Debt buyer (United States)
A Debt Buyer is a term used to describe a company that purchases delinquent debts from a creditor for a fraction of the face value of the debt. The debt buyer then either attempts to collect the debt on its own or uses the services of a collection agency. It is distinguished from a collection agency because it owns the underyling debt, whereas a collection agecy collects the debt on behalf of another.
Industry overview
Due to the historic profitability of the business, the debt buying industry has seen dramatic expansion in recent years. Debt buyers purchased approximately $110 billion in face value of delinquent debts in 2005, which is about double the amount bought in 2000.[1] Credit card debt comprises seventy percent of the accounts sold to debt buyers, followed by automobile loans, telecommunications debt and retail accounts.[2]
Depending on the age and history of the debt, a buyer typically pays between 3 and 16 percent of the face value of the debt. Accounts that come directly from the original creditor without having been placed with a collection agency command the highest prices, approximately 11-16 cents on the dollar, with prices decreasing based on the number of agencies that have previously attempted to collect the debt.[3]
Debt buyers range in size from very small private businesses to multi-million dollar publicly traded companies - there are currently five publicly traded debt buyers.[4] As the visibility and profitability of the industry has grown, so too, has competition, both in terms of the number of debt buyers and the rising prices of bad debt.[5] Additionally, there is a secondary market in this debt, with the debt buyers reselling the debt.
Debt buyers may be classified as "active"--those who collect the accounts they purchase, or "passive"--those who invest in the debt and outsource the collection activities to a separate collection agency.
Controversies
A debt buyer may not have the same incentive to maintain the customer relationship with a debtor as the original creditor, and some debt buyers may also be less concerned about negative publicity and complaints.[2] Thus, there are reports that some debt buyers engage in abusive debt collection practices, including the following:
- Pursuing debts that are not actually owed by the person being targeted
- Improperly suing or threatening to sue people on debts that are past the applicable statute of limitations
- Reporting inaccurate creditor information to a credit bureau
- Verbally abusing and harassing consumers[1]
While original creditors are often exempt from fair debt collection laws, courts and regulators have generally taken the position that debt buyers are covered by these laws.[6] Thus, debt buyers who engage in abusive collections practices are subject to lawsuits under the Fair Debt Collection Practices Act, the Fair Credit Reporting Act and other state and federal laws. They may also be subject to regulatory action by state attorneys general or the Federal Trade Commission, which in 2004 shut down Capital Acquisitions and Management Corporation, a debt buyer that allegedly engaged in extensive abusive collection practices. Cite error: The <ref> tag has too many names (see the help page).
References
- ^ a b Weston, Liz Pulliam. "'Zombie' debt is hard to kill". MSN Money. Retrieved 2006-09-18.
- ^ a b "Bad debt rising: when to sell your accounts receivable", Healthcare Financial Management, August, 2004
{{citation}}: Check date values in:|date=(help) - ^ "CONFERENCE REPORT: Credit Card Debt Prices Will Level Off, Say Buyers". CreditAndCollectionsWorld.com. March 13, 2007. Retrieved 2007-03-13.
- ^ Mayer, Caroline E. (July 28, 2005). "New breed of collectors has debtors seeing red". Washington Post. Retrieved 2006-09-18.
- ^ Chumbler, Joe (July 07, 2005). "Debt Purchasing Outlook for 2005" (pdf). ACA International. Retrieved 2006-09-18.
{{cite web}}: Check date values in:|date=(help) - ^ Massachusetts Division of Banks (October 3, 2006). "Industry Letter Regarding Practices Of Debt Collectors And Debt Buyers In The Commonwealth". Commonwealth of Massachusetts. Retrieved 2007-02-14.