Debt buyer

From Wikipedia, the free encyclopedia

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.

Debt buyers are also sometimes referred to as “bad debt buyers” or, pejoratively, “junk debt buyers”.

[edit] 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 debt buyer typically pays between 1 and 12 percent of the face value of the debt[3], with the average price being 5.4 cents on the dollar.[4]

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.[5] As the visibility and profitability of the industry has grown, so to has the industry competition, both in terms of the number of debt buyers and the rising prices of bad debt.[6]

Additionally, there is a secondary market in this debt, with the debt buyers buying and selling the debt.

[edit] Controversies

A debt buyer generally does 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.[7] 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[8]

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.[9] 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 the Fair Trade Commission, which shut down Capital Acquisitions and Management Corporation, a debt buyer that allegedly engaged in extensive abusive collection practices.