The Collection Industry: Debt Buyers versus Original Creditors

• Author: Daniel A Edelman
• Profession: Lawyer
• Pages: 57-60

57

The Collection Industry:

Debt Buyers versus

Original Creditors

CHAPTER

14

Recent years have seen an increasing number of delinquent debts purchased by “debt buyers.” Debt

buyers purchase the rights to over $100 billion in the face amount of debts each year. They pay pennies

on the dollar, often 3 to 4 percent of face value. If the debts are old, they may pay less than 1 percent of

face value. The debt buyers then try to enforce the debts against the consumer at 100 cents on the dollar,

by correspondence, telephone calls, and collection lawsuits.

Some debt buyers do their own debt collection, some use third-party debt collectors, and some do

both. A majority of the debts are credit cards. Others include second mortgages, mortgage deficiencies,

small loans, automobile paper, telecommunications debts, utility debts, health club debts, bank overdrafts,

and medical debts.

Debt buyers pose a particularly serious problem because they rarely acquire documentation of the

debts, and the information they have is often seriously inaccurate. This has been documented in a series

of Federal Trade Commission (FTC) reports, one of which was based on information subpoenaed from

the largest debt buyers. The agreements for the sale of charged-off debts often provide that the debts are

sold “as is,” without representation or warranty (see “The Structure and Practices of the Debt Buying In-

dustry” (FTC, Jan. 2013), found at https://www.ftc.gov/sites/default/files/documents/reports/structure-

and-practices-debt-buying-industry/debtbuyingreport.pdf; “Repairing a Broken System: Protecting

Consumers in Debt Collection Litigation and Arbitration” (FTC, July 2010), found at https://www.ftc.

gov/sites/default/files/documents/reports/federal-trade-commission-bureau-consumer-protection-staff-

report-repairing-broken-system-protecting/debtcollectionreport.pdf; “Collecting Consumer Debts: The

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