Dow Jones, the publisher of the Wall Street Journal, also publishes a magazine, Smart Money. Dow Jones takes pride in its well-heeled, savvy readers; this characteristic is a major part of the advertising and marketing strategies for its publications. The Feb. 2007 issue of Smart Money had a lengthy feature story, The Penny Pinchers, about trends in debt collection. My initial thought was that the article would evaluate whether investing in debt collection companies had serious profit potential; was this industry like buying stock in Waste Management and other refuse companies. There could be a little stench but it would quickly be masked by the aroma of profit.
The article had a totally different focus. It advised consumers on how to handle debt collection calls. What???? People who read Smart Money, a magazine whose other feature articles addressed choosing a high-end flat-screen TVs and reviewed the new self-parking Lexus are getting collection calls? Apparently, the answer is yes. The article highlights how trends in the debt collection industry are exposing more people–even people with high incomes who normally pay their bills–to encounters with debt collectors.
The article focuses on the decreasing cost of debt collection that are driven by technology and the outsourcing and downsizing of the industry. The hottest new home-based business is no longer selling items on E-bay; it’s opening your own debt collection firm. These tiny operators have no expenses other than telephone bills and a filing cabinet. Because they aren’t hourly employees like those in many large companies, they are highly motivated to collect the debts. The profit is all theirs to keep. The article also highlights the broader range of entities that are willing to use debt collectors. No longer the province of major lenders or retailers who are owed hundreds of dollars, debt collectors now frequently collect for municipalities, sole entreprenuers, video stores, and even libraries. The article quotes upper-middle class consumers appalled to find themselves on the phone with a determined (if not aggressive) debt collector over $10 library late fees or $4 unpaid charges to a municipal utility.
The implications for consumer protection and for the fate of statutes like the Fair Debt Collection Practices Act are myriad. The increasing number of very small, thinly capitalized, unlicensed debt collectors may make a statute like the FDCPA more important; the argument for having the statute only apply to third-party debt collectors and not creditors collecting their own debts was responding to this difference. On the other hand, if upper and middle class families who have never expereienced serious financial hardship find themselves dealing with repeated and aggressive phone calls over very small bills or bills that they do not owe, perhaps these Americans will support more protective debt collection statutes. As Cathy Mansfield pointed out at the 2004 NCLC Conference, the Do-Not-Call list, which every business lobbied against, had near unanimous support precisely because everybody–even Senators and their spouses–was tired of getting phone calls during dinner. If debt collection takes a similar path and becomes part of the everyday headache of having a phone, maybe the stakes in reforming debt collection and credit reporting will change.
Comments
5 responses to “Collecting from the top”
I don’t understand the point of your post. Okay, so lot’s of people are dabbling in debt collection. Okay, the use of these mini-collection agencies is growing. So what? These agencies are fully bound by the FDCPA. The debts they are collecting are (or sure as hell better be) valid. If some Lexus driving, big-screen watching consumer gets a phone call about a bill he owes, and then gets validation of the debt, if he requests it, what is wrong with creditors seeking a more cost-effective way of collecting their money. If the debt is valid, pay it.
Now whether creditors should use these types of agencies for small, overlooked debts is another question. That is a business decision. It might come back to bite the business in the bottom line.
You seem to be concerned with the validity of the underlying debt, and yet offer no basis for that concern. As with many posts about the collection industry on this site, your’s starts from the amazingly faulty and irresponsible proposition that debt collectors are bad people and collect only bogus debts to the detriment of us all. Hogwash.
I do not think debt collectors are bad people, and I do not say that in my post.
There are two points: 1) it is one thing to be “bound by the FDCPA.” It is entirely another thing as a practical matter to comply with it and for consumers to enforce any violations–intentional or inadvertent–that occur. Any law is only as good as its actual effect. 2) the apparent increasing use of third-party debt collectors by municipalities and very small businesses may expose a larger audience to the experience of directly dealing with a collection letter or call. To the extent that the cost of debt collection is falling, the types of debts that may be worth collecting–as a business matter–may be changing. As more people encounter debt collection, the public’s interest in whether and how we regulate debt collection could change.
First, you’re being disingenuous. Everything you wrote strongly indicates you believe the debt collectors are bad people. Perhaps more succinctly, you do not believe debt collectors to be engaged in honest, valuable, necessary and productive work. I think you belive that, almost across the board, they lie, cheat and steal as a matter of course. You believe, way down in your heart of hearts that bill collectors are all scam artists.
Second, I never said your post stated that debt collectors are bad people. That is, however, the proposition from which it seems to start. The FDCPA seems to work just fine regulating mainstream debt collectors, I see no reason to think it will not work equally well with this new breed of collector. If you suggest that the FDCPA is not effective, why don’t you post directly on that topic and not try to back into your point.
So what if more people have to deal with a collection call. What is your point, other than a collection call is, in and of itself, a bad thing. Is failing to pay a valid debt a good thing? You certainly seem to be arguing that.
If your real point is that, by virtue of this new type of collector and the types of debts that they are collecting, might increase the general public’s perceptions of the industry and might spark increased interest in debt collection regulation, fine. Do you have data to support this proposition? Increased
complaints to the FTC or state agencies? Anything?
What about discussing the issue from the other side. Why were these debts not placed with agencies before? (Agencies wouldn’t touch them because they were unprofitable?) Why are they being placed now? (Is it just that the new agencies are willing to take the accounts? Or is it a cash crunch that small businesses face?) What does it say about our society’s view of responsibility and obligation, if, for years, its members have ignored small debts? I’ve got my views on these issues, but, hey, it’s your blog.
Now if I have offended you or hurt your feelings, go back and read your post carefully.
It must be comfortable to divide valid from invalid debts with such a stark, bright, moral line. Reasonable creditors and debtors often disagree about the validity of some debts. Debt collectors have a financial incentive to take the perspective of the former. Congress passed the Fair Debt Collection Practices Act because, after extensive debate and study, it concluded some debt collectors sometimes acted in ways that were harmful to the wellbeing of society as a whole. Professor Porter never suggested that debt collection or debt collectors are “bad.” Rather she is making a thoughtful political point. As eroding deterrence of civil damage awards and changing collection industry practices begin to influence people with more voice in the political process, the perspective of some Congressional and state legislative committee members may change. The past fifteen to twenty years have seen relatively little in the way of new consumer protection law. But, if the political balance of power on credit issues were to shift, perhaps policy makers would become more amenable to enhancing existing consumer protection law or at least rehabilitating older laws that have been dulled by inflation, changing business practices, or federal preemption. No one is suggesting that we as a society should stop paying or collecting our financial obligations. But, these trends might very well justify any number of policy changes such as new or greater bond requirements, requiring professional liability insurance, stricter licensing requirements, greater administrative oversight, or stiffer penalties for noncompliance.
You make the point far better than Ms. Porter, and I generally agree with it. I disagree with you, however, on your opening comments. A debt is valid or not. A person’s opinion about it, is subjective; the fact of it is not. Of course, that’s why we have lawyers, isn’t it? It is not a matter of comfort, it is reality. It is not a moral line, it is a legal one.
If a debt is not valid (and even if a debtor questions its validity), it should be questioned. If a debt collector is doing something slimy, they should be spanked. Believe it or not, honest debt collectors want to get the trash out of the industry. We want to see the FDCPA enforced against bad actors.
But neither you nor Ms. Porter has suggested that these new agencies are bad actors. What you seem to say is “Look there are more collection agencies, therefore we need more regulation.” I’m sorry, I don’t follow the logic.