Then why would anyone pay their bills if they can buy their debt back for 1/10th of what they owe?
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.
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.
And some people, no. No they wouldn't care. Like most people, it depends on life situation.
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.