I think that borrowers should have the right of first refusal when their debt is sold.
For example, if you're about to sell $1.00 worth of my debt to someone for $0.10, first you must offer it to me at the same cost: $0.10.
For example, if you're about to sell $1.00 worth of my debt to someone for $0.10, first you must offer it to me at the same cost: $0.10.
First, you get a horrible incentive to not repay debts:
1. A relatively innocent and good-natured Bank lends a jerk $1.00
2. The jerk refuses to pay it back, knowing the bank can't transfer it to someone who isn't a pushover without giving him a steeply-discounted offer first
3. In response all loan requirements and interest rates rise for everybody
Secondly, it fucks up the negotiations, because would-be buyers can infer something when the creditor doesn't snap up their own debt:
1. The Bank offers the debt for $0.10
2. The debtor doesn't repay because he legitimately can't scrape up that much
3. The Bank offers the debt for $0.10, but nobody wants to buy it, because they can infer that the debtor has nothing
4. The Bank offers the debt for $0.09... (begin loop)
Thirdly, it's a logistical nightmare. The Bank can't just combine the debt of it's 1000 deadbeat debtors and sell it off to a debt collection agency for a lump sum. No, it needs to send 1000 mailing notifications and 1000 second-notifications and wait 30 days, etc... And then 120 of them buy their own debts, and the bank can't re-price it's set of 880 accounts without sending 880 mailing notifications (begin loop)
Fourth, what happens if it's not a straight sale? Suppose the Bank barters your debt to a collection agency for a thing (like privately-held stock) in the collection agency? You can't buy your debt because you can't provide what the Bank is looking for... And then the bank can just sell whatever-it-is later.
TLDR: Exploding legal complexity combined with shady/manipulative actions from everybody.
The only difference is that this approach would favour debtors, not lenders.
It's not as if banks don't expect exactly the benefits you're not allowing debtors when their own debts blow up.
If banks get bail-outs - and do they ever - why shouldn't ordinary people?
That probably means at least two or three snail-mail notifications and a month of waiting time... Defaulting debtors correlate heavily with people who cannot be contacted or will not respond.
There's already a big incentive not to repay debts. Some places give up without doing anything, some will offer to discount your debt even before sending it to collections. This might make the incentive a little worse, but the jerk would still get the negative credit report entry, which is presumably the bigger punishment than having to dodge some collector for a while.
Regarding the latter, I expect the stable solution is that the bank offers a package of 1000 items, the agency offers a price per dollar of debt, and 14 days later the agency receives the 880 accounts and pays on a per debt-dollar basis. It adds some risk, but debt collection agencies are experts at pricing risk.
Isn't that what credit ratings are for? You'd be able to do this exactly once for any meaningful amount of money, and then your financial life would be otherwise over.
Defaulting on debt doesn't mean your financial life is over by any means.
And some people, no. No they wouldn't care. Like most people, it depends on life situation.
The option to sue is reasonable because otherwise people who are too rich to need credit would often find themselves in positions where there's little-to-no incentive to pay back. But these aren't the bulk of debts that these agencies are working with - the bulk of people who are defaulting on loans aren't people with money, they're people without money.
Frankly the harassment techniques that a lot of debt collectors use are disgusting and they prey on those who already are suffering. The FDCPA makes a lot of these techniques illegal, but the protections the law provides aren't widely known.
Odds are if one is in the position of having debt collectors come after them they'll be unlikely to afford the taxes on the "income."
It would be well worth paying 1/100th of the original bill to not have to check the mail anymore, and throw that garbage away, but if we were to actually PAY the 1/10th settlement amount, it would open us to liability for the WHOLE amount.
tldr, I'm willing to be extorted, but not ludicrously so.
You only have 30 days to do a so-called "timely" validation, but you can force past CA's to validate as well -- the only hitch is that they can continue to collect on you while they validate, something they cannot do if you demand timely validation.
One more tip: Don't sign your name on letters to CAs, and don't ever give them ANY information they don't already own. Ever. Especially your bank account information. If you do decide to pay them (hopefully strategically as part of a pay-for-deletion-from-credit-report arrangement), don't pay them on a bank draft. And send it certified mail return receipt requested.
When I called the State Of Michigan treasury to pay a bill I'd hadn't known about (having not lived in the state for years), they forwarded me to a collection agency without telling me up front. I was confronted with "we have to ask you some questions for verification" and answered them until they asked something I knew they couldn't already know. I felt seriously taken advantage of, at all levels.
Actually, wait, maybe not even that: given that you purchased the debt, you could legally mark it (as the creditor) as having been repaid and then petition (as the debtor) to have your credit score corrected, no? This is what the http://rollingjubilee.org people are doing, at least.
Forgiven debt is taxed as normal income, so you'd have to have a 40% marginal federal income tax rate to end up with $4,000 in IRS debt on $10,000 of forgiven consumer debt, which is an approximation of the maximum marginal rate being 39.6% (which kicks in at $400K income for a single taxpayer.)
I would hazard to guess that people that would be paying anywhere close to a 40% marginal federal tax rate aren't really sweating $10K credit card balances.
If self-purchase looked on a credit report just like settlement-for-less-than-full-amount (and was taxed like forgiveness), there'd still be considerable reason to in order to maintain creditworthiness.
For the same reason why they might not pay to start with. They don't pay and bank sells the debt to someone.
Or the don't pay and then choose to pay later a smaller amount.
Option 1 sounds not too far off option 2. It would be minus the hassle to fend of collection agencies.
Its a workable system if and only if you are willing to basically cut off credit for anyone who hits that 181 days on a debt milestone. Because no one will loan to them again for years.