay your debt back at 1/12 its cost if they would sell the rights to your own debt to you?

This is not about small businesses. It's about suit and tied scum, like the banking and insurance business. They buy and lobby politicians to deregulate their sectors like crazy, they give away credit cards and loans like candy, they use all the "black" tricks to inflate debt and tie people to their monthly installments forever. And when those fail, here come the collection agencies, including paid scum using borderline illegal methods. Of course if those companies fail themselves, they have some trillion dollar public money bailouts to expect.

About people that should "know better". Sure. Doesn't always happen, and people are not all perfectly rational, highly disclipined game-theoritic individuals. It's easy to preach "personal responsibility" from an ivory tower (and who knows what kind of privileged upbringing or lucky break), but it doesn't make those people less victims. It's like a woman victim of domestic abuse ― she should know better and leave the guy, but that doesn't make him any less of a prick.

You can just sell it off on a site like judgmentmarketplace.com. sometimes trying to collect could end up costing you more.

Especially when you consider that those thumb drives contain sensitive PII (personally identifiable information) including SSN numbers.

I don't understand what you find so shocking about financial data from lots of people in excel sheets.

... Being sold (and stolen by) a largely unregulated industry consisting mostly of ex-felons and thugs who do their deals in parking lots on a no-questions asked basis.

We're talking about very sensitive info like SSN's, DOB's, home address, work history and so on.

There's nothing shocking about that at all? Honestly, did you read the article?

Nothing shocking - a little surprising, definitely disturbing.

The lack of regulation is the most surprising thing, and the lack of interest from the US federal government to do much about it is disturbing.

It's a heavily regulated space, nowadays.

Dodd-Frank changed it all and spawned many other regs + groups



Isn't surprising + disturbing pretty much the very definition of shocking? Can we agree on mildly shocking? :-)

Horrifying and accurate. The way people's lives are handed over to questionable businesses is nothing short of crazy.

This should be regulated. If debt can be bought for 1/12 of the actual debt, that debt should be cut to that 1/12 as well!

Then nobody would want to buy it. Why would you buy something to resell or cash in on if there was no hope of making a profit?

I still prefer this system to debtor's prison. It sucks that good people have bad luck and become vulnerable to things like this. No matter what the rules are, however, somebody will eventually game it.


the discount reflects the likelihood of collecting any money, which is extremely low.


The moral concerns aside... this is the question to "why haven't we replaced excel yet."

Advice from someone who works on debt collection software for a living: never, ever let a check bounce. Returned checks operate in a legal loophole that circumvents most of the consumer protection afforded to regular debt. Collection agencies can begin pursuing it immediately, can begin reporting it to the credit bureaus immediately, and the interest rate they're allowed to charge on it is ridiculous.

As a startup founder who develops payment software to collection attorneys, this story really resonates!

Every account has a story behind it and the BEST way to collect is to personalize the settlement experience in a compliant, secure way

Having been in the space for only a few years, the depiction of the industry -pre 2010- seems incredibly accurate from what clients tell us.

Modern interpretation of the FDCPA is desperately needed. In 2014, contacting consumers via cell phone and email is against the law or at best a very grey area.

Sending letters via snail mail are mandated over email. Moreover, ACH payments are still preferred over Card payments… IMO, a 3-5 day settlement time should NOT be the standard way to move money in any industry.

Do you think its financially viable to run an ethical debt collection agency?

You'd have to first define what constitutes "ethical" as distinct from "legal". If you're of the opinion that the very practice of collecting debt is scummy or unethical, then no. Assuming you will allow for at least SOME form of "ethical" debt collection, we'd have to narrow down what kinds. For instance, just off the top of my head, you've got: - Commercial Debt - Medical Debt - Student Loans - Bad Checks

Within that you conceivably have debts whose collection is perhaps ethical by nature but not ethical in practice. For instance, as I said earlier, collection on bad checks circumvent many normal collection laws, and you can thus have interest rates of 200% or higher. Another example would be Student Loans, which have their own set of ridiculous loopholes that allow the debt to persist past bankruptcy, past retirement, etc. As someone who was still in college myself only a few years ago, the idea of the financial burden imposed on me for the rest of my life simply for doing the thing that society practically strong-armed me into doing seems, to me, ridiculous; for that reason I am hesitant to call any form of Student Debt collection "ethical" simply because the laws which govern it are atrocious.

With that said, I have dealt with many agencies who at least tried to operate on an "ethical" model (usually they collected on medical debt), and they seemed polite and reasonable in their collection efforts. Remember, they're in the business to make money. Some agencies will go for the "Make the debtor's life as miserable as possible to make them pay up" tactic, which includes harassment, lawsuits, garnishments, etc. I deal with them frequently, and I think they're the scum of the Earth (primarily because they talk to me in what I imagine is the same tone as they talk to debtors). Others, however, will simply try to get what they can, and if they CAN'T--i.e. they realize that continuing to call a guy about a debt when he's already stated that he has no job and no savings would be like squeezing blood from a stone--they'll stop wasting their time and move on to an account that would be more profitable.

Much of the work done by agencies these days is not only getting people to pay, but finding out who is more LIKELY to pay so that the agency can focus its efforts accordingly. This analysis might include things like the line of business, their credit score, their location (they usually figure that areas with a higher average income are more likely to pay), etc.

To answer your question succinctly: probably. It would center primarily on whether the percentage of the portfolio that actually pays can sustain the percentage that you're willing to let go when pursuing them further would entail questionable tactics.


What happens when you don't pay your Student Loans for years and years? Since it's a "guaranteed loan", it can't actually (continue to) impact your credit rating, can it? So could you effectively decide to just "let it ride" until you die of old age, never having paid a cent of it?

If so, I think this is basically the idea behind of guaranteeing the loan in the first place: to give the people who can't pay their debt the ability to just ignore it forever.

"Guaranteed" means the government -- ultimately -- guarantees the banks that they'll get their money. But what that really means is that the borrower of a student loan lacks almost all of the consumer protections that any other borrow has. The government will garnish any wages, social security or disability checks, or anything else they can get their hands on. And that goes on until the debt is paid or you die.

People have done this. If you search around Google you can find details. Your credit is ruined for 7+ years but in default the loan stops accruing interest. The government will pay the loan off but then the government will garnish wages and tax refunds at a specific percentage until the principal is repaid.

I may be wrong, but my understanding is that (at least for the student loans I have), the owner of the debt is allowed to garnish my wages (and I have heard even social security payouts) after some amount of time in default. So I think your plan would only work for people who are willing to be unemployed indefinitely.

Sounds like a scary criteria to an entrepreneur ("you can never work!") but it might ultimately make sense for those who go to university, but end up marrying someone with a good job and becoming a lifetime dependent of them (in est, the classical homemaker.)

There are probably a few other less-common situations as well, where a person has no money of their own but access to plenty of the money of others, e.g. the "trust-fund baby."

I'm aware they are in it to make money and I don't mind them operating with reasonable margins. It just sounds like hundreds of them are willing to use the "make the debtor's life as miserable as possible" tactic.

I was mainly thinking of a cost plus model of debt repayment when I said "ethical". Trying to squeeze every last penny out of people who are [mostly] decent folks who just fucked up is the main part that bothers me, honestly.

Thank you for taking the time to answer. :)

I think that happens because they are focused on one thing: trying to get money from people who don't have it. But what happens if they help people create money that will pay for the debt? That's one of the things we're trying to do.

This is one of the most remarkable companies I've ever heard of. And I read about all sorts of remarkable companies here on HN.

I don't know how legit they really are, but the article sure got my attention!

Ya, that sounds like a workable solution :)

Absolutely possible - just need to have the right mindset and tools. As someone who started a startup that's reinventing how debt collection gets done, I see a lot of old-school collectors who'd never be able to break the mold because their financial incentives aren't aligned. They don't have the technology, thus do not have the efficiency and margin, to operate ethically. They have to make money off of fees and interest so they end up focusing on people who can pay, making their lives harder, and having them end up in worse financial standing than if they chose not to pay.

What does your question mean? Let's assume that we accept that "it is financially viable to run a possibly unethical debt collection agency". So then you must be thinking of some behaviors that the agency will not engage in, which will cut into its profitability compared to an agency which will do those things, possibly to the extent of making it not financially viable. What behaviors do you have in mind?

It might depend on what you mean by ethical. Certainly there's a world where treating people well makes them more interested in cooperating with you and that leads to a higher collection rate. I have no idea whether we inhabit that world.

Doesn't use the shady, illegal tactics + settles for less than the dollar value of the debt.

For instance, they buy it for $.05 and settles for whatever the debtor can reasonably pay that covers costs plus a reasonable margin, like 100%. So they buy it at $.05 and let the debtor pay it off for $.10 + the collector's cost.

I'd guess that is something like 25-50% of the value of face value of the debt.

You idea of doesn't sound tenable. The "ethical" agency would need an extremely high conversion rate. Something probably in the 75% neighborhood, to cover operating expenses, the 25% that doesn't convert and then a little left over for profit.

Judging by the value of write off debt (pennies on the dollar) the implicit conversion rate of collecting is probably closer to what you might see on a Facebook advertising campaign (3-5 percent??). To make that work the agencies need to charge close to the original charge off amount.

You are probably right. I just wish there were better options, I suppose.

What assumptions are you making regarding operating costs?

I wonder if you could run it as a non-profit, offering reductions in exchange for classes on budgeting, &c, (where appropriate) and making up some of the shortfall with donations.

What about a non-profit that purchases this debt and then targets the debtors with the tools and support to get them back on their feet to the point where they CAN pay off the debt?

Non-profit "debt counselors" is actually a huge scam industry that operates in the loopholes of nonprofit debt-counseling law.

Does anybody know more about this? I've seen ads for places like that and they set off my scam-o-meter, but I've never dug in to see how he scam worked.

You pay them a big fee, upfront (they know you have debt repayment issues, they're sure as hell not going to risk not getting -their- money), they contact your creditors with a form letter saying that they are authorized to act on your behalf and any communications should be through them (this is the biggest relief most people find, the phone calls, letters, all stop).

But then you get burned, because they settle all your debts, just as you could have yourself, and your credit is (even more) toasted, because yes, you'll pay less, but everything on your credit record is marked as 'settled' rather than 'paid in full'.

They have some emotional distance and apathy regarding the negotiation that might help, but there's nothing magical that they do that you yourself could not.

True. Actually, the majority of consumers that go through debt settlement end up bankrupt anyway. Some blame the fees, but I don't have data to substantiate that.

http://rollingjubilee.org/ ?

That is likely close enough.

Unfortunately they are no longer accepting donations.

What on earth would possess someone to downvote a statement of fact.

Anyone know of any other similar type organizations?

Especially not if you are in Dubai, where you will be imprisoned for bouncing a cheque.

Do you have a way for people to reach you? I'd actually like to talk software in the ARM space. Or you can reach me, email in profile.

eb [at] healpay.com

Just curious, which debt collection software do you work on?

we integrate with several collection software - and bolt on our payment portal with offer's settlement options - www.healpay.com/settlementapp.html

I think that borrowers should have the right of first refusal when their debt is sold.

For example, if you're about to sell $1.00 worth of my debt to someone for $0.10, first you must offer it to me at the same cost: $0.10.

That seems simple and fair at first, but I think it actually creates more problems than it solves.

First, you get a horrible incentive to not repay debts:

1. A relatively innocent and good-natured Bank lends a jerk $1.00

2. The jerk refuses to pay it back, knowing the bank can't transfer it to someone who isn't a pushover without giving him a steeply-discounted offer first

3. In response all loan requirements and interest rates rise for everybody

Secondly, it fucks up the negotiations, because would-be buyers can infer something when the creditor doesn't snap up their own debt:

1. The Bank offers the debt for $0.10

2. The debtor doesn't repay because he legitimately can't scrape up that much

3. The Bank offers the debt for $0.10, but nobody wants to buy it, because they can infer that the debtor has nothing

4. The Bank offers the debt for $0.09... (begin loop)

Thirdly, it's a logistical nightmare. The Bank can't just combine the debt of it's 1000 deadbeat debtors and sell it off to a debt collection agency for a lump sum. No, it needs to send 1000 mailing notifications and 1000 second-notifications and wait 30 days, etc... And then 120 of them buy their own debts, and the bank can't re-price it's set of 880 accounts without sending 880 mailing notifications (begin loop)

Fourth, what happens if it's not a straight sale? Suppose the Bank barters your debt to a collection agency for a thing (like privately-held stock) in the collection agency? You can't buy your debt because you can't provide what the Bank is looking for... And then the bank can just sell whatever-it-is later.

TLDR: Exploding legal complexity combined with shady/manipulative actions from everybody.

But you're getting shady/manipulative actions already.

The only difference is that this approach would favour debtors, not lenders.

It's not as if banks don't expect exactly the benefits you're not allowing debtors when their own debts blow up.

If banks get bail-outs - and do they ever - why shouldn't ordinary people?

It favors deadbeats against responsible lenders because the costs of borrowing would necessarily go up to protect the bank against additional losses.

Your credit score (and collateral, if it's a secured loan) is your incentive to repay the debt at face value. So I disagree that people would choose to default just because they can get it for pennies on the dollar. And given the ability of people to do that would be rather limited (as after the first time they'd have shot their credit score) it doesn't seem like it would create any sort of unworkable problems for the industry.

>First, you get a horrible incentive to not repay debts

Isn't that what credit ratings are for? You'd be able to do this exactly once for any meaningful amount of money, and then your financial life would be otherwise over.

You can walk away from hundreds of thousands of dollars in mortgage debt and still have a 700 credit score, all of your credit cards, and the ability to still get credit.

Defaulting on debt doesn't mean your financial life is over by any means.

I think those are solvable problems.

There's already a big incentive not to repay debts. Some places give up without doing anything, some will offer to discount your debt even before sending it to collections. This might make the incentive a little worse, but the jerk would still get the negative credit report entry, which is presumably the bigger punishment than having to dodge some collector for a while.

Regarding the latter, I expect the stable solution is that the bank offers a package of 1000 items, the agency offers a price per dollar of debt, and 14 days later the agency receives the 880 accounts and pays on a per debt-dollar basis. It adds some risk, but debt collection agencies are experts at pricing risk.

There are other mechanisms for price discovery here that can avoid some of the downsides you describe. It needn't be a offer/counter-offer process where both sides see the numbers.

Everything you've described sounds like an awesome idea to me. It leads to quick price discovery. It's economically efficient.

No, prices would NOT be discovered quickly, because the bank cannot proceed without getting a response from the debtor... or waiting long enough that they can legally treat it as rejected.

That probably means at least two or three snail-mail notifications and a month of waiting time... Defaulting debtors correlate heavily with people who cannot be contacted or will not respond.

Then why would anyone pay their bills if they can buy their debt back for 1/10th of what they owe?

In addition to the credit issues the other commenters noted, there is the issue of taxes in the case of "chargeoffs." One will get an income statement from the credit issuer for the fraction of the debt they write off.

Odds are if one is in the position of having debt collectors come after them they'll be unlikely to afford the taxes on the "income."

Sometimes the debt is bullshit, but it might be easier to buy it for a small percentage than to pay it off. We get letters for a medical debt that's factually wrong, but by the time we convince Debt Agency N that we don't actually owe it, they've sold it off to Debt Agency N+1 for 1/10th of what they claim we owe them (which is already 1/10th of what was originally 'owed'.)

It would be well worth paying 1/100th of the original bill to not have to check the mail anymore, and throw that garbage away, but if we were to actually PAY the 1/10th settlement amount, it would open us to liability for the WHOLE amount.

tldr, I'm willing to be extorted, but not ludicrously so.

I'll tell you, you're playing that game wrong. It's not your job to convince them of anything. The next time they sell, and you get the initial dunning letter, you should write back a simple letter with your name and address stating that you refute this debt, and demand that they validate the debt as they are required to do under § 809 of the FDCPA [15 USC 1692g]. The burden of proof is on them.

You only have 30 days to do a so-called "timely" validation, but you can force past CA's to validate as well -- the only hitch is that they can continue to collect on you while they validate, something they cannot do if you demand timely validation.

One more tip: Don't sign your name on letters to CAs, and don't ever give them ANY information they don't already own. Ever. Especially your bank account information. If you do decide to pay them (hopefully strategically as part of a pay-for-deletion-from-credit-report arrangement), don't pay them on a bank draft. And send it certified mail return receipt requested.

"don't ever give them ANY information they don't already own."

When I called the State Of Michigan treasury to pay a bill I'd hadn't known about (having not lived in the state for years), they forwarded me to a collection agency without telling me up front. I was confronted with "we have to ask you some questions for verification" and answered them until they asked something I knew they couldn't already know. I felt seriously taken advantage of, at all levels.

Everyone should understand the FDCPA. Once invoked, any legitimate debt collection company will get in line. The problem ones are the fly by night places being run out of a strip mall.

Exactly. Buying your debt off for a penny on the dollar is probably the stupidest thing you could do financially. You would be trading $10,000 in credit card debt, with a fair amount of legal protections, for $4,000 in IRS debt with very few legal protections.

If you purchased a liquid asset with the $10,000 (and your creditors never found out about it in time to sue you for it), couldn't you just reliquidate it at that point and use it to pay off the IRS debt, leaving you with pure profit (and a horrible credit score)?

Actually, wait, maybe not even that: given that you purchased the debt, you could legally mark it (as the creditor) as having been repaid and then petition (as the debtor) to have your credit score corrected, no? This is what the http://rollingjubilee.org people are doing, at least.

Repaying negative status debts does not necessarily improve one's credit score. You can ask the credit reporting agencies to reflect the fact that you've paid it, but this is a no-op for virtually everything except mortgage applications.


Forgiven debt is taxed as normal income, so you'd have to have a 40% marginal federal income tax rate to end up with $4,000 in IRS debt on $10,000 of forgiven consumer debt, which is an approximation of the maximum marginal rate being 39.6% (which kicks in at $400K income for a single taxpayer.)

I would hazard to guess that people that would be paying anywhere close to a 40% marginal federal tax rate aren't really sweating $10K credit card balances.

I can also just wait out the debt period, until it passes the statute of limitations, and not pay anything at all - but I don't, because I prefer having a decent credit score and businesses who will do business with me.

They could also exercise their option to sue you before then.

I would suspect most of the people who are defaulting on debts don't have significant assets or income to make it easy to recover debts, even with a court order.

The option to sue is reasonable because otherwise people who are too rich to need credit would often find themselves in positions where there's little-to-no incentive to pay back. But these aren't the bulk of debts that these agencies are working with - the bulk of people who are defaulting on loans aren't people with money, they're people without money.

Frankly the harassment techniques that a lot of debt collectors use are disgusting and they prey on those who already are suffering. The FDCPA makes a lot of these techniques illegal, but the protections the law provides aren't widely known.

Well, at a bare minimum, credit scores.

Most people on HN exist in a very different world from the unbanked population. Credit scores mean nothing to these people. Many can't even get approved for a checking account and rely primarily on cash equivalents and prepaid products.

The median credit score is over 700. The people you're talking about are certainly toward the left edge of the bell curve.

Then wouldn't these individuals not even care to pay f their debt at .10 to the 1.00?

Sometimes getting rid of the debt means that you can begin to restart. Of course, it won't help you afford a non-free checking account nor pay bills, but it can lead to marginally better jobs and nicer housing for the price. Sometimes that price is worth it because it brings a bit more piece of mind - no more phone calls and letters. A good number of unbanked aren't even as poor as you might expect - things have happened and they can't get to a point to restart.

And some people, no. No they wouldn't care. Like most people, it depends on life situation.


If self-purchase looked on a credit report just like settlement-for-less-than-full-amount (and was taxed like forgiveness), there'd still be considerable reason to in order to maintain creditworthiness.

If 1/10th is what the debt is 'worth', then who cares who buys it?

A lender hopes the purchaser retrieves the rest, thus sending a signal to borrowers that they should expect to be on the hook for the full amount.

Because it incentivizes being difficult to collect from.


For the same reason why they might not pay to start with. They don't pay and bank sells the debt to someone.

Or the don't pay and then choose to pay later a smaller amount.

Option 1 sounds not too far off option 2. It would be minus the hassle to fend of collection agencies.

The moral hazard involved [wait 181 days for them to sell it on all debts] is huge.

Its a workable system if and only if you are willing to basically cut off credit for anyone who hits that 181 days on a debt milestone. Because no one will loan to them again for years.

Worst. Moral hazard. Ever.

I find it very scary that huge portions of our economy are basically houses of cards built upon more houses of cards. We're so desperate to generate circulation for money that we've invented an intricate set of rules where it's OK to pretend that you have money, as long as you promise to actually have it at some point in the future. And then of course another set of rules has to be invented to manage the risk of that particular future not coming to fruition.

My mind bends, but cannot wrap around why this game is necessary.

Well, lending is a very important function in an economy. Without lending, you could never invest more capital than you had on hand... If you had a handmade widget that you were producing for $10, and could only sell for $5, but a million-dollar factory would let you produce 100,000 widgets a day for $2 each, lending is the only way to get into business.

It's not the use of debt that's a problem, it's the misuse of debt.

PwC put together one of the more comprehensive reports regarding the 'value of collection agencies in the U.S.'


That's not actually how it works. Money is not a thing. Money is a decision and a means of social punishment/reward.

Lending is either an executive function based on (supposed) faith in the future, or it's gambling, or it's client patronage, or it's extortion.

There is no financial business model which does not reduce to these relationships.

In your example, the factory gets built if someone important decides it should be built. They charge 'interest' based on justifications assembled from some combination of gambling, extortion, or patronage.

It's an entirely imaginary and delusional system, and completely faith-based.

It's probably less of a house of cards than ever before. From kings mixing more nickel in with their currency, to giving loans based on reputation rather than earnings, that stuff is fading fast.

The game has been around as long as civilization has been around. The conventional view is that money came first, then debt, when actually it was the other way around. Rather than being a modern invention, debt and the management thereof was what led to the creation of money and accounting.

Debt: The First 5000 Years [1] is an excellent book I'd recommend if you're interested in the history. It's very well researched and a fascinating read (even if you don't agree with the author's politics.)

[1] https://www.librarything.com/work/9530527

That's the essence of loaning money; the central difference between medieval and modern economies.

But I would have thought the rationale was that lenders accepted some risk (that borrower would default) for a chance to realize some profit (when the borrower pays). What the NYT article sketches out is a system where debts are created seemingly without the intention that they be repaid; the only way I can wrap my head around it is that those losses are calculated, and that overall lending and selling on is profitable. But it does seem like turtles all the way down - real people used imaginary money to buy real things (or services from other real people), and then the imaginary money (mostly) disappeared. All that's solid melts to air.

Well, that doesn't mean there can't be fraud involved. There often is, and that's when things tend to fail spectacularly.

Watch "The Century of the self".

It makes the point that it's necessary because the government wants to control people's subconscious behavior through consumerism, which necessitates (I guess?) this skew in currency that you pointed out.

This is actually something I think a startup could do a really good job at disrupting, but you'd have to have a very high tolerance for both a) schleps and b) dealing with poor peoples' problems.

Billions of dollars are being thrown around at companies where the average level of technical sophistication is Excel spreadsheets and the prototypical competitor is a high-school graduate with an average of N weeks of experience in the industry.

I came to the same conclusion from a slightly different angle: you'd be disrupting an area of financial services which is largely unregulated, full of shady middlemen and the big banks and lenders actually want you to succeed. Even just a platform for buying and selling debt of verified provenance sounds like potentially low risk profits (though I'm less sure about the attractiveness of the customer base...)

I wonder if you could tie it to disrupting credit reporting.

That's an interesting angle. The troublesome part is that credit reporting is a two-sided B2B marketplace. You need to convince people to report debts to you AND convince lenders to make lending decisions based on your reports. On top of this, you have to have a B2C facing function for FDCPA and FCRA compliance, and they're very toothy rules to fall afoul of.

All certainly true. I was thinking an interesting angle would be to provide better visibility to the debtors - no limits on the number of times you can check, notifications when things are reported - which might both make the data more accurate (and thus more valuable, one would hope) and make getting in touch with people easier, and make the whole thing less awful.

That's exactly why we started working on this problem.

I was called by a collector once. Old medical bill, the clinic had sent it to an old address and the mail forwarding had expired. Why they never called or tracked me down I don't know, but they eventually sold it to a collector who had no trouble finding my phone number.

When they called I was confused at first, then remembered and realized it was legit, paid it, end of story. They were utterly professional and courteous about everything.

Medical debt rankles me like nothing else. The US, supposedly the most advanced nation on Earth has the worst notion of all: health care for profit. Simply evil. Health care is a basic human right. Full stop. Health care should never be based on one's ability to pay. Never.

I pray I see socialised medicine in the US in my lifetime. If Hilary Clinton gets elected, the push for this will be stronger than the thin edge of a wedge President Obama has managed. We need a full single-payer tax-based system.

I pay the ridiculous sum of $700 US dollars a month for my family's health insurance. If we raise taxes by 10% for every American, we could have awesome health care. I'd gladly take the 10% tax over $8400 a year I pay now. Sick, capitalist theft. I feel I've been politely robbed every pay period.

I agree, but I think there is too much at stake for too many high net-worth individuals and corporations for the US to make a change to the single-payer system.

A 10% rise in taxes? That's a heck of a lot of money. The majority of the rich won't buy into it, they'll fight it tooth and nail.

In my opinion, I think it depends on how well appeals for/against a single-payer system resonate with the middle class. Do they generally feel that they will be subsidized, or be subsidizing?

Heck, even some poor people (who would be net winners) won't even support it on principle.


But now they pay insurance anyway, aren't they?. With a single-payer system, their contribution would actually probably fall.

Right now, if high net worth individuals pay insurance at all (it's usually an employer provided benefit), it's pre-tax and even the best cadillac plans for the entire family are ~2k/mo. A 10 percent increase in income tax would rankle anybody making over ~150k/yr, and that's assuming the best whole family plans. Someone like myself who pays under 400/mo for really good insurance would get dinged on a 10 percent tax increase at only $50k/yr.

Single payer would have to come in at about a 5-7 percent tax increase for it to be even remotely palatable to me, and that's as someone who's all for it and think it's morally bankrupt that we don't have it.

The average person in the US is already paying ~200% as much as a citizen of your typical single-payer country for coverage. Not only are we paying twice as much for coverage, we don't even have universal coverage after paying twice as much.


The health care tax could be regressive, say 5-10% of your income below first $100-150k, and then 0% of the remainder. This way, even the richest would not be affected that much by that additional tax.

Actually, even without additional tax, if US government dropped Medicare, Medicaid and other state sponsored insurance systems in favor of universal coverage, it would have enough money to have world-class healthcare system without any additional taxes -- the US government _already_ spends as much on health care per capita as Germany, or France, and 30% more than UK.

The US government already pays more per capita for health care than Canada, despite not covering anywhere close to everybody. If one could wave a magic wand and transmute the US to the Canadian system, US government health care expenditures would actually fall, and taxed could be lowered.

I certainly don't disagree with you.

The fact of the matter is: If a goal involves raising taxes on the rich (or corporations) in the US, it will be pretty difficult to achieve.

I don't disagree with that either, I'm just pointing out that universal coverage, done well and efficiently (a massive qualifier, I know) wouldn't require any tax increases at all.

By definition there are that many rich people. If poor people were willing to pay 10% in taxes they would get back far, far more than they put in. But they aren't so they won't.

Would a tax that only applied to the first X dollars of income, like social security does, be feasible?

Evil! The hyperbole is overflowing!

It is true that socialized medicine puts an end to the financial hardship imposed on individuals, but it also brings other problems into the picture, namely rationed healthcare. I've experienced it myself. That's why you have so many Canadians coming to the US when they get really sick.


Hardly any Canadians come to the US for medical care, it's a silly rumor that has no grounding in reality. The US has one of the most expensive health care systems in the world for people without insurance, but we're supposed to believe that all these Canadians are rushing over the border with tens or hundreds of thousands of dollars for marginally better care?



The study you reference seems a bit weak. They polled hospitals in Michigan, New York and other border states? The Canadians that I know who have got to the US for care go to places like the Mayo Clinic or Sloan-Kettering.

At any rate, rationing of healthcare is a reality in Canada. A few years back the Supreme Court of Canada stated that the ban on private health insurance violated Canadians' right to security as the waiting times for the public system were so high.



They also polled Canadians directly to approach the question from both sides.

> Several sources of evidence from Canada reinforce the notion that Canadians seeking care in the United States were relatively rare during the study period. Only 90 of 18,000 respondents to the 1996 Canadian NPHS indicated that they had received health care in the United States during the previous twelve months, and only twenty indicated that they had gone to the United States expressly for the purpose of getting that care.


So it's that they want to go to the pre-eminent institutions in the world, not "American healthcare (as a whole) is better than Canadian" - -your- inference is weak.

If that is the determining factor, I can guarantee that if those same Canadians had needed a heart transplant in the 80s, they would have flown to Sydney to go to St Vincent's and be operated on by Dr Victor Chang (http://en.wikipedia.org/wiki/Victor_Chang). I think your causality is broken.

whereas you provide no study whatsoever

Healthcare is already rationed in the U.S. It's rationed everywhere, by definition, because there isn't (to my knowledge, anyway) any country where the (price-agnostic) demand for resources isn't more than the supply.

It's just rationed in an inhumane, stupid way in the U.S.

No one from the industrialized world comes "to the U.S." because of a severe illness. Rather, people come to specific doctors for new procedures, or to have the one surgeon in the world who's done Risky Procedure X a hundred times instead of four. If that doctor's in Paris, they go to France. If he's at Mount Sinai, they go to New York. If he's at Hopkins, they go to Baltimore. But no one from the industrialized world comes to the US itself for its not-that-great-overall healthcare system, and no one has for over 30 years.

If the US is the country with the top notch doctors, then how to you separate "they are going to the best doctor" to "they are going to the country with the best doctor"?

The US isn't the country with top-notch doctors. There are some top-notch doctors in the US.


I presume that in your socialist medical system doctors, nurses, drug chemists, medical feathers and so forth would still get paid, right? Guess what? That's profit.

There's plenty wrong with our health care system. Much of it is due to the insurance idea. Much of it is regulatory. Much of it is structural. Single payer wouldn't really address any of that (not even the insurance bit: it'd be insurance writ large). What we need is for everyone to pay for what he receives, with charity/welfare for the indigent. It works for food; it works for medicine.

Easy. Set limits on salaries. All medical schools become government owned and run. Doctors graduate with no debt and they agree to serve the system for 10 years. If you bail before 10, you pay the debt of schooling you. Salaries would be reasonable and capped. You don't become a doctor to become wealthy -- you do so to serve.

Have for-profit clinics for stupid things like breast implants and other things that insurance should never be paying for -- like optional stuff.

No, it doesn't. That's been proven wrong by the entire developed world.

Um, there are more not-for-profit hospitals than there are for-profit hospitals, which doesn't dramatically change the pricing equation.


One man's profit is another man's stash for bonuses and building a new wing of the hospital.

The hospitals aren't the problem, every hospital in the Boise, ID area is non-profit and frequently they work with those without coverage to significantly reduce or completely write off their medical expenses.

It's the insurance system that is the problem, since I have insurance the hospitals won't give me a dime off my bill, and my costs are heavily inflated because those of us WITH insurance are subsidizing those without.

Now, I'm a software engineer, I make a comfortable income and have a high deductible healthplan and a health savings account, I know I will be able to afford health expenses should they come up, at worst I can make payment arrangements because my annual out-of-pocket max is $5K/10K (individual/family).

But many families in my area are just scraping by on barely above minimum wage, and planning for health issues is not high on their priority list. If something happens to them, the $5K debt can be devastating, and it would take them YEARS to pay off what I can in months.

Just to clarify: a bunch of people pooling their resources together to negotiate a lower price are a problem, but provider charging high prices to those not able to negotiate a discount is not a problem?

Sorry, I may have mis-phrased this, I've edited my original comment. The problem is those pooling their resources into insurance companies are subsidizing those who are NOT. This is what the insurance mandate of the Affordable Care Act is trying to fix, we have yet to see if this will work or not.

Ultimately, the simplest solution to the resource pooling problem is to eliminate the insurance industry and go single-payer, then EVERYONE pays with their taxes. However, many insurance companies are for-profit and they'll keep fighting against single-payer until they go out of business.

Insurers almost always negotiate huge discounts with hospitals. So the bill you see is not the bill they pay, and what they pay is considered confidential.

I've never gotten a bill from a hospital that didn't include the adjusted amount from the insurance companies. The crazy original charges from the hospitals are usually as high as they are because the insurance companies ALWAYS negotiate them down, even with these discounts the bills are still crazy expensive, it ended up costing $2,500 for my wife to have a Cesarian when my daughter was born after insurance paid.

Unless the insurance falls through entirely or partially, and then the patient is stuck with some or all of the massively unreasonable bill.

That used to be the case, but ACA regulates maximum out-of-pocket costs now.

The goal is zero profit in health care.

Ridiculous, profit is what drives innovation. You think the billions of dollars a year that go into healthcare R&D comes from the goodness of people's hearts?

Where does a dentist then raise money to buy a new XRay machine?

Where do you find money if your top doctor wants a raise or threatens to leave for a competitor?

Profit != revenue.

Ok, but zero profit = zero flexibility on meeting unplanned expenses.

My "national insurance" is about that much, £400/mo, at current exchange rates. You would be no better off if the US had an NHS.


An injured person has no capitalistic value. They are injured, and can either work limitedly or not at all. Therefore, they are worth little to nothing.

Why would a capitalistic government like ours care about someone who will be a drain on the "system"? I's better to send them in the insurance mill or die in the ER.

yay usa.

You sound like a Nazi...

I pray you never experience a major medical issue whereby you are "useless" to society.

Actually, I'm much more a socialist. I believe that All people have a right to health. And I also think that introducing large swaths of cash like we do in the USA enables horrible perverse goals.

I think this is more the norm. I wrote software for a large debt collection company for years and being courteous, professional, and legal was extremely important. For example, all calls were recorded. Some were even QAed in real time. Do anything illegal and the agent was fired on the spot.

As a large debt collector, they were easy to find and sue if one of the agents did anything wrong.

The horror stories you hear about collectors are often these fly by night places with 100 people crammed in a strip mall location. They use illegal tactics and hope to collect enough money before being shut down and forced to sell off the rest of the portfolio.

I spent 16 years working for a medium-sized company that did debt collections, among other things. I think your experience is probably more the norm. There are certainly bad companies out there, and no shortage of horror stories, but I saw a lot of effort put into compliance, and training, and quality to ensure that collectors played by the rules.

The real story here is how little effort most healthcare providers put into debt collection.

When the collectors call the debtors, can the debtor demand a paper trail to prove that the collector is the actual owner of the debt? Why should a debtor pay any amount of money to a random person who calls them and says they bought an old debt?

In the USA: Yes, the alleged debtor can insist on proof. The bad news: If collector mails the debtor, and the debtor doesn't respond for 30 days, the collector can report the debt to the credit reporting agencies. And we all know what a pain it is to get anything corrected on a credit report.

I don't understand why people freak out so much about their credit reports. I have no idea what my credit score is and don't care. I guess it's poor people who need credit to scrape by on a regular basis? If you have a lot of cash it seems like a completely empty threat. The bank is not going to care about your $400 unpaid comcast bill when writing you a mortgage. People who have declared bankruptcy twice are getting low rates. Tell the collectors to fuck off and go ahead and tell experian.

I got a $1200 medical bill, about half of which was BS. I sent a certified letter disputing the invalid charges. I never got a reply, so I never paid. I started getting calls from a collector. I blocked the numbers, end of story. I similarly never paid some bullshit charge from a landlord. These unpaid "debts" have never impacted me in the slightest.

If someone is trying to screw you, just don't pay. I don't understand why people are such cowards about it.

This is the worst possible advice a person could give. Collectors can and will go to court to get a Judgement (capital-J), which allows them to garnish wages (among other things) and in some cases is actually worse than declaring bankruptcy.

"If you have a lot of cash" speaks volumes about where you're coming from, though. Congratulations on being one of the very privileged few in this country who can afford to do what you suggest. The vast majority of the rest simply cannot.

They pursue a judgement on sums up around thousands of dollars where the charges are clearly valid. There is no way that's going to happen on some piddly $400 amount that you have documented is substantially BS. What I'm talking about is people I've seen in recent threads freaked out about some comcast charge affecting their credit report. Don't waste a minute of your time dealing with them or the credit bureaus. Just don't pay.

This is beyond idiotic. My credit score is HORRIBLE due to little things like this accumulating in my youth. Pay everything, always -- always pay -- always. It WILL come back to fuck you over just when you need those extra few points.

Pay it off and go without credit for a few years... your score will be trashed.

Not so idiotic. I ran up a modest amount of debt in my early twenties, never paid any of it. Fast forward ten years. Found a decent job, look to buy a car, come to find out my credit report is mostly empty. Most everything had dropped off. Capital One gave me a credit card, I've been building up credit and savings over the last year.

If you have the discipline to say, "no new debt," which isn't that hard to do after you've already fucked up your score, then you can hit thirty with a clean slate.

Its hard to impossible to rent an apartment around here with a low credit score. That wasn't the case several years ago. I am guessing it will just keep getting more prevalent so you may have to live in your parents garage util 30 while waiting for that old debt to drop off your credit report.

Can't you just offer to pay a larger deposit or several months up front?


Can't you just offer the landlord occasional use of your boat and promise to pull family connections (everyone has them, no?) to get White House internships for his kids?

I'm not saying paying extra is feasible for someone without much money, but this whole comment thread was a response to one guy who basically said credit doesn't matter much if you aren't poor.

Going with the implicit assumption that we're talking about someone who's making a pretty good bit of money, but who has a bad credit rating, I'm only arguing that it's not impossible to rent an apartment.

I love your blog by the way.

I'm not rich. I make about 150 right now, which around here isn't much. I am just informing you cowed bougie woosies that your "oh noes my credit report" panics are not grounded in reality. If you pay your legit bills on time and make a solid living, credit is not a valid concern when someone is trying to fuck you. In cities like Philadelphia and Baltimore most of the households are chronically arrears on utilities. Guess what, they all have cell phones and DirectTV and cheap mortgages, and their utilities are never cut off. Mortgage originators are desperate for truly credit worthy customers.

Some dings from the racketeers might be a problem if you want to rent a $4K apartment on a $90K income, but even then I doubt it.

I almost get the sense that upper middle class nerds have no idea how most of society actually operates and how strong a position solid income puts you in.

> I almost get the sense that upper middle class nerds have no idea how most of society actually operates.... <

Oh, the irony. Unless, of course, you meant to lump yourself in with the "clueless" upper middle class. $150k/yr is actually beyond middle class. That's affluent, at minimum. It's not "rich" in the sense that the average person earning that income could just stop working whenever he wanted, but for a single person that's top 5% territory, and for a family it's top 10%.

For what it's worth, my household income, including passive income from rental property, is north of $200k. I know very well what having a high income affords. I've also been on the other end of the spectrum, near homeless when my impoverished single mother was raising me and my brother. I'll be blunt: you're the clueless one here. You have no idea what you're talking about, and your comments make you seem out of touch and, frankly, a bit gormless.


Much truth to this. Also much truth that pointing out to HN that most of them have no idea how the world really works is rarely useful.

Wow, talk about money causing a person to loose perspective...

I'm moving to SF in a year or so because my wife is attending grad school and I am terrified about housing due to this fact. Maybe I can get my employer to sign the lease.... right

Just live with roommates in your twenties. Much cheaper, easier, and you always have someone to hang out with. I rented an apartment once, still got a roommate.

Echoing that this is really bad advice. I spent a rather unpleasant day in small claims court and saw first-hand that credit card companies can and will file lawsuits over relatively small amounts owed.

They have something called small claims court for getting a judgement on small debts. Cheap and easy, no lawyer required. I am betting there are collection agencies that specialize in small debts.


[citation needed]

Sure, a single unpaid bill won't hurt you, but that's because it won't hurt your credit score much. If your credit score is low enough, your bank may still give you a loan to buy a house, but will demand a lot more money up front and charge you a much higher interest rate.

If you can buy a house for cash, it might not matter, but there are plenty of non-"poor people" who can't just drop a quarter million dollars off in a suitcase.

I am telling you that people with multiple bankruptcies are getting the same rates on mortgages. It just doesn't matter like you think it does if you have a solid income and the down payment. The credit score is this bizarre hollow threat that has middle class people terrified into submission in many situations where they shouldn't submit.

Until they try to get a phone contract, or a broadband contract, or even an electricity supply they can pay from a bank account.

I know people who have had problems with all of the above because of poor credit.

I agree that the credit industry relies on extortion. I also know for a fact that some debt collectors act as front men for 'legit' banks and credit card companies who use them to extort extra interest from written-off debt. So they get a double profit - a tax write-off, and some or all of the principal back, with interest.

The lenders should - and I guess do - run actuarial models which give them a good idea what current and future default rates are.

I know there's at least one credit card company in the UK that deliberately lends to people with poor credit - not because it's run by nice people, but because it knows it can maximise profit by taking defaulters to court and foreclosing on their houses.

It's a vile, despicable business run by failed human beings.

There is a small difference in interest rates that you get based on your credit score.

When I bought a car from the dealer I told the loan guy that I had a 0.9% rate at my Credit Union so I didn't need financing. He was able to match the rate based on my credit score and take 300.00 off the car. I doubt he would have believed that I qualified for %0.9 if I had bad credit. So for me we are talking about a difference of at least $300 a year for having a good Rating.

Even rich people take out mortgages, for plenty of reasons. Banks will look for any reason to charge you a higher interest rate. That $400 unpaid comcast bill is a perfect excuse for them to charge you an extra $15,000 in interest or more on a loan (over the course of the loan's lifetime).

This is why we get competitive bids from multiple banks.

They all use the same 3 credit reporting agencies (in addition to the completely non-transparent aggregate FICO score)

Here is something you might not understand or know. Nowadays your credit score affects more than you realize. It used in many places as a measure of trustworthiness. You can have trouble renting an apartment (depending on the market and landlord) with debt that went to collection. Also you pay more in insurance premiums. Your potential employer may pull your credit report as part of a background check and decide not to hire you because you didn't feel like paying your debt. Just forget about getting a security clearance with debt in collections.

Information does eventually age out of your credit report.


In many jurisdictions, they have to disclose that they're doing so. Fake a competing "exploding" offer to put time pressure on them. They'll write you an offer (if they're interested) quickly. Then, if they rescind the offer later because they don't like what they see on a credit check, threaten to sue for promissory estoppel. Whether or not you're likely to win, they'll settle in order not to be known as a company that rescinds offers. Walk away with a severance, without even having set foot on the job site.

I'm not saying that people should let their credit scores go to shit just to avoid paying small debts. It's rarely worth it to welch on a debt. However, in the case of employment, there is a strategy if you think you're at risk of losing job opportunities based on a credit report. (That said, I've never heard of anyone in tech getting dicked on bad credit. But in our scummy/chummy industry, rescinded offers over reputation issues are not uncommon and those can usually be turned into 3-5 months' pay.)


At which point they'll promptly hire you, and let you go in the first week, as you're "just not working out", and you're most likely in an "at will" state.

Would something that transparent actually stop you from having grounds to sue, though? If you documented that they rescinded an offer, then you threatened to sue before they hired and immediately fired you, I don't think them doing that would invalidate your case at all.

I doubt they'd do that.

First, "at will" employment is pretty complicated. It's not as cut-and-dry as it's made out to be. Besides, this is a detrimental reliance case: you're arguing that you relied on an offer that was fraudulent, and if they fired you in the first week and couldn't show that it was part of a business layoff or due to criminal behavior on your part, you'd still have that argument.

Second, once you rescind an offer, that person's pissed. Letting that person into the building, even for a week, is not something a risk-averse company is going to do lightly. Third, companies would have all sorts of internal-publicity/morale issues in doing this: hiring someone for a week just to can him on an obviously phony performance case. Fourth, companies care as much about disparagement as about lawsuits, which is why you can often get a settlement even if you don't have grounds to sue (or, more commonly, the suit wouldn't be worth the time put into it). Of course, you shouldn't threaten to disparage in a severance negotiation, because if you don't know what you're doing you can end up unknowingly committing extortion, but it is a concern on their side.

Companies are risk-averse and want to protect their reputations and avoid headaches. Once they've rescinded the offer, a 3-5 month severance is easier than taking the risk of letting you into the building. What if your boss and team like you (and, in the first week, why wouldn't they)? Do they really want to deal with the morale mess of firing you in the first month?

Of course, this doesn't apply when offers are rescinded for legitimate reasons (whole-office shutdowns, massive layoffs) but that's not what we're talking about here.

The problem is, if they're doing it right, they won't even know you failed background because of your credit score. Companies outsource background checking to protect themselves from exactly this. They don't even want the potential liability of knowing why you failed the check. They pass your name and address as parameters to the background check company, and the background check company just returns a boolean value. The offer is always conditional upon passing background, so if you don't, the offer is null and void. You don't get to know why.

Really? This would never work. Every job offer I ever got says "this offer is continent upon passing background/credit check."

You got it backwards anyways. It isn't run background check -> Offer job it is Offer job -> Run background check. Offer job is always first.

LOL... the last time I looked at a mortgage, despite my six digit income and all other things, I absolutely promise you that the bank -did- insist I resolve several unpaid debts that were listed on my credit score (probably four or five, totaling <$3,000 between them).

I don't believe you got hit with four or five scammy $700 charges. You are apparently chronically delinquent on accounts, which is not what I'm talking about.

If you ever want to own a home, your credit score effects the rate at which you can borrow money which can make a mortgage much more expensive.

That is a great way to blow tens to hundreds of thousands on interest over a lifetime.

Credit isn't just for poor people

That's one of the ways a person can "erase" consumer debt: challenge the creditor to prove the debt is legitimate. If they can't, it's supposed to be removed from one's credit report. In the case of bad debt that has passed through multiple agencies, that can be incredibly difficult to do.

You can demand a validation notice under the Fair Debt Collection Practices Act:


patio11's guide to doing exactly that: https://news.ycombinator.com/item?id=7135833

thanks, that was a good post to read, i also like the comments about the fact that you should really actually pay your debt when it is legitimate. I'm all for going after the unscrupulous collectors, but if you owe the debt.. pay it off...

That's what it really comes down to. At the end of the day, receiving a call from a "debt collector" is no different than receiving a call from "Windows Support" or "Oil Fund of Nigeria" (or even sweepstakes / political campaigns).

When enough seemingly-personal details match, gullible people get tricked into sending money. The only thing that solves this problem is for people to stop entertaining unsolicited calls of any form. How much are VOIP rates these days? Last time I looked, it took something like $50 to leave a short message for everyone in a phone prefix (10 kilopeople).

In the case that one possibly does have an unpaid debt and wants to resolve it, then call up the original creditor and follow the debt's legitimate path from the source. And when you finally have someone to pay, insist on written documentation from every party in the chain, absolving you of the debt.

Yes, and you can tell them to never contact you again in any way. Tell them that you refute all of the debt and will sue them if they file inaccurate information with a credit agency. I did that two years ago when a debt was incorrectly reported against me and I never heard from anyone again and it never showed up on my credit report. I'm not sure what would happen if they could prove the debt was accurate.

> should a debtor pay any amount of money to a random person

No. Debt is not a crime in the USA. And it is generally more profitable for collectors to sell your debt on to the next collector than to take any sort of civil legal action against you. Some exceptions include IRS and Student Loans.

As the article indicated, the best reaction (assuming you don't intend to pay) is to hang up.

On the ground, a large portion of (consumer) debt collection is based on pulling fast ones. The people in debt are not aware of their rights and protects, and the debt collectors deceive, sometimes stretching the truth and sometimes outright lying. Threatening with prison sentences and even posing as cops are mentioned in the linked article, even though one is a fiction and the other an outright felony.

So really, your question "why should a debtor pay...?" is always answered by "the collector convinces them to." Giving the consumer rights and protections is, at this point, insufficient. Their current rights and protections are not being exercised, due to ignorance. That's something that needs to be fixed.

It's a bit of a pipe dream, but it seems to me that this is a perfect use-case for digital signatures. If I sign over debt to Bill, and he signed it over to Jim and Nancy, and then Jim collects it and Nancy signs it over to Stu, and then Stu find that it's already been collected, then Stu and Jim can compare provenances and sue/beat-up/whatever Bill.

The real question is how to make digital signatures work for people at that level. That's a really tough question; I don't have the answer there. Maybe Excel could have some sort of row-signature cell type, which could stack (e.g. First Martian Bank would sign each row upon issuance, then each seller would just sign it again). It'd be even better if it weren't just a statically-signed document, but could also document stuff like 'Joe Smith paid down $320 in principal.'

Gosh, almost sounds like Bitcoin or a similar protocol would make sense here …

And then there's those of us who have non-existent debt sold on to these people.

About 12 years ago, I started getting letters from a debt agency about a medical bill that I did not owe. Letters that I forwarded to the insurance company.

Then the phone calls started, with people trying to convince me to pay a bill I didn't owe.

It took about 9 months to get it sorted out. What had happened is that the doctor had improperly billed the insurance, for a fee they had already billed for, and the insurance refused to pay it.

The doctor's office sent it to collections. And the collections agency would only stop harassing me if I got the doctors office to call them and admit they had billed incorrectly.

That was not fun.

missed it the first time, but check out the link at the end article to play 'Bad Paper'


This is sort of funny stuff to me:

Not long after getting out of prison, Wilson took a job as a debt collector. He proved quite good at it, and soon he bought some paper and opened his first agency. Later, he also became a debt broker or dealer, a type of role he knew quite well: “I used to buy pounds of weed, all right, and then break it down and sell ounces to the other guys, who were then breaking it down and selling dime bags on the corner, right? Well, that’s what [I’m] doing in debt.”

I mean a lot of it has comical tones -- granted, darkly comical. But, hey, I have probably had more real financial problems then most folks on HN and my dad once collected about 98% of the defaulted debts kept in (probably) a shoe box at a small business he worked for. So I have seen kind of both sides of this quite close to home.

The people's bailout was a form of protest that resonated with me:

they take donations to buy debt and instead of then trying to call in that debt, they just forget it, absolving the original debtor


Very interesting article.

I'm sensing a collective consumer opportunity. Form a group, take donations, buy the bad paper (for pennies on the dollar) and forgive all the debts on it. No doubt many of the people would be simple deadbeats, but lots of them are probably just people who ran into problems, and something like this would help clear up their credit and give them a new start. What a gift! I'd kick in $25 for something like this.

As a side effect, with cleaner credit the debtors would be able to start racking up more debt again and this would stimulate the economy!


Unfortunately, once your account is in collections, your credit rating is damaged and paying the debt off doesn't improve it much. While that's arguably "fair" (the original creditor still got screwed, losing 60-95 cents on the dollar) it leaves the debtor with minimal reason to pay the debt, unless successfully sued, resulting in a judgment. As the OP discusses, most third-party collectors have lost proof of the debt and won't be able to successfully sue the debtor. Full recovery of the credit rating would be sufficient incentive for many people to repay, but that's not an option.

The fact that you can't get your credit rating back (at least, not to what it was) is one of the problems with the system as it stands currently. If there was a system whereby people could make the original creditor whole and recover their credit rating, that'd probably better (if shitty for third-party collectors).

Ya, I'm sure you are correct. It was a bit of a flippant idea. But... it would still remove _some of the stain from their credit and at least prevent them being victimized by scummy collectors like those referenced in the article.



So all I have to do to get out of my loans is live off the grid for 7 years? I wonder if this is the same for student loans.

No. Federally subsidized student loans don't have a statute of limitations and can't be discharged during bankruptcy. And they have that much time to sue you. So they can and probably will sue you to win a judgment against you before the statute of limitations. If you don't show up to court to defend yourself you get a default judgement against you - you automatically lose.

in some cases, if you make a payment of any amount towards your debt, the statute of limitations resets... so keep that in mind!

Man, me and the wife are dealing with this right now (didn't read yet). One company sold to another to keep it going. We got it off but now the next company is trying to collect so we have to go through it again, but not until it hits her credit. Just BS if you ask me.

There is an interesting startup in the space, trying to do things right. https://www.trueaccord.com/

Thanks for the mention! I'm one of the cofounders. We're already making a huge difference in debt collection for several leading technology companies. We had to rethink a lot of the core solutions and technologies for debt collection to not fall into the same traps.

And to think that I paid all of my debt last year only to be confronted on my latest credit check with an alert saying that it was all back, and had quadrupled in value.

The CFPB has made the debt buying industry more difficult to operate in. for better or for worse

entertaining read! and learn 2 important things: 1) don't ever go to collection, your personal data will circulate across the globe for many years, 2) look at statute of limitations before taking any collection call seriously.

Debtors need to take control. They need to collectively seize the paper at the giant discount and then dismiss the debt.

How to do such a thing? Seems impossible, but even a 4x or 5x overhead would be a giant bargain for the debtors next to the sharks, and the sharks wouldn't be able to compete on those margins.
