Many Americans are all-too-familiar with the aggressive
tactics of today's collections agencies. Perhaps they
checked out a surprisingly expensive library book or two
while in college and then forgot about it; perhaps someone
stole their credit card and ran up a huge bill. Years
later, when they least expect it, these innocent people get
mean, threatening phone calls.
Agencies and corporations whose names these individuals
have never heard of suddenly ask for immediate payments of
large sums of money.
How does this happen, and why? Why are collections agencies
so pervasive and so aggressive?
The fact is, for the past ten years, people's old debts
have been exceedingly profitable for the right kinds of
companies. Credit companies used to stand to lose more than
they would gain by trying to get people to pay off their
old debts. In the past, it was more profitable to just
forget such old debts.
Nowadays, the situation has changed. How? New technology
lets companies classify Americans by how probable it is
that they'll pay off what they owe. Financial statistics
about all Americans are collected into vast databases. Debt
collectors can pull up people's credit scores and other
crucial lifestyle information with the push of button, and
target people accordingly.
The more aggressive a company is, the more money it now
stands to make collecting on debts. Some of these agencies
spring up like mushrooms after a rain, buying maxed-out,
unpaid credit accounts, such as credit cards, from
companies like Visa or American Express. These accounts
cost the collection agencies literally pennies for every
dollar of debt.
Then, they pull up their databases and target those they
expect to persuade to pay the debt. A collection agency
sometimes pays as little as 25 cents for every $100 of
debt. At that low rate, if they make the delinquent
borrower pay back even one dollar of debt, they make their
money back. If the target pays $4 out of $100, the agency
makes a 400% profit. Persuading people to pay is not very
difficult, since these collection agencies now have the
power to destroy people's credit rating. People are
harassed night and day by phone calls, made to feel worried
and guilty until their spirits break and they pay up.
Debt collection is now so profitable that finance
researcher and analysts predict that collection agencies
will buy $110 billion worth of debt in 2008 alone. In 2000,
third-party companies purchased only $55 billion worth of
debt from original lenders.
That's a huge rate of growth, and it's only going to
increase--despite the fact that old debts are now being
sold to collection for slightly more than before, in the
face of all the collection agencies scrambling to make
money from the old debts. Many, but not all collection
agencies, are small here-and-gone-again operations.
One of America's biggest buyers of old bad debt is Asset
Acceptance Capital, which made a whopping $51.3 million in
profits in 2005. Another company, Portfolio Recovery
Associates made $36.8 million in profits that year, and
increased its revenues fivefold since 2001. The upshot?
Make sure to pay off all your debts. At the same time, be
prepared to deal with aggressive collection agencies that
act in borderline-legal ways to get you to pay off debts
that may not even be valid.
----------------------------------------------------
Gary Milton has been writing on the subject of personal
debt for many years and you can find more of his work at
the debt help site http://www.rebuild.org including many of
his great articles.
No comments:
Post a Comment