That debt collection exists is an odd thing.
Say you sign a credit card contract. This contract, either explicitly or implicitly, allows the bank on the other side of you to sell its half of the contract to someone else.
Now say you fall behind on your credit card bill. After six months of no payments, the bank is required by law to "charge off" the debt-- that is, move your outstanding debt from the "assets" column to the "liabilities" column. Banks consider these charge-offs a cost of business, they sell the remaining balance for pennies on the dollar, they deduct the difference from their taxes, and they move on.
This is where collectors come in. Debt collectors buy unpaid debts from banks in groups with combined balances of millions and sometimes billions, collect what they can, and sell the rest to a fiercer, slightly more desperate crowd of collectors. This group collects what they can and then sells again, and so on, and so on.
How does this process work? What happens to debts at the bottom of the barrel? At some point, many debts get stolen or double-sold by unscrupulous brokers-- how does this happen? Who are these collectors?
These are the questions Jake Halpern sets out to answer in "Bad Paper," a short but excellent peek behind the curtain of debt collection. The book follows two collectors, a good-cop-bad-cop duo named Aaron Siegel, a silver-spooned Wall Street dropout looking to hit it big in the consumer debt ("paper") market, and Brandon Wilson, a tough-talking ex-con with a drinking problem, gambling addiction, and strict code of honor. Aaron is the money, Brandon the muscle. Aaron the silver-tounged but avoidant Butch Cassidy, Brandon the no-nonsense, action-oriented Sundance. Halpern, with these two as the lens, follows debt, as the book's subtitle promises, "from Wall Street to the Underworld."
The book provides an excellent overview of the debt industry for those without any previous insight into it; for those who have, a lot will be known already, but there is still value to the read: do you know the particulars about how debt is priced, re-sold, vetted, how debtors are labelled internally, what collectors are looking for? If not, read.
I have written before about how to spot scam debt collectors. Because debt collection is an unsavory business by its very nature, there may not seem to be a great deal of difference between scam artists and legitimate operations, at least from the receiving end. But there is: legitimate operations, because they can be sued and sanctioned and shut down for illegal activity, try to steer clear of breaking the law, or at least mostly toe the line of legality.
Scam collectors, on the other hand, have no such compunction. Their very business model involves scaring as much money as they can from people for non-existent debts using tactics which are explicitly illegal, not to mention terrifying. Sometimes they're slow and get caught, but usually they pack up the operation and start over somewhere else as soon as the Consumer Financial Protection Bureau or an attorney general gets wind of them, and begin harassing anew. They're slippery folk, and US Today calls these operations "nearly impossible to track down." (Though the FBI busted a big operation a few months ago.)
Someone recently shared several of these scam emails with me. Knowing the difference between a legitimate collector and a scam collector requires knowing what is and isn't legal, which most people do not. This is how these scams are able to get money, by flagrantly breaking the law without the recipient being any the wiser. To give a better sense of what illegal collection looks like, I will go point-by-point through the latest email and point out all the lies and legal violations that scam artists use to scare money from people.
The email begins:
You are going to be legally prosecuted in the Court House within couple of days.
Notice the capitalized "Court House." Only important things are capitalized, this must be real! Notice, though, that it does not say which courthouse, or when, only that it's in "a couple days." Now, no courthouse has actually notified the person of the lawsuit or the court date, as required. And no courthouse will have any record of any lawsuit by this company, because, as an unregistered company, it cannot actually start a lawsuit. This whole statement is lie, and a false threat to take legal action, which are both violations of the Fair Debt Collection Practices Act (FDCPA), the main law debt collectors have to follow.
Your SSN is put on hold by US Government, so before something goes wrong we would like to notify you about this matter.
Again, notice the capitalized scare term "US Government." Which part of the "US Government?" The Social Security Administration? The Department of Justice? The Consumer Financial Protection Bureau? The Federal Bureau of Investigation? The point is to scare, so the less specific they are, the better. Can the government even suspend someone's social security number? The better question is whether the government would suspend someone's social security number over an unpaid debt, and the answer is "absolutely not." This is another lie intended to scare money out of people, and a third violation of the FDCPA.
Your line of credit is over 60 days past due, but it is not too late to restore your good standing.
The old 'good-cop-bad-cop' routine. "We're suing you and somehow got the federal government to freeze your social security number, but we're your friend. Here's a way out of this mess: pay us money. Any amount."
Notice that they only ask for contact by phone or email, since they likely do not have an address to mail payments to (though some of the better scams do set up a PO box). Demanding money from people they don't owe, as no one actually owes money to this non-existent company, is a fourth violation of the FDCPA.
UNITED LEGAL INVESTIGATION BUREAU HAS STATED 3 SERIOUS ALLEGATIONS AGAINST YOU AND THEY ARE:
The "United Legal Investigation Bureau" does not exist, nor do any of these charges. "Violation of Federal Banking Regulation?" Which one? "Collateral check fraud" is not real, but it sure sounds like it. "Theft by deception" is at least a real thing, but the people receiving these emails have not committed it. These are more lies dressed up to sound like something official and real. Illegally threatening criminal prosecution is a fifth violation of the FDCPA.
Now, this means few things for you. If you are under any state probation or payroll we need you to inform your superior or manager what you have done in the past and what would be the consequences once the case has been downloaded and executed in your name.
Threatening to tattle on someone's employer (or probation officer!) is yet another illegal scare tactic. While they will never actually contact anyone's employer, threatening to do is enough to get payment out of many people. This is another threat to do something illegal and a sixth violation of the FDCPA. Also, cases can't be "downloaded and executed in your name," but that sure sounds frightening, right? (Technically, cases can be "uploaded" in court systems that allow online filing, but no one would ever describe it like that).
If we do not hear from you within 48 hours of the date on this letter, we will be compelled to seek legal representation from our in-house attorney. We reserve the right to commence litigation for intent to commit wire fraud under the pretence of refusing to repay a debt committed to, by use of the internet. In addition we reserve the right to seek recovery for the balance due, as well as legal fees and any court cost incurred.
They will be compelled to "seek legal representation" from their "in-house attorney?" Wouldn't their in-house attorney already legally represent them, since an in-house attorney is a lawyer employed specifically only by that company? Also, "intent to commit wire fraud" would be a criminal charge, but this company is threatening to "commence litigation" for it, which would be a civil lawsuit. These are the sorts of mistakes that no lawyer or debt collector would ever make, but that someone trying to seem like a lawyer or debt collector would definitely make. More threats to do something illegal, another violation of the FDCPA.
WE HAVE ALL THE RIGHTS RESERVED TO INFORM TO FBI, FTC, YOUR EMPLOYER AND BANK ABOUT FRAUD.
In bold capital letters, no less! Another illegal threat to bring the government and the person's employer into a run-of-the-mill debt collection case. No real collector would ever threaten this because, again, it would be illegal to cold call someone's employer up and tell them about a debt, not to mention the FBI. What would the FBI even do? Throw you in solitary confident in some off-shore black site and hose you down with bleach? The email leaves it to their imagination, again to scare payment. An eighth violation of the FDCPA.
And once you found guilty into the court house than you have to bear the entire cost for this law suit which is excluding loan amount, attorney's fees, and the interest charges. You have the right to hire an attorney. If you don't have one or if you can't afford then one will be appointed to you. We believe that this was not your intent and that these steps are unnecessary. We merely require you to contact our recovery asset location department at ___________ between 9.30 to 6.30 (EST).
Grammatical errors aside, "you have the right to hire an attorney. If you don't have one or if you can't afford then one will be appointed to you" is a nice touch, because most people recognize that as part of the Miranda rights, which police read to people they arrest. Another scare tactic. Because suing for money is a civil lawsuit and not a criminal one, however, it would not involve Miranda rights, and the defendant would not actually have the right to have an attorney appointed. Not that anyone would let it get that far when they could prevent this all for four easy payments! Another shamelessly illegal scare tactic, and a ninth violation of the FDCPA.
UNITED STATES ATTORNEY
Signed by "United States Attorney?" In the history of attorneys, not one of them has ever signed a letter "United States Attorney." With no name. And a copyright symbol below it. Like everything else, this is an attempt to make a scam email seem more legitimate. And, like everything else, it violates the FDCPA, because debt collections can't lie about being an attorney.
Ten violations of the FDCPA in one letter might be a world record.
If you get an email like this, you do not owe that company any money. Do not pay them anything. If a debt collector is not completely open and forthright with you about everything when you're dealing with them, or if they make any over-the-top threats involving arrest, your employer, and the FBI, call a consumer attorney, or report the collector to the CFPB.
Medical debt-- large, necessary expenses that can wheedle their way into collections without the consumer even realizing they ever existed-- is the bane of many a credit score. Because of this, and because of the peculiar way medical debts are incurred (compared to, say, a voluntary Target Card), FICO is deemphasizing the effect these have on credit scores.
This is good! Medical debt is often the result of unlucky circumstance, and beyond its value in a basic income-to-debt ratio measurement, is very rarely a reflection of a consumer's general creditworthiness.
After all, it's not as if people take willy-nilly trips to the emergency room, rack up a couple grand in outpatient fees, and then skip and whistle happily into the distance while reflecting wistfully on how they wish they had better spending habits. Sometimes you get hit by a car. Sometime your discs herniate. Often the very medical problem you're supposed to pay to treat can limit your ability to work either temporarily or permanently, resulting in a billable Catch-22. It's not rocket science, and FICO understands this, which is why it's making the logical decision to change to lower the impact of medical debt in its credit scoring model.
According to a recent report, accessed via the American Bar Association's website:
"In 2013, two-thirds (66%) of a random sample of adults... reported experiencing at least one of 12 different categories of civil justice situations... only about a fifth (22%) of situations did they seek assistance from a third party outside their immediate social network, such as a lawyer, social worker, police officer, city agency, religious leader or elected official."
How can we help?
Publix, an employee-owned Whole Foods-esque grocery store from Florida, has agreed to pay out $6.8 million in a class action lawsuit to its employees for violating the Fair Credit Reporting Act. Did Publix break the law? We report, you decide:
The FCRA requires this: "a person may not procure a consumer report . . . for employment purposes with respect to any consumer, unless a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes." 15 USC 1681b.
Publix, which pulls potential employees' credit reports during the hiring process, (used to) include the following sentence in the middle of their application, and no other reference to credit reports or the FCRA: "I release Publix Super Markets, Inc., its employees, its authorized agents and representatives from any liability in connection with any decisions made concerning my employment based on information reported."
This violation seems pretty clear cut, and actually sort of insidious. Instead of complying with the law, Publix attempted to have its employees release any potential lawsuits in their application. Which apparently didn't work.
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