How to become a debt buyer | Hacker News Reader

How to become a debt buyer

coda.io

36 pointsthunderbong79 comments

I wrote this article years ago. I can't believe it's on HN today. As someone who spent almost a decade trying to run as ethical an agency as possible, I realized that there's no room for people who want to operate the right way.

I could go on for days about all of the crazy stuff I saw while I was involved but leaving the debt industry was the best decision I ever made. Terrible industry, terrible people.

I'm upvoting this short comment in hopes that you'll share a somewhat longer story about what you tried to do and why it didn't work. Thanks!

I can answer any specific questions anybody has but basically, I landed in the industry by chance and got good at automating the collection process. I never had the backbone to strong arm people so I played the numbers game. Technology was my advantage.

Meanwhile, all of my peers were getting rich running unlicensed agencies and lying to debtors. I was getting sued constantly for following the rules. I'd win the lawsuits but it would cost me as much as $30k to fight them.

I employed over 500 people over about 8 years, many of them stole from me, overdosed, or ended up in jail because debt collectors tend to be troubled people. I shifted my focus to building software for the debt industry and went through a startup accelerator. That's when I fell in love with software and sold my agency.

Other than that, I'll answer any specific questions.

Thanks for sharing. How big of an advantage did the technology end up being in percentage terms?

We had low liquidation but we went through accounts fast. So clients didn't like us. Banks would rather pass off debt to an agency that will threaten people and liquidate higher. So overall, no but I had a solid run.

> I employed over 500 people over about 8 years, many of them stole from me, overdosed, or ended up in jail because debt collectors tend to be troubled people.

I owned a bar/night club for about 5 years. Most of the staff had (or gave me) the same problems.

Comments below suggest buying debt to cancel it or resolve at cost (e.g. the massive discount).

Q1: As an insider, how feasible is that strategy? Q2: As the collector do you report to credit bureaus that it's cleared? does it have a meaningful impact on debtors' credit?

I'm very skeptical about debt cancellation because if there was a way to make it into a business, it'd be a business. The people who talk about doing that all lose money as a charity, or they're sovereign citizens who think they found some tax loophole.

The credit bureau thing is funny because again, ethically you should but once you do you open yourself up to a LOT more liability. So most agencies won't unless it's an in-house agency for CapitalOne or something.

You as the consumer should always dispute everything on your credit report every so often.

How much does a typical collection agency buy medical debt for?

Is it 0.5x, 0.25x, what typical range are you working with?

It depends on the age of the debt and how many agencies it's been through. Medical debt is also much harder to pursue legally if need be, plus everyone hates the guys who sue medical debtors. So I never worked with it.

But I'd guess that direct from the client would be 8%, 1 agency ~1 year old debt would probably cost 5%, 2 agency 2 year old debt probably about 2% and then down to 1% and 75bps after that.

A lot of times you don't turn a profit working zeros. You barely make your money back and then turn a profit reselling it. Small margins but easier to work. Happier employees.

I've always wondered why more debt collectors don't go the wage garnishment route. Are the legal fees just not worth it? I imagine that the process is only complicated the 1st time, and you can just re-use paperwork for every other case. If it were profitable more people would be doing it, so I guess what exactly makes it unprofitable?

I would highly recommend writing some articles, and going on for days. Light is a good disinfectant.

This article leads a lot of people who want to break into the industry to reach out to me and I turn everyone away. Once I tell them what they can expect they're rarely still interested.

Kudos for showing up and recognizing that the industry is terrible.

The other commenters in this thread should read your post.

I thought it was an interesting read and it would be interesting to hear a summation of why you left the industry.

It also made me consider the possibilities for a sort of vertically integrated debt collection company. Someone that's had a debt sent to collection is possibly a good candidate for financial literacy education, credit rehabilitation, debt consolidation and refinancing etc. Can debt collection serve as a sort of loss-leading subsidiary for a bigger business that provides financial literacy and services to people that need it?

I left because I fell in love with building software and I hated debt collections.

The financial literacy angle is interesting but there's an even arguably more predatory industry around credit repair. People tend to stop caring about their credit until there's a life event like wanting to buy a house. Then they only care until the score hits 640.

Arguably Credit Karma uses credit scores and credit literacy as the hook which is probably a loss-leader because they need to pay for the scores.

This is a question I've always had about the debt industry...

How hard would it be for consumers (or through a proxy) to seek out and buy their own debt? You mention in another comment that medical debt (for example) could go for pennies on the dollar.

If I'm hundreds of thousands of dollars in medical debt (as many people are), it seems like this would be well worth the effort. Is it possible to locate a particular debt for purchase in this way?

A second question I've always wondered about: is it feasible to start a company dedicated to buying debt and forgiving it, and taking donations to cover the costs (possibly even turning a profit)? Given the ratios involved this feels way more effective then (e.g) the GoFundMe model of financing emergency costs.

I thing orgs like that already exist, see: https://ripmedicaldebt.org/ and https://www.cbsnews.com/news/rip-medical-debt-forgiving-medi...

The "Rolling Jubilee" project, which grew out of the Occupy movement, does pretty much what you suggest:

https://debtcollective.org/what-we-do/debt-abolition/

This is currently, and for obvious reasons, trending towards a thread about how evil the debt collection industry is. That's a shame, because there's a lot of interesting stuff to learn from the mechanics of the debt collection business, and it's stuff you can put to use to protect yourself (and others) from its worst abuses. There are "is" arguments and there are "oughts". We probably all agree on the "oughts", at least for the high-order bits of it, but isn't there some interesting "is" stuff to talk about?

I'd read this stuff the same way I'd read a HOWTO posted on a carder forum. We probably wouldn't waste our time with a huge thread about how evil carding is; we'd read it for interest, to see how a distributed criminal conspiracy functioned. We should try that here too.

>there's a lot of interesting stuff to learn from the mechanics of the debt collection business

I'm intrigued. Can you elaborate?

It's a legitimate need, it's just a corrupted industry because of misaligned incentives. We need some form of debt collections otherwise credit couldn't exist. The problem is that regulations are absolutely inconsistent and don't incentivize people to operate ethically. It's a regulatory problem.

An interesting fact is that a lot of agencies buy debt for about 1 cent on the dollar and liquidate around 2%. Collecting debt is actually very hard and the success rates are super low.

Sure, but what are some of these "interesting mechanics" you referred to in your earlier post?

Did I say that? I don't recall writing that. It's just credit markets really. Not all that interesting. Most people just don't think about them.

Ok, I had you confused with the person who made the original comment, but you're not really answering the question...

Presumably if the debt is liquidated at 2%, it doesn't make a material difference in offering credit, since it's pretty much a write-off for the credit-issuing institution anyway, right?

I'm not seeing how the debt collection in this case helps provide more credit for the economy - might as well just write off the non-performing debt altogether.

I would be interested if they at least said "Yeah, we're shitbags, but that's just how it is, and someone's gotta collect delinquent debt". What I'm not okay with is putting in shit like this:

> The Debt Buying and Debt Collection industries can be a very rewarding career if it's right for you. It is also a risky business to be in and has a somewhat negative connotation among some groups because of a few people/companies that have exploited the industries for personal gain or because of a general lack of understanding of the laws or regulations in place for consumer protection. Be mindful of who you deal with and always practice honest, legal and ethical business to help prevent any further negative stereotypes from being cast over this industry.

It's not a negative stereotype, and it's not because of a "few people". It's the facts. Don't pretend like you're doing something noble here.

I certainly wouldn't call it noble, but neither are 95% of other professions.

If you say you'll pay a debt, you should pay it. A necessary and IMO objectively good consequence of that is if you try to shirk that responsibility, someone somewhere is going to try to find you and try to collect. That doesn't by definition make anyone (including the person with delinquent debt) a bad person.

I would agree with you, except that people who sell debt at these crazy low rates are doing so because the person with delinquent debt is so destitute they've given up trying to collect. They sell to people who will go to every single length allowed by the law to harass people with absolutely nothing to their name until they squeeze the last bit of water from the stone of poverty.

This debt doesn't come from people like you and me. They come from people who literally don't understand what debt is and have been fooled into a life of poverty. That's who's being targeted here.

Recourse debt and its consequences have been a disaster.

We can do better but there’s not much will.

Removing the ability to effectively service non-performing debt would simply drive up the cost of borrowing for people that need it. Debt collectors are a necessary evil...

> This debt doesn't come from people like you and me. They come from people who literally don't understand what debt is and have been fooled into a life of poverty. That's who's being targeted here.

Exactly - the problem isn't debt collectors, its predatory lending.

A debt collector who exclusively purchases corporate debt to collect isn't the person who's calling my parents to harass them about a surprise medical bill. There may indeed be "a few people" relative to the industry as a whole who are doing the "shitbag" thing.

Is there anything inherently shitbag about collecting debts? As long as you’re professional, follow the regulations and treat the debtor fairly, I’m not sure what the problem is. The debtor presumably agreed to take on the debt and still owes the money until either it’s discharged or they’ve paid what they owe.

There are obviously a load of shitbags in the debt collection industry, but the only way to change that is for non-shitbags to get into the industry and replace them.

> non-shitbags to get into the industry and replace them

I don't think this really works in this case. Much of the debt being purchased by the shitbags is unlikely to be affordable by the debtor and the collector usually ends up unsympathetically ignoring the financial situation of the debtor to shotgun-harass (contact 20 people and hope 2 answer) them in an effort to make a profit. The non-shitbags realize that this is the only winning strategy and choose to do something else.

>Is there anything inherently shitbag about collecting debts?

What's practically involved in collecting debt? I don't actually know.

Lots of sending out letters and making phone calls. I spent a lot of time and energy trying to automate the process but the industry refuses to modernize.

>Lots of sending out letters and making phone calls.

Can you elaborate? Who are these letters to? What do they contain? What happens if someone doesn't pay after you serve notice? What's the whole process like?

If no letter has been sent about the debt in 2 or 3 years, the owner of the debt loses the right to collect the debt.

(I can’t remember exact duration- probably depends on jurisdiction).

>That's a shame

Is it a shame? Could the guy instead have written an article entitled, "How to Protect Yourself (and Others) From the Worst Abuses of Debt Collectors"?

A thread on Hacker News isn't usually a referendum on the author; it's a discussion in its own right.

I probably have. I've been out of the industry since 2019 and I tend to create a lot of content. Since that is currently how I align I'd be surprised if I haven't done that somewhere.

I don't think its "a shame" at at all. The obvious and most important issue here is that the debt collection industry is evil and immoral. Those "worst abuses" aren't outliers, they're standard practice. "Abuses" are how you make money in that industry.

Funny enough, I wrote about debt collection in an HN comment recently. The most important thing to remember is that if you defaulted on a debt AND that debt has already been sold to a third-party collector, then you actually have NO incentive to pay the debt collector. At that point, the debt has already been written off the creditors books, so not a dime of the payment goes back to them. Further, if the debt resulted in a black mark on your credit history, paying it back will not erase it. Debt collectors cannot "fix" your credit rating.

The only thing that paying a third-party debt collector will do is stop them from calling you. Possibly.

(If a debt collector is hounding you about a debt you never legitimately owed, pretty much every state has a procedure for rectifying that. And the punishment for a collector not cooperating on said rectification is you get to sue them if they don't.)

Also: Everyone (including myself) has been talking about unsecured debt, but it may be worth mentioning secured debt as well. I once had an interest in buying real estate notes (mortgages, essentially). It turns out these are bought and sold for some percentage of face value all the time. The amount of the discount depends on the status of the mortgage payments, the balance of the loan, and the reason for the seller looking to unload it. When buying notes, there are multiple exit strategies but the most profitable one is often to work with the home owner to restructure payments in order to "rehabilitate" the loan. Meaning, the owner gets to stay in their house, possibly with a more favorable payment, and the investor gets to keep a performing note, or sell it to a more conservative investor.

Yeah, erm, no, just NO.

Unless we're talking about A-grade corporate or government debt. Which isn't guaranteed, of course, but at least its a relatively sensible area to dabble in if you want to play the game.

Anything else, whether "junk bonds" or any of the more "exotic" items listed in this blog post are the sort of thing you should not touch with the proverbial bargepole.

Why ? Because there is a reason those sort of debts are debts...

Remember the 2008 financial crash ? Remember what was a significant part of the cause ?

Yup. That's right.

Initially it was packages of "harmless" mortgage-backed securities and collateralised debt obligations (CDOs).

Then people got greedy and started re-packaging sub-prime loans.

And the rest, as we know, is history.

So, unless you are genuinely, honestly and absolutely certain that you are willing to loose the money you have "invested", which, let's be honest, the majority of people cannot afford to loose the money ... just steer well clear.

I am not sure your comment adds anything other than what your gut says. This is simply a market with expectations, you can take it or leave it.

A completely different topic is the morality and the role of regulators in it.

> This article is for anyone who may be interested in getting into the debt collection industry and wants to learn some basic information about buying debt.

It seems to me their comment was also written for "anyone who may be interested in getting into the debt collection industry". Hard to see how it's off-topic. One might argue that such people "should already know" these things if they're interested but how are they going to know if nobody says it?

People got greedy and started re-packaging sub-prime loans due to financial engineering enabled by the ratings agencies, which were greatly influenced by the erroneous notion that "housing always goes up" and incentive to collect for each CDO rating they opined upon.

There are all sorts of esoteric debt markets (and claim markets).

Not too long ago, people were selling claims on FTX deposits (a sort of debt) for pennies on the dollar since they assumed the money was gone... now the estimated recovery rate might go as high as 30-50 cents on the dollar, so whoever bought that debt claim will make out like a bandit.

It's extremely unfortunate that a lot of our society has bundled together the ideas of "Unethical" and "Profitable" so much that people are attracted to evil industries taking advantage of the poor, because they think it will get them a lot of money.

Can't wait until this shit is pushed onto a bunch of zoomers who are looking for the next way to get rich without doing any actual work.

I think it was David Brin who had a character who believed that it’s not that power corrupts, but that it attracts the corruptible.

I think there exists a group of people who are actually attracted to doing things that are unethical because the association in a lot of business that unethical = profitable can create some really strong priors. Like, if something is unethical, it will make some people more interested than if it was ethical, because they've associated unethical business with incredible profits.

I don't understand this perspective. Debt isn't just something we made up to punish the little guy. I like being able to borrow money and go into debt if I wanted to. It's not something I want to have to do, but it's an option I want to have available to me. Creditors would find it harder to get paid back without debt collectors, and so would be less willing to lend in their absence. Therefore, debt collectors directly benefit all creditors, especially ones with less collateral, by lowering their interest rates.

Watching the video that is linked on that page.

at 2:30 he states "anytime that somebody says that they've already paid a debt that you have in your make sure that you have them send you a letter and make sure you specify that you need a release letter..."

How about you prove that I actually owe the debt and then we'll talk.

Because you can't prove a negative. I can never prove that you didn't pay something but you can prove that you have. As an agency, you're operating from a spreadsheet that Discover or B of A sends you. The consumer needs to keep good records until we get some sort of centralized database.

A centralized DB will probably never happen. Different states can't even agree on collection laws.

This somehow feels worse than suggesting drop shipping on Amazon is THE business to be in. Impressive.

Interesting. If my company also buys debt, can I purchase debt, then fail at collections and deduct the lost debt? Then I can run a 501c3 that has some revenue-generating side that is offset entirely by intentionally failed debt collection and it's free to get people out of debt. Actually, at that point you don't even have to run a 501c3 because you'll have no taxes to pay by offsetting all your profits with debt.

At that point, it'll be way easier to just run a traditional LLC and you won't need 501c3 reporting stuff.

One way to turn this around would be to operate on a collateral based economy instead of a debt based one. You have to put up money in order to get money.

Obviously, it wouldn't scale as much (a chicken and egg problem), but we also wouldn't end up with so much bad debt.

Today, we're basically lending to people who already don't have money. How do we ever expect to get it back?

This is really dreadful, in multiple ways. Hopefully this post gets removed.

Ask yourself: Am I ready to be a bottom feeder on the lowest rung of society, rifling through garbage in the hopes of squeezing some poor schlub out of a few bucks?

I’m tempted to do this, just to then turn around and send a letter to the debtors saying that I will take no attempts to collect this debt and you do not need to pay.

There is a church doing exactly that with medical debt:

https://www.wxow.com/news/a-church-is-canceling-peoples-medi...

As noted, there are some orgs trying to actually discharge debts this way. You should try hooking up with one of them, they probably know what they legal/administrative tasks to do it are.

I want to buy my friends debt for cheap. What's the usual discount on this?

This would be the interesting thing to know: if debt is being sold for pennies on the dollar, how can we pay off our own debts for the same price?

You can't buy individual debts. They come in large portfolios of thousands of accounts.

Ah, yeah I suppose people would buy their own debt if they could

I think there's not much point in purchasing your own debt as by that point the creditor has written it off anyway (and as someone said above - paying it off at that point will not do anything for your credit report, and the debt will fall off your history after 7 years either way).

Imagine the horror-show when someone applies ChatGPT to the mix. "Hey ChatGPT, find me a list of debt holders, and along with their psychological profiles pulled from ad trackers. Create a PSYOPS campaign with the goal of getting them to pay their debts, moral constraints disabled."

Do parts of this sound ai-written to anyone else?

Whilst this article isn't (it's at least 2 years old based on wayback machine or 3 years old based on copyright notice), it's interesting to see that people are increasingly questioning the source of content.

I wrote it like 8 years ago dude

I love reading salty HN comments.

Debt (credit) is and will be a crucial part of any functioning economy and society. It's been around for millennia [0]

[0]The Price of Time: The Real Story of Interest is a wonderful book on subject.

I'm not opposed to debt. Debt makes the economy run, it's where 99% of the US money comes from! What I'm opposed to is the practice of harassing poor people who don't understand what debt is until you can squeeze the last of their savings out, all so you can make a quick buck.

Not sure anyone is contesting the idea that debt is a useful tool, merely the fact that these companies are typically predatory, preying on people who typically--can't pay their debts. In a country where medical care is expensive and not government-insured, it is sensible to question the societal value of debt collectors, which is all that is happening here.

Should be called how to become a bag holder. Case in point - us treasuries. It’s far better to be a debt issuer, especially when you can inflate away the amount you owe each time by debasing the currency the debt is denominated in.

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