During the past few years, there has been a growing awareness of how unpaid debts get bought and sold. The fact that debts can be purchased for steep discounts by investors and collection companies — who then work to collect the full balances owed — has lead to some meaningful discussions, and increased scrutiny of debt buying, and debt collection practices in general. So much so that California recently passed new laws governing how debt buyers go about collecting.
There have also been some interesting efforts to raise public awareness of debt resale markets, and a petition was even started to support the idea that people should be able to buy their own debts. So what gives? If debt buyers can buy your debt at basement prices, why can’t you?
Why Would You Want to Buy Your Own Debt?
Some pretty obvious benefits would be:
- Unlike a debt collector, you would not report a collection account that shows up on your credit report.
- You would not buy your own debt and add interest if your original contract allowed for it.
- You certainly would not sue yourself.
All three of those benefits would be great. But you can get all of those benefits today by resolving debts in the earliest stages of debt collection. What’s missing is your ability to buy down your debt at the basement pricing debt buyers pay for the legal rights to collect from you. But basement pricing is only typical when debts are resold, or when debts are older.
Companies in the market to buy debts vary in size and capital structure. No matter the company size, the goal is the same. Debt buyers invest good money in order to pursue collecting on bad debt.
Larger companies buy up huge portfolios of debt directly from your creditors, such as credit card lenders. Meanwhile, smaller or specialized companies who are buying up debts may not have access to purchase directly from credit originators. These smaller companies often rely on debt “re-sales” in order to get their stock of debts to collect. And it’s in the resale of debts where the lowest prices are often found.
The prices paid for debts that your lender has deemed uncollectable will vary. The fresher the debt is (timely payments only recently stopped coming in), the higher the price debt buyers pay. Freshly charged-off credit card debts (typically a minimum of six months of nonpayment) have been sold for 15 or more cents on the dollar in recent years. But the older debts — say a year or more since any payment was made — fetch lower prices. And debts that have already been sold once or twice, or that are a couple years old, are the types of debt you generally hear about going for pennies on the dollar (sometimes even less than a penny).
With that said, the resale of debts is highly controversial.
Debt Sales Are Changing
The Office of the Comptroller of the Currency, acting as a primary regulator over national banks, voiced concern about how credit card debts are sold, and to whom banks sell their debts, this past summer. Some of those concerns had immediate impacts on debt sales, with some large banks going so far as to cease selling defaulted credit card debts (at least temporarily). More particularly, the OCC questioned the safety and soundness aspects of banks selling any debts to debt buyers who are known to resell those debts later on. So while you cannot “buy” your own debts on the cheap in the resale market, continuing developments may mean others won’t be able to, either.
Some debt buyers already publicly state they do not resell debts.
Midland Funding LLC is one of largest debt buyers in the nation. They state openly in their consumer pledge that “We will not resell accounts to third parties in the ordinary course of our business.” Another larger debt buyer, Portfolio Recovery Associates, has similarly stated publicly that it does not resell debts that it purchases. I expect other debt buyers to follow suit, if they have not already, in order to conform to the adjustments being made by credit card banks.
Limiting the resale of debts will lead to more transparent and predictable paths for solving consumer debt collection issues. This includes: Problems with multiple collection items for the same account on credit reports; the ease with which you can identify any legitimate debt owner; or even how you can resolve collection disputes. This limitation could also mean that basement prices on credit card debt resales are in jeopardy.
So while you cannot buy your own debt, you can often get your debt discounted with lenders, collection agencies and debt buyers. How much of a discount is always subject to different variables. Some of the coming changes to collections and debt buying markets will certainly have an effect on those discounts. But after witnessing roughly 20 years of what amounts to a debt collection free-for-all, where a guy who has a little capital to invest, a phone, and a kitchen table to sit at, can buy debts and dial for dollars, I welcome change.
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