A year ago, Terrance Lavalle opened his mail to find an unexpected surprise: a letter informing him that after years of battling a debt collector over a $3,000 medical bill, he was debt-free.
"We are writing you with good news,” the letter began, going on to inform Lavalle that he would join thousands of consumers who were rescued from debt by Rolling Jubilee, a nonprofit organization that formed in 2011 as an offshoot of the Occupy Wall Street movement.
Since Lavalle opened his letter, the organization has relieved others like him of nearly $15 million worth of medical debt that would have otherwise been sold by hospitals and physicians to third-party debt collectors, according to a spokesperson. Because of the way debt buying works, there's no way for the Jubilee to target a specific individual's debt — they must buy debt in bundles and only learn the names of their lucky debtors afterward.
This means there’s no way for people to sign up for debt relief in a concerted way. It’s like winning the lottery without ever knowing you entered. To fund their debt shopping spree, the Jubilee relies on micro-donations from thousands of consumers in the U.S., with an average donation amount of $40.
“Some donors say they don’t have any money, they’re massively in debt themselves and all they can give is one dollar,” says Thomas Gokey, an early Jubilee organizer. “There haven’t been any really big donations and that’s the way we like it.”
Collecting money was the easy part. It would take more than a year for the organization — consisting mostly of college-age volunteers with no financial backgrounds — to figure out how the complex business of buying bad debt could be used to help consumers.
A solution for a broken system
Rolling Jubilee began focusing on consumers’ medical debt, chiefly because it’s the biggest cause of personal bankruptcies in the U.S., where one in five Americans struggle to pay their medical bills. Since 2009, the cost of health care has risen by $5,000 for a family of four, breaking the $22,000 mark for the first time in 2013, according to Milliman, an actuarial services firm.
When patients can’t pay their bills or negotiate a payment plan, hospitals and doctors’ offices will often sell their debts to third-party collectors for sometimes pennies on the dollar. These debt buyers make their money by hiring debt collectors to go after debtors for the full amount, often using a range of tactics, including daily phone calls and even lawsuits. If they’re unsuccessful, they turn around and sell the debt to yet another third-party collector, and on and on the cycle goes.
“If you get sick, you deserve the heath care you need,” says Gokey. “[Instead] people are being forced into decades of debt.”
Debt buying is a multibillion-dollar business, and until the formation of the Consumer Financial Protection Bureau in 2010, it was largely unregulated. In 2005, debt buyers in the U.S. were purchasing more than $110 billion in face value of debt each year and saw stunning growth from 2001 to 2006, when net income at four major debt-buying firms increased more than 700%, according to a report by the Neighborhood Economic Development Advocacy Project.
The vast majority of sold-off debts are unpaid credit charges, but a weakened economy has led to a surge in medical debt charge-offs.
Getting inside the debt industry
Gokey says volunteers within StrikeDebt.org, the parent organization of Rolling Jubilee, spent 14 months planning how best to elbow their way into the business of buying debt. Because they were solely interested in medical debt, they enlisted the help of professionals who had worked in the field to make sure they were purchasing the debts they wanted.
Debt buyers can’t tell whose debt they’re actually buying, only where it’s from and what type of debt it is (credit card, auto, student, etc.). Rolling Jubilee buys the debt before it ever gets into debt collectors’ hands, purchasing them in big bundles from medical providers themselves or from other debt buyers.
Only after Jubilee pays up does it get a list of the names of people whose debt they’ve paid off, which they then use to contact the debtors and tell them how they became suddenly debt-free.
Rolling Jubilee announced last week that they’ve raised nearly $700,000 (and counting). About half that sum was used to pay off nearly $14.7 million worth of debt, which they bought in four separate chunks.
“What we’ve been doing is a drop in the bucket, but it’s a good way to illuminate how debt works,” says Gokey.
Educating people about their consumer rights is the larger mission of Strike Debt. Every person who is relieved of their debt by Rolling Jubilee receives a letter explaining exactly how it happened and what they can do to get debt collectors off their back in the future. For example, you’ll find pages of tips on both the Jubilee and Strike Debt websites that help consumers better navigate financial issues, debt collection in particular.
There are Strike Debt community chapters cropping up around the country, and last year they published a manifesto called the Debtor’s Resistance Manual, which coaches consumers on dealing with everything from banks to predatory payday lenders.
So long as the donations keep coming in, Jubilee will keep rolling on as well.
Mary Anne Royal, a 69-year-old retired school counselor from Winterport, Maine, was one of the Jubilee’s first donors. A year ago, she unexpectedly received a $50 check for helping to clerk and count ballots during the 2012 election season.
“I felt like I was doing a civic duty, rather than something for which I needed to be paid,” she says. “So I decided it would be well worthwhile to put that money toward helping to beat a system that I think is rigged.”
In the Jubilee’s latest and largest debt buyout in May, they purchased a $12 million bundle of medical debt for just under $250,000, relieving some 1900 consumers of an average of $6,400 worth of debt each.
History is on their side
No, the Rolling Jubilee probably won't cure America's consumer debt problem (91% of debt chargeoffs consist of credit debt alone). But it's a start, and history is on its side at least.
The name itself — Jubilee — has biblical ties. According to Christian and Jewish faith, every 25 to 50 years would bring a Jubilee year, in which slaves were forgiven of their debts and freed.
And as Forbes’ Tim Worstall points out, the concept of crowdsourcing debt isn’t new at all. As recently as the 19th century, the U.K. was home to the Society for the Relief of Persons Confined for Small Debts, which raised funds to free citizens from so-called debtors’ prisons. It lasted for more than 100 years, which bodes well for its more modern iteration.
“It’s a classic Ghandian, Martin Luther King, Jr. nonviolent tactic,” says Gokey. “We want people to ask what we really owe each other. We don’t owe the 1% anything, but we owe each other everything.”
Contact Mandi Woodruff at firstname.lastname@example.org.