Junk debt buyers...please take time to read, will help you

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OK, I am going to try to clear up some myths about the junk-debt buyers, aka bottom feeders that I have seen in some threads. (The term in the industry is debt acquisition.)This is kind of long, but I think this will help quite a few people. Feel free to repost and pass on.

I am going to explain some stuff, then do a brief explanation paragraph. You'll see what I mean.

I spent the last two years working for a bottom feeder. I am sorry, but I cannot disclose the name of the firm. I am not posting here under a name that they wouldn't know. Trust me when I say that the firm I used to work for, and other firms like them monitor popular forums and websites (like this one) daily. These junk-debt buyers all do business buying and selling with one another, so they do share the information. I don't care that they know that I am posting here, but I do have some friends that still work there, and I don't want any potential retaliation to come to them because of me. I will say that the firm I worked for is one of the top 40 debt acquisition firms n the country. I have only seen the name mentioned on this website one time. In their defense (although I don't owe them any favors) they are really one of the more upstanding firms out there, and try to do business honestly.

Here is how the process works. Let's say that ZZZ Bank has 35,000 Visa cards that were defaulted. They were unable to collect with in house collections, and charged off the debt. The average balance of each card is about 2K. That's a lot of money to lose, folks. ZZZ Bank will agree that something is better than nothing. They gather these accounts up into a portfolio, and put it on the market to the highest bidder. For now, let's just say three are bidding. JunkDebt A, Junkdebt B, and Junkdebt C. Let's say that bidding starts out at 5 cents on the dollar. The junk debt firms have limited info to work with on the portfolios they have. It's kind of like a storage unit auction. You know there are household goods and clothes, but until you bid and win, you won't know exactly what you got. The junkdebt firms are told the number of accounts, the average balance, the average charge off date, and how many have phone numbers. The junkdebt firms have to decide if they are going to lose money on the package, or if it is collectable and profitable. Skip forward...Junkdebt A wins the bid at 8 cents on the dollar, and now gets the portfolio. The manager of ZZZ Bank signs a bill of sale and Junk Debt A is now the first party owner of the debt, and has all rights that ZZZ Bank once had. In essence, Junk Debt A is now the original creditor.

>>>People often say, "That's not fair! I didn't agree to that!" Whether or not you agree doesn't matter. Acquisitions take place with companies all of the time. It's the same thing as AT&T buying Southwestern Bell. You have a phone with SWB. Are you going to refuse to pay AT&T because you didn't open the account with them? Well, you could, but you wouldn't have a phone for long.
>>>That's a lot of money to come up with for that portfolio. Most people haven't ever heard of these junk-debt buyers before. How in the world are they coming up with all of this money? Investors. They peddle themselves around, and get people to invest in the company. I'm going to digress a quick second to collector behavior. I am not condoning illegal or bad practices on a collector's behalf, but I would like you to see what kind of conditions collectors work under. Let's stick with the theme of "It rolls downhill." OK, so Mr. Investor wants a return. He is going to be mad if he loses money, and won't be back next year. Junk-debt CEOS don't like that. They set up aggressive portfolio tracking, goal setting, quotas, financial planning, etc. This gets passed down to the senior managers and directors, who now have to produce results from their subordinates. Senior managers pound team-leaders into the ground with hours of training, and force them to work 50 hour weeks to make sure their teams all hit quota. The team leader has to answer to the senior managers if his team, as a whole or each individual, doesn't hit their personal goal. Personal goals add to up team quota and that equals the floor goal. The team leader is on each of their collectors to get the money. The collectors often work over 40 hours, and normally have their calls monitored and recorded by management. They have QA forms they have to meet 100% on. They have training on fdcpa. They constantly have this quota looming over them. Quite usually, it is very high. Collectors, by and large, do not live by salary alone, so they depend on their bonus checks. So, starting from the beginning of the month, all they see is the end of the month, and how many dollars away from their goal they are. If the collector is not at quota...you will hear it in their voice.

OKAYYY, so back to JunkDebt A, being the proud owner of this new portfolio. Immediately, they cut off about of the third of the accounts in the portfolio. and sell them. WHAT? Yes. Things can get tricky there. I'll get to that in the next paragraph. In the industry, since they bought from the original creditor, the purchased portfolio is called "firsts."
They take the accounts they kept, and send out accounts with bad information to skip tracing services. In the meantime, they are dividing up the accounts they have in house among their collectors. Each collector will get a certain amount of accounts, and then a large amount of accounts will go into a pool, which is generally used for auto-dialer time. Then, collections begin.

>>> I have seen a lot of posts where it has been said that first party owners do not have to follow FDCPA. I disagree with this, for the most part. Keep in mind that junk debt buyers are NOT, I repeat, NOT, a third party agency. They are very much first party. The FDCPA is kind of an implied law. If someone is being harassed, a judge is going to use the FDCPA for reference. Junk debt buyers MUST follow FDCPA! Period, end of story. They will jump off into the gray areas when they can, but at the end of the day, the law applies to them. I cannot tell you how many times I was beat down with FDCPA training. I can quote it in my sleep. Junk debt buyers TRAIN their collectors extensively. They are terrified of lawsuits due to FDCPA violations. I have seen companies settle out of court for four times the amount of the debt, just to avoid going to trial. These people are very money-minded, and lawsuits scare them.

OK, so what about this JunkDebt A selling off debt they bought? What's THAT all about? Well, money, in most cases, and exasperation in others. When a debt is sold from JunkDebt A to JunkDebt B, it becomes "seconds." Each time it is sold, it will sell for less on the dollar, naturally. It is really hard to get "firsts" in the market unless your firm has a LOT of money, so most firms don't have a lot of in-stat accounts. As I said, they sell off a slice of whatever new portfolios they buy immediately. Also, they will sell debt that they have tried to collect on, but failed.

>>>So, what does this mean to a debtor? Well, it can be a total nightmare for you. For starters, you can have multiple listings on your credit report, which can be very confusing. The main thing is that a lot of these agencies do not like to waste time dealing with debts they have deemed uncollectible. If they cannot sue them, they are going to sell them. Filed bankruptcy? Disputed the debt several times? Identity theft? Not their problem, say the back-end collectors. Often, they will NOT close out your file, and will just sell it. The new agency has no idea what kind of accounts are in the portfolio they are buying. They don't pick and choose. So, it really is a surprise to them when you say that your identity was stolen eight years ago. So, one has to go through the disputing process over, and over, and over. (This is changing though, as consumer attorneys are jumping all over agencies that sell debt that they shouldn't. These types of lawsuits can involve several firms, and involve a big payoff.)

My last point about junk-debt buyers: they are aggressive. They want their money. Their investors want returns. IF THEY CAN SUE YOU, THEY WILL. Normally, there is a legal department working within the agency. They are given a percentage of the accounts to work, just as the other collectors are. It's the luck of the draw. If the account is suit worthy, and the legal department has it, they will attempt to sue you. I know this isn't going to be popular, but I am going to state the facts as they are. If you call attention to yourself, and the account is in-stat, you are risking being sued. What do you mean? I mean that if you file a debt validation claim, cease & desist, refusal to pay, etc...you have just called attention to yourself. These accounts are given to a special department. Yes, they will usually try to collect from you. It costs money to sue, but if all else fails...they will attempt to sue you. (I want to note that if you ever have any question about a debt, do not let them scare you out of your rights. You have a right to know what the debt is, who the company is, and you certainly have the right to not be contacted at work.)

>>>How can they sue me? They are in Maine. I am in California. This is an easy one to answer. The agency I worked for had law firms in every state, except North Dakota and Wisconsin. The law firm in and of itself if NOT the collection agency, but is the REPRESENTING LAWYER of the plaintiff...JunkDebtA. Is it worth it to them? Depends on the firm. I got sued by a junk debt buyer for $500 dollars. It probably cost them more money to sue me than they will ever get from me. I am non-chalant about it because I live in a non-garnishable state, and I don't own property. It is on my credit, somewhere among years of medical bills.

Let me put it this way: The company I worked for had a motto. It was "Get our name out there, and get on the map." They actively sue debtors and attempt to collect on debt so they are being made known in the industry. All of the agencies feel the same way.

Those are really the basics. I could go into a lot more detail, but there is a lot to go into. So, this leads me to...a summary.

*Junk-debt buyers, contrary to belief, are not third party collectors. They assume all rights of the original creditor upon sale.

*Junk debt firms must respect your rights, and remain FDCPA compliant. Not to do so would be skating on very thin ice.

*Junk debt firms can present a big headache for you if you are disputing a debt that you do not owe. Keep all of your paperwork...for a very long time. It is not uncommon for the debt to show up again several years later.

*Junk-debt buying is a booming business. They will not be going away anytime soon. I do expect that as time goes by, more laws will be passed that are specific to them.

*They will sue you if they deem you suit worthy. It is a part of the aggressiveness of the industry.

Please feel free to ask me any questions here in the forum relating to this topic, so I can share with everyone.

I am going to leave you with a *did you know...?*

Did you know that settling a debt earns you a tax penalty? Forgiven debt is considered earned income. Any portion of the debt forgiven is taxable. Agencies are going to be sending out forms on the debt for you to file with your taxes. You should know that the industry is fighting this law tooth and nail. As the law stands right now, they don't have to tell you that you just got penalized. The government is seeking to change that, and I expect they will win out! Good news for us, right!

Junkdebt A wins the bid at 8 cents on the dollar, and now gets the portfolio. The manager of ZZZ Bank signs a bill of sale and Junk Debt A is now the first party owner of the debt, and has all rights that ZZZ Bank once had. In essence, Junk Debt A is now the original creditor.

Sorry, I have to take exception to this. I am not saying this isn't how the industry views it, but it is not how the laws are written. By using terms such as first Party, third party, etc and not the terms which are defined in the law, the collections industry is trying to manipulate the law to their needs and tactics.

In fact the fdcpa is very clear, and does not take these issues into account. Instead it defines "Creditor" and "Collector". A debt buyer falls into
the later group, and is not afforded the rights of an "creditor".

They are defined under the FDCPA as:

[quote]?????? 803. Definitions [15 USC 1692a]

As used in this title --

(1) The term "Commission" means the Federal Trade Commission.

(2) The term "communication" means the conveying of information regarding a debt directly or indirectly to any person through any medium.

(3) The term "consumer" means any natural person obligated or allegedly obligated to pay any debt.

(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

(5) The term "debt" means any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.

(6) The term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 808(6), such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include --

(A) any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor;

(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;

(C) any officer or employee of the United States or any State to the extent that collecting or attempting to collect any debt is in the performance of his official duties;

(D) any person while serving or attempting to serve legal process on any other person in connection with the judicial enforcement of any debt;

(E) any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors; and

(F) any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.

(7) The term "location information" means a consumer's place of abode and his telephone number at such place, or his place of employment.

( 8 ) The term "State" means any State, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or any political subdivision of any of the foregoing.[/quote]

It was made clear in several FTC Staff opinion letters that purchasers of bad debt portfolios are NOT considered original collectors, and do not enjoy the same rights as an original creditor. This was most clearly spelled out in the FTC letter to Arbuckle of Midland Credit which can be found in its entirety at http:// www.ftc.gov/os/statutes/fdcpa/letters/arbuckle.htm

The text of that letter follows:


Division of Credit Practices
Bureau of Consumer Protection
Clarke W. Brinckerhoff

December 22, 1993

Ms. Kimberlee Arbuckle
midland credit management
500 West First Street
Post Office Box #576
Hutchinson, Kansas 67504

Dear Ms. Arbuckle:

This responds to your letter dated December 2, 1993, inquiring whether Midland Credit Management, Inc. ("MCM") is a debt collector under the Fair Debt Collection Practices Act ("FDCPA" or "Act"). You report that MCM "purchases portfolios of delinquent accounts receivable for the purpose of profitable recovery, resale and cure. These accounts are owned solely by MCM . . ."

Section 803(6) of the FDCPA defines the term "debt collector" as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." In our view, a party that purchases delinquent accounts from the party to which the debts were originally owed and attempts to collect them from the consumer debtors fits clearly within that definition. The party is attempting to collect debts that were "owed or due another" and the fact that title to the accounts is passed to the collector in no way changes that fact.

In the leading case on point, involving a company whose business included the purchase of large volumes of checks that had been dishonored and subsequent collection of the checks from their makers (in the same manner as MCM buys defaulted accounts and thereafter attempts to collect from the account debtors), the court wrote persuasively that the purchaser is covered by the FDCPA. It gave short shrift to the fact that the party had actually purchased the checks in question:

By use of the language "owed or due another" Congress was attempting to exclude those entities that extend credit from the effects of the Act. Congress intended to protect borrowers from "third persons who regularly collect debts for others." (Italics by court; citation omitted). (The purchaser) is a third party collecting a debt originally owed to another. . . . It cannot escape the spirit of the Act by the technicality of purchasing the debt upon default so that title technically rests in itself.

Holmes v. Telecredit Service Corp., 736 F. Supp. 1289, 1293 (D. Del. 1990)

The only theory for exclusion of a party such as MCM from the "debt collector" definition (and thereby from coverage under the FDCPA) is that it is a "creditor."(1) Section 803(4) defines "creditor" as "any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or trans-fer of a debt in default solely for the purpose of facilitating collection of such debt for another." Since the accounts that MCM buys are delinquent when purchased and are being transferred for the purpose of collection, we believe that MCM is within the class that the "creditor" definition expressly "does not include."(2) The words "for another" at the end of the clause excepting assignees from the definition of creditor in no way changes this result:

(T)he excluding factors in the exception are that the debts are the result of an assignment or transfer and that the debts were already in default at the time of assignment or transfer. With the phrase "for another" at the end of the exception, Congress merely intended that the debts should have originally belonged to another and that the creditor was therefore in effect a third-party or independent creditor. (Italics by court)

Kimber v. Federal Financial Corp., 668 F. Supp. 1480, 1485 (M.D.Ala. 1987). Accord, Holmes, supra, at 1293.

In sum, it is our view that a party that obtains consumer obligations in default for the purpose of collection is a "debt collector" under the FDCPA, even if that party actually purchases the accounts from the original creditor.

The views set forth in this informal staff opinion letter are not binding on the Commission.

Sincerely yours,

Clarke W. Brinckerhoff

1. Section 803(6)(A) only specifically exempts creditors' officers and employees. However, it "seems clear from the legislative history of the Act that Congress intended that this exclusion cover creditors themselves as well as their employees." Holmes v. Telecredit Service Corp., 736 F. Supp. 1289, 1291n.3 (D.Del. 1990), citing Kimber v. Federal Financial Corp., 668 F. Supp. 1480, 1484 (M.D.Ala. 1987).

2. See the comment on this subsection in our Staff Commentary on the Fair Debt Collection Practices Act. 53 Fed. Reg. 50097, 50101 (Dec. 13, 1988.)

Some parts of the above quotation were emboldened or italicized to accentuate their relevance.

I am one of those who often point out that Original Creditors are not bound by the FDCPA. I do not use terms like first party, third party, I use the terms as as defined under the law. To that extent, my position that Original Creditors are not bound by the FDCPA stems from a consultation with an attorney when I was considering a suit against Dell Financial Services for harassment under the FDCPA. At that time I was advised no suit was possible as they were the Original Creditor and hence not bound by the FDCPA.

beatlemyn02, your experience and and advice in this forum has been and continues to be invaluable and is always welcome.

Sub: #1 posted on Sat, 04/01/2006 - 05:24

(Posts: 1152 | Credits: 249.83)

Thanks for making junk debt buyers clear to many on this forum. I would also suggest that you check with state laws. The fdcpa of course doesn't apply to original creditors (though it does debt buyers). However, in my state, the Texas Debt Collection Act (similar to the FDCPA) indeed does apply to original creditiors as well as third party collectors.

Sub: #2 posted on Sun, 04/02/2006 - 22:26


You make it sound like people shouldn't be liable to pay off their debt. Essentially, wouldn't that be theft? Is it OK for people to steal? You say THEM, like collectors are really the free loading criminals in this situation. Deleted for name calling! Frogpatch!

Sub: #3 posted on Mon, 10/30/2006 - 08:45


um, hey guest or should I saw 'Junk Debt Buyer who's scared to use his name' Reread what was posted. No one ever said people shouldn't repay what they owe, they were just trying to clear up some quests people had regarding how your type of company and the fdcpa work in regards to each other. Now go away.

Sub: #4 posted on Mon, 10/30/2006 - 09:18


To get an idea, you gan go here:


It talk a bit about portfolios for sale and more.

And holy crap....I need to get back to another thread...

Sub: #5 posted on Mon, 10/30/2006 - 09:32

jedijeff13 jedijeff13

(Posts: 1738 | Credits: 8.92)

How can a junk debt buyer sell an account to another buyer when the debtor has provided proof of payment in full? Or a better question is, how can I get them to stop selling an account I paid in full to another collector? I have provided proof of payment in full to 3 different collection companies. This is an account I paid in full (not a settlement, but in full) 3 years ago.

Sub: #6 posted on Tue, 10/31/2006 - 09:19


I am currently in a lawsuit over old debt. They got an arbitration award by the NAF and now are trying to get it confirmed in Arizona. I am doing all I can to fight it in court but have yet to get in front of a judge. Any help is appreciated.

Sub: #7 posted on Thu, 03/20/2008 - 10:05


OK Beatle, here is a question for you.

How often do the JDBs buy accounts with the original signed credit card agreement and statements included, in the account's info?

Sub: #8 posted on Thu, 03/20/2008 - 22:58


I just paid a settlement for a student Loan will they pay the Dept of Education? because I know that The Dept of Eductation does not have a Statute of Limitations so if this junk debt buyers dont pay them , they will haunt me forever. How does this work when it pertains to a student loan. Do they keep this money of do they pay off my debt with the Dept of Educ.

Sub: #9 posted on Sun, 06/08/2008 - 13:24


namor,student loans aren't sold normally to junk debt buyers.i would demand a pif from them.guest a junk debt buyer doesn't have original creditor paperwork because they buy it from somebodt else,that is why they are called junk debt buyer.that or it is past the statute of limitations.haven't seen or heard of one junk debt buyer that wasn't a bottomfeeder.one other thing namor,who did you work out the settlement with?if it was bottomfeeder i would file an immediate FTC,AG complaints.

Sub: #10 posted on Sun, 06/08/2008 - 13:43

paulmergel paulmergel
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(Posts: 15503 | Credits: 1356.26)

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