Every account has a story behind it and the BEST way to collect is to personalize the settlement experience in a compliant, secure way
Having been in the space for only a few years, the depiction of the industry -pre 2010- seems incredibly accurate from what clients tell us.
Modern interpretation of the FDCPA is desperately needed. In 2014, contacting consumers via cell phone and email is against the law or at best a very grey area.
Sending letters via snail mail are mandated over email. Moreover, ACH payments are still preferred over Card payments… IMO, a 3-5 day settlement time should NOT be the standard way to move money in any industry.
For instance, they buy it for $.05 and settles for whatever the debtor can reasonably pay that covers costs plus a reasonable margin, like 100%. So they buy it at $.05 and let the debtor pay it off for $.10 + the collector's cost.
I'd guess that is something like 25-50% of the value of face value of the debt.
Judging by the value of write off debt (pennies on the dollar) the implicit conversion rate of collecting is probably closer to what you might see on a Facebook advertising campaign (3-5 percent??). To make that work the agencies need to charge close to the original charge off amount.
That is likely close enough.
But then you get burned, because they settle all your debts, just as you could have yourself, and your credit is (even more) toasted, because yes, you'll pay less, but everything on your credit record is marked as 'settled' rather than 'paid in full'.
They have some emotional distance and apathy regarding the negotiation that might help, but there's nothing magical that they do that you yourself could not.
I don't know how legit they really are, but the article sure got my attention!
Within that you conceivably have debts whose collection is perhaps ethical by nature but not ethical in practice. For instance, as I said earlier, collection on bad checks circumvent many normal collection laws, and you can thus have interest rates of 200% or higher. Another example would be Student Loans, which have their own set of ridiculous loopholes that allow the debt to persist past bankruptcy, past retirement, etc. As someone who was still in college myself only a few years ago, the idea of the financial burden imposed on me for the rest of my life simply for doing the thing that society practically strong-armed me into doing seems, to me, ridiculous; for that reason I am hesitant to call any form of Student Debt collection "ethical" simply because the laws which govern it are atrocious.
With that said, I have dealt with many agencies who at least tried to operate on an "ethical" model (usually they collected on medical debt), and they seemed polite and reasonable in their collection efforts. Remember, they're in the business to make money. Some agencies will go for the "Make the debtor's life as miserable as possible to make them pay up" tactic, which includes harassment, lawsuits, garnishments, etc. I deal with them frequently, and I think they're the scum of the Earth (primarily because they talk to me in what I imagine is the same tone as they talk to debtors). Others, however, will simply try to get what they can, and if they CAN'T--i.e. they realize that continuing to call a guy about a debt when he's already stated that he has no job and no savings would be like squeezing blood from a stone--they'll stop wasting their time and move on to an account that would be more profitable.
Much of the work done by agencies these days is not only getting people to pay, but finding out who is more LIKELY to pay so that the agency can focus its efforts accordingly. This analysis might include things like the line of business, their credit score, their location (they usually figure that areas with a higher average income are more likely to pay), etc.
To answer your question succinctly: probably. It would center primarily on whether the percentage of the portfolio that actually pays can sustain the percentage that you're willing to let go when pursuing them further would entail questionable tactics.
I was mainly thinking of a cost plus model of debt repayment when I said "ethical". Trying to squeeze every last penny out of people who are [mostly] decent folks who just fucked up is the main part that bothers me, honestly.
Thank you for taking the time to answer. :)
What happens when you don't pay your Student Loans for years and years? Since it's a "guaranteed loan", it can't actually (continue to) impact your credit rating, can it? So could you effectively decide to just "let it ride" until you die of old age, never having paid a cent of it?
If so, I think this is basically the idea behind of guaranteeing the loan in the first place: to give the people who can't pay their debt the ability to just ignore it forever.
There are probably a few other less-common situations as well, where a person has no money of their own but access to plenty of the money of others, e.g. the "trust-fund baby."