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Comment by blhack | Hacker News Reader

This is one of the most unbelievable articles I've ever read.

If you didn't read it all the way through, do so over lunch or something; it's amazing.

The idea of "millions of dollars" worth of debt being traded for around on thumb drives, and that all those thumb drives really contain are excel spreadsheets is mind boggling. Those people in those spreadsheets are real people, and they're being completely duhumanized.

Also the fact that debt is being purchased for 1/12 of a penny is completely just...unbelievable.

Honestly this whole article reads like some dystopian nightmare. Shady former criminals trading peoples' lives around like it's nothing.

Horrifying.

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>Also the fact that debt is being purchased for 1/12 of a penny is completely just...unbelievable.

It seems that the particular deal you're referring to was a fraudulent transaction. It had been sold (at least) twice, and having paid $41K for $50M worth of debt, the agency lost money on it. It doesn't sound like legitimate deals are offered this cheaply.

However, you are right that insanity runs rampant in the industry, even among the banks themselves. There is an interesting documentary called "Queen of Versailles". In it, time share king David Siegel is shown telling friends at a party that he offered to keep making interest only payments on an $18M debt he owed until the economy improved. The bank said no, and that they were going to auction the debt. He sent a third party under his control to the auction, where he was able to purchase his own entire $18M debt for $3.2M. He concludes the conversation saying "I'm glad they did it, but who the hell makes decisions like that?"

That's really smart. Do banks have some way of detecting if the buyer isn't associated with the debtor?

They might not care. It's money now, versus an asset that would still be technically in default. It was a liquidity crisis, or at least that was the official line... $3.4 million in cash might be worth more to them than $18m in bad debt even if it was repaid - it isn't good on balance sheets, and with all the regulations about how much money has to back what and what counts as backing (and private contractual obligations - how do the credit default swaps outstanding treat something that's paying interest only vs a total writeoff), without knowing the details almost anything could be the case.

Your observation reminds me of the http://rollingjubilee.org project that buys up consumer debt for pennies on the dollar and then simply cancels it.

I hadn't heard of this project before. Thanks for the link and the heads up.

Does the debtor owe taxes on amount cancelled?

From the page:

> Will the Rolling Jubilee have to file a 1099-C Cancellation of Debt form with the IRS? No. The Rolling Jubilee will earn no income from the lending of money and is therefore exempt from filing a Form 1099-C under the Internal Revenue Code Section 6050P.

That doesn't necessarily mean you aren't supposed to report it as income when you file for your tax returns even if they don't file a 1099 for you

I'm not sure that there would be any incentive to. Once they've decided to sell, a high bidder is a high bidder (though it's obviously frowned upon, otherwise he would have gone himself).

You are totally right! +1.

The article had me at "stolen".

If you owe a bit of money, some of the dipshits that call you may actually have misappropriated the collection account and are not connected to the original debtor in any way, who did not receive and will not receive a red cent.

This passing of the buck helps to explain why numerous agencies may be involved: people get calls from various toms, dicks and harrys about the same debt.

The fact that debt is being purchased cheaply is totally believable. Because when people don't want to pay, it takes work to extract money from them. Some people really don't want to pay, because they believe they have been wronged. No matter how much effort you sink into it, there won't be any income. Some people will pay the full debt, after a bit of effort. But that effort cuts into the revenue. If it costs $400 worth of effort to collect $1000, then you only collected $600 in reality. There is a very real risk that it may cost $999 to collect $1000, so you're left with a buck. Because of this uncertainty, it makes perfect sense to sell the $1000 debt to someone for a mere $83 and make it their problem. The $83 is a sure thing, and better than nothing, whereas the $1000 debt could well be nothing.

This reminds me a lot of when the department of education sold my student loans to a couple private firms. Out of the blue, I just received a couple emails from a couple companies I've never heard of asking me to give them all my information (including my SSN) in order to create an account. I deleted them immediately, assuming there was a new phishing scheme in vogue, and didn't realize what had happened until I checked my accounts a few months later and realized they had been paid off, with no information about who did the paying off. I couldn't even find one of the emails afterward to figure out who actually owned the debt, and had to call someone at DOE loan servicing to figure it out. I was flabbergasted.

Curious, what did you end up doing? Did you pay the firm who bought your debt?

Yep, just had to re-set-up all my direct deposit stuff. To summarize, the owner of my debt was allowed to sell it to a third party, with non-existent or at least extremely poor notification, in a way that required extra effort on my part to avoid accidental default! Not a great system in my opinion, but perhaps being at the mercy of those you have borrowed from is a disincentive to borrowing that is quite properly built into the system.

Something's missing here - who actually paid the loan?

No one "paid" the loan, the debt was sold to a private creditor and OP's account was then considered settled in the eyes of the DOE. They can't delete the account in order to keep an audit trail, so the amount owed is adjusted to zero.

Sorry, wasn't clear. When the private lender bought the debt, it showed up in my original account as a payment in full. But of course it had just been transferred elsewhere.

It's most likely to have been written off?

That was seems like the most bizarre thing about this whole business to me. The collection agencies that the debt has been sold to have no real legal basis or practical resources for doing anything other than calling the debtor and asking them to pay. They have no idea what the debt was for, how legitimate it is, what the debtor's situation is, or even if some clerk at the original company fat-fingered a data entry form somewhere and the information is completely wrong.

Which conversely means that, as a debtor, you can basically convince them you have no money and ignore them, and there's nothing they can do. Any kind of investigation or strong-arming would blow their budget for turning a profit on their debts. It's not like any of the money is actually going to the company you supposedly owe to anyways

Collection agencies will attempt to bully you into paying. They'll call you repeatedly, call your partner, family members, probably your job. They might even show up at your place and try to use scare tactics.

It's funny because my cell phone # used to be owned by some debtor. I had to install a call blocking app because I get constant calls trying to reach some guy I've never heard of and they will never give up no matter how many times I tell them I've never heard of the guy.

I suspect the crap keeps getting recycled endlessly.

That's increasingly an issue with phone number transfers. I've had multiple work numbers get rung constantly by debt collectors. Apparently a big problem with cell phones too.

> are not connected to the original debtor in any way, who did not receive and will not receive a red cent

that explains why many years ago some collector hung up on me when I kept on explaining to them that I had lost the bills and if they could resend... they couldn't do that.

Yeah, if I ever get a call from a collector I'm just going to ask them if they have my signature on a contract. If they don't they don't actually own anything and I'm free to ignore them.

Yeah, force them to take you to court and show that they own the debt. None of this "passing the paper" non-sense, there has to be a legal contract or some document saying that your debt was given to someone else. Otherwise, it's just some guy claiming you owe him money, because of "paper".

Sure, but on the other hand, let's say you run a small business. At some point you have customers who don't pay. What do you do? Write it off as a total loss? 1/12 is better than nothing.

I feel like I would be safe saying 99%(if not all) of this paper is not small business paper. These are the debts that are sold off in large parcels by banks and credit card companies.

Small businesses typically use flat fee collection agencies and rarely charge of the debt like this. Part of the reason is because to a small business charging off $10K in debt is going make them a couple hundred bucks at most.

There is no "little guy" getting stiffed by bad debtors in this story.

Whats interesting is that most small collection agencies are getting squeezed out, due to the high cost of regulation.

It's not 1/12th of the debt, it's 1/1200th of the debt.

OK, I agree that part is a little ridiculous but only in the "why bother" sense.

It's probably the same thing like gambling to those people. Or penny stock trading. The reasoning is probably like this: at 1/1200 rate, I can cheaply buy a whole crapload of debt. And based on the time-honored principle "if you throw enough shit at a wall, some of it will stick", if just a small percentage of those debts pays out, I will make a profit even if the rest are junk.

At that rate, why didn't the creditor try sell the debt to the debtor? Effectively saying "you pay me 1/1200th, then your debt is owed to yourself and you can call it quits."

This is a very common misunderstanding in this thread, so I will answer it here once. The portfolio is worth a penny on the dollar because it is a mix of quarter debts, dime debts, and "not even worth a 1/1000th of a penny" debts, and the mix is known to be skewed towards crap. If the mix were known to be largely collectible debts, it would have been priced near 30 cents or more. The portfolio has been worked and the easily collectible debts - working phone numbers, responsible debtors with capability to pay - has been collected already.

Even calling people to offer terms isn't profitable at 1/1200th of a $250 AT&T receivable and much of the portfolio is physically incapable of paying the two cents! The collector is hoping to get literally three in a hundred to pick up the phone and take an offer of $150, the bulk of which goes to labor to call them.

This. People don't understand the (bad) economics of current debt collection efforts.

It's not gambling if the law of large numbers is on your side. It's more like running a casino, where the loss on a single transaction could be high, but overall you're almost certain to make money.

It's actually 12 basis points... that is 0.12%.

If someone sells you debt at 1/1200, that simply means they believe the debt is very bad and unlikely to collect. Even at that price, you could be a total sucker, since perhaps you will not collect a penny.

on interest accruing that penalises payments that fail to meet a time deadline or a premium amount a company can very quickly make the money back that they lent out while still having the individual held under crippling debt,

if i use a credit card foolishly and put myself into 2500$ debt, and over time receive a number of fees due to my late payments, my 2500$ debt can rise to 5000$ effortlessly,

at this point if i pay the bank 4000$, they made 1500$ off me already, then they decide to sell the remaining 1000$ for 1/12 its worth the original lender has been given 4083$ for an original 2500$ loan, and now the credit adjuster or whoever bought the debt could make 917$ by collecting the 1000$

i'd like to see statistics on how much an original debt was, how much has been paid into it, and how much it sold for

then we can discuss potential for 'total loss'

i wonder if you went to the lender and offered to pay your debt back at 1/12 its cost if they would sell the rights to your own debt to you?

This is not about small businesses. It's about suit and tied scum, like the banking and insurance business. They buy and lobby politicians to deregulate their sectors like crazy, they give away credit cards and loans like candy, they use all the "black" tricks to inflate debt and tie people to their monthly installments forever. And when those fail, here come the collection agencies, including paid scum using borderline illegal methods. Of course if those companies fail themselves, they have some trillion dollar public money bailouts to expect.

About people that should "know better". Sure. Doesn't always happen, and people are not all perfectly rational, highly disclipined game-theoritic individuals. It's easy to preach "personal responsibility" from an ivory tower (and who knows what kind of privileged upbringing or lucky break), but it doesn't make those people less victims. It's like a woman victim of domestic abuse ― she should know better and leave the guy, but that doesn't make him any less of a prick.

You can just sell it off on a site like judgmentmarketplace.com. sometimes trying to collect could end up costing you more.

Especially when you consider that those thumb drives contain sensitive PII (personally identifiable information) including SSN numbers.

I don't understand what you find so shocking about financial data from lots of people in excel sheets.

... Being sold (and stolen by) a largely unregulated industry consisting mostly of ex-felons and thugs who do their deals in parking lots on a no-questions asked basis.

We're talking about very sensitive info like SSN's, DOB's, home address, work history and so on.

There's nothing shocking about that at all? Honestly, did you read the article?

Nothing shocking - a little surprising, definitely disturbing.

The lack of regulation is the most surprising thing, and the lack of interest from the US federal government to do much about it is disturbing.

It's a heavily regulated space, nowadays.

Dodd-Frank changed it all and spawned many other regs + groups

"Passed as a response to the Great Recession, it brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression"

http://en.wikipedia.org/wiki/Dodd%E2%80%93Frank_Wall_Street_...

Isn't surprising + disturbing pretty much the very definition of shocking? Can we agree on mildly shocking? :-)

Horrifying and accurate. The way people's lives are handed over to questionable businesses is nothing short of crazy.

This should be regulated. If debt can be bought for 1/12 of the actual debt, that debt should be cut to that 1/12 as well!

Then nobody would want to buy it. Why would you buy something to resell or cash in on if there was no hope of making a profit?

I still prefer this system to debtor's prison. It sucks that good people have bad luck and become vulnerable to things like this. No matter what the rules are, however, somebody will eventually game it.

Why?

the discount reflects the likelihood of collecting any money, which is extremely low.

> The idea of "millions of dollars" worth of debt being traded for around on thumb drives, and that all those thumb drives really contain are excel spreadsheets is mind boggling. Those people in those spreadsheets are real people, and they're being completely duhumanized.

The moral concerns aside... this is the question to "why haven't we replaced excel yet."

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