The Debt Buying Industry

Delinquent debt has given rise to an entire debt buying industry. When a debt becomes seriously delinquent, the bank holding the debt will write it off then sell it to a debt buyer, like Midland Funding, for a tiny fraction of the amount of the debt. In turn, that debt buyer might sell it to yet another debt buyer for an even smaller fraction of the amount. Meanwhile, the person who owes the debt still owes the entire amount of the debt owed. Each of those debt buyers reports the purchase of the debt to the credit bureaus, creating the illusion that the person owes multiple debts to multiple creditors. Obviously, this can have a dramatically negative impact on a person’s credit score.

John Oliver’s Take on the Debt Buying Industry

Happy warrior and occasional consumer advocate John Oliver takes on the debt buying industry in a recent segment on his HBO show Last Week Tonight:

In the segment, Oliver makes several key points regarding the debt buying industry:

• American households currently hold over $12 trillion in debt, $436 billion of which is delinquent
• The debt buying industry specializes in “zombie debts,” or those debts well past the statute of limitations or debts discharged in bankruptcy
• Debt buyers rank among the heaviest users of the state court systems across the United States
• One attorney in New Jersey reviewed up to 1,000 debt collection cases per day
• The Consumer Financial Protection Bureau has received more complaints about the debt buying industry than any other industry

“Pay What You Owe”

The debt buying industry is also rife with unscrupulous debt collection practices, like those of debt collection firm Williams, Scott & Associates LLC, which defrauded 6,000 consumers from 2009 to 2014 into paying about $4.1 million by misrepresenting the status of their debts and the consequences of not paying. Debt collection lawsuits are big business and extremely lucrative. But the impact on consumers is disproportionate.

The amount at issue in any one debt buyer lawsuit rarely exceeds a few thousand dollars, but the stakes are often higher than they seem. Many of the defendants in these cases are poor or living at the margins of poverty and this is often the reason they fell into debt in the first place. For them, the impact of an adverse judgment can be devastating.

— Rubber Stamp Justice: US Courts, Debt Buying Corporations, and the Poor
Human Rights Watch

Defenders of the debt buying industry acknowledge that consumers hate them and that “it’s annoying and obnoxious to be reminded that you owe money over and over.” For the consumer, they admit, it can be “humiliating, intimidating, and provokes anxiety.” But what is their solution? Personal responsibility and financial instruction. In other words, “Pay what you owe.”

You Have To Fight Back

The business model of the debt buying industry relies heavily on default judgments. Courts grant default judgments to creditors when defendant-consumers do not respond to debt lawsuits. In those cases, debt collectors are able to legal enforce those judgments through garnishment, attachment, and levy. If you are sued for an old debt, you can turn that business model on its head. You can hire an attorney and fight the case. Even if you owe acknowledge that you owe something to the creditor, fighting the lawsuit increases your ability to settle the debt for much less than what the creditor claims is owed.