Be careful when dealing with companies who bought your debt
Want to buy some debt? Head to Las Vegas this February for the Debt Buyer’s Association International Conference, the annual convention of businesses that want to buy debt.
Debt buyers want to buy low and collect high — and they have been successful.
Portfolio Recovery Associates Inc. (NASDAQ: PRAA), whose business model is debt buying, last month was named one of Fortune 100’s fastest-growing companies in 2012.
Debt buying is big business.
Much of the debt being purchased is money that was owed to an original creditor but could not be collected. When the debt isn’t collected within a certain time frame, the account is charged off, bundled with other bad debt and sold to debt buyers at a steep discount. The new owners of the debt then attempt to collect as much as possible from the person who owes the money.
Here is an oversimplified example of how the process works: Absalom owes Big Bank $10,000 for charges he has made on his Platinum Visa. Things are going great until Absalom can’t work after being injured in an industrial accident. Unable to work for six months, he can’t make the payments on his credit card. After numerous calls from numerous collectors, Absalom is told that his account is being charged off.
Without Absalom knowing, Big Bank has sold the delinquent credit card account to Easy Pickings Debt Buyers for a penny on the dollar. Easy Pickings paid $100 for Absalom’s account. The first thing Easy Pickings does is send Absalom a letter stating that if he can pay $6,000, or 60 percent of his debt, it will forgive the balance on his account.
Absalom has just gone back to work and realizes he can get a $6,000 loan from his 401(k). He pays off his account at a $4,000 discount and Easy Pickings Debt Buyers makes a profit of $5,900.
This scenario has given birth to numerous debt-management scams. The scam company promises to help you get out of debt by having you pay a monthly fee instead of your credit cards. After taking a substantial fee, they will hold your money until:
a) your credit card companies get very cranky,
b) then sell your debt to a debt buyer, and
c) the debt buyer makes an offer to settle at a large discount.
Because you have been paying the scam company each month, you have the money to pay the discounted amounts and you can get out of debt fast.
Except it never works that way.
Most people tire quickly of making a monthly payment for all their debt while still being harassed and sued by collectors, so they stop paying the scam company. The scam company says you breached your contract and keeps all your money.
In order to combat this type of scam, the Utah Code contains the Uniform Debt-Management Services Act. Debt-management services are defined by the law as “services as an intermediary between an individual and one or more creditors of the individual for the purpose of obtaining concessions” — basically, a company promising to help you deal with your creditors. The only exceptions to the act are three regulated professions — licensed financial planners, accountants and attorneys.
In order to provide debt- negotiation services in Utah for a consumer, a company must be registered with the state and comply with the Utah law and regulations. The debt-management services company must provide a bond to pay for any violations of the law.
A complete list of registered companies can be found at http://consumerprotection.utah.gov/registrations/debtmanagement.html.
Debt is tenacious. If you are in financial trouble, get quality advice. And remember, some debt buyers in Vegas are meeting in February to figure out how to buy your debt.
E. Kent Winward is an Ogden attorney. He can be reached at
801-392-8200 or creditcorrection@gmail.com.
Debt buyers want to buy low and collect high — and they have been successful.
Portfolio Recovery Associates Inc. (NASDAQ: PRAA), whose business model is debt buying, last month was named one of Fortune 100’s fastest-growing companies in 2012.
Debt buying is big business.
Much of the debt being purchased is money that was owed to an original creditor but could not be collected. When the debt isn’t collected within a certain time frame, the account is charged off, bundled with other bad debt and sold to debt buyers at a steep discount. The new owners of the debt then attempt to collect as much as possible from the person who owes the money.
Here is an oversimplified example of how the process works: Absalom owes Big Bank $10,000 for charges he has made on his Platinum Visa. Things are going great until Absalom can’t work after being injured in an industrial accident. Unable to work for six months, he can’t make the payments on his credit card. After numerous calls from numerous collectors, Absalom is told that his account is being charged off.
Without Absalom knowing, Big Bank has sold the delinquent credit card account to Easy Pickings Debt Buyers for a penny on the dollar. Easy Pickings paid $100 for Absalom’s account. The first thing Easy Pickings does is send Absalom a letter stating that if he can pay $6,000, or 60 percent of his debt, it will forgive the balance on his account.
Absalom has just gone back to work and realizes he can get a $6,000 loan from his 401(k). He pays off his account at a $4,000 discount and Easy Pickings Debt Buyers makes a profit of $5,900.
This scenario has given birth to numerous debt-management scams. The scam company promises to help you get out of debt by having you pay a monthly fee instead of your credit cards. After taking a substantial fee, they will hold your money until:
a) your credit card companies get very cranky,
b) then sell your debt to a debt buyer, and
c) the debt buyer makes an offer to settle at a large discount.
Because you have been paying the scam company each month, you have the money to pay the discounted amounts and you can get out of debt fast.
Except it never works that way.
Most people tire quickly of making a monthly payment for all their debt while still being harassed and sued by collectors, so they stop paying the scam company. The scam company says you breached your contract and keeps all your money.
In order to combat this type of scam, the Utah Code contains the Uniform Debt-Management Services Act. Debt-management services are defined by the law as “services as an intermediary between an individual and one or more creditors of the individual for the purpose of obtaining concessions” — basically, a company promising to help you deal with your creditors. The only exceptions to the act are three regulated professions — licensed financial planners, accountants and attorneys.
In order to provide debt- negotiation services in Utah for a consumer, a company must be registered with the state and comply with the Utah law and regulations. The debt-management services company must provide a bond to pay for any violations of the law.
A complete list of registered companies can be found at http://consumerprotection.utah.gov/registrations/debtmanagement.html.
Debt is tenacious. If you are in financial trouble, get quality advice. And remember, some debt buyers in Vegas are meeting in February to figure out how to buy your debt.
E. Kent Winward is an Ogden attorney. He can be reached at
801-392-8200 or creditcorrection@gmail.com.
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