The Debt Buying Companies

[saevel25]

Another informative piece from John Oliver.

It's sad there is a multi-billion dollar industry created from banks and other businesses selling off your debt to these companies that hound you with strong arm tactics. They also go after debt that is past the statutes of limitations. 

[newtogolf]

Two fold problem here, too many people racked up debt and don't address their outstanding debt.  These debt collection companies need to be regulated, to minimally guarantee the debt they are trying to collect is still owed and hasn't been paid, settled or absolved via bankruptcy. 

I've been offered a few business opportunities to purchase debt portfolios at $.01 - .02 on the dollar (depends on the type of debt), I refused them all even though financially it was likely a profitable venture.  He's right about not needing licenses to acquire very personal information on people which is scary.

Debt selling became popular during the sub prime loan crisis where banks would bundle their high risk mortgages with some lower risk mortgages, it then expanded to credit card and other types of debt.  It's a very dirty and calculated business that only reaps rewards for the debt purchasers if they can strong arm the debtors into paying.

If you owe money you should expect to pay it back, but these bottom feeding debt purchasers and debt collectors need to be better regulated.  

[David in FL]

11 minutes ago, newtogolf said:

If you owe money you should expect to pay it back...

This.

[jkelley9]

21 minutes ago, David in FL said:

This.

I agree, and it infuriated me for a long time watching people buy expensive cars and nice things when they didn't have the income to support it until I started realizing that most people don't have the education that I was brought up with. I can only imagine being an 18-year old kid in some poverty stricken town and getting a credit card in the mail and thinking "oh boy, I can actually, finally, go buy something" and haven't the slightest clue of the consequences. Despite the obvious fact being to pay back what isn't yours. But, unfortunately when people see "xx% interest rate" they only have the education to think that's the original principal plus that amount, so if 10% on $100 they would only have to pay $110. Nope, wrong. But there aren't many people teaching this to those folks.  I sympathize with them a little more now. Now when they continue to dig themselves into deeper and deeper holes and use their tax returns to buy a $3,000 sound system for their TV.... I pretty much lose all sympathy for those folks. 

A lot of people grow up thinking that holding onto debt and having interest payments every single month for the rest of their lives is a normal thing... when it shouldn't be.

Debt collection is a crazy thing. I'm shocked it a multi-billion dollar industry actually, that's news to me. The whole thing is a big pile of sad. If I went to school in finance wanting to "make it big" in the business world there are just things that I consider bottom-feeding behavior that aren't worth the guilt. Buying debt at pennies on the dollar and then heckling people to pay up and "doing the math" on my margins for being able to pester people is at the absolutely bottom of my list. Right there with the power-house computers doing buys/sells for the ultra-rich hedge funds. I never want to be a part of that, and I've grown up as a programmer starting at 12 years old and having dabbled in it ever since (16+ years). I find it amazing that they're able to do it now, but I still loathe the fact that it's actually used to make people richer and richer.

[newtogolf]

44 minutes ago, jkelley9 said:

I agree, and it infuriated me for a long time watching people buy expensive cars and nice things when they didn't have the income to support it until I started realizing that most people don't have the education that I was brought up with. I can only imagine being an 18-year old kid in some poverty stricken town and getting a credit card in the mail and thinking "oh boy, I can actually, finally, go buy something" and haven't the slightest clue of the consequences. Despite the obvious fact being to pay back what isn't yours. But, unfortunately when people see "xx% interest rate" they only have the education to think that's the original principal plus that amount, so if 10% on $100 they would only have to pay $110. Nope, wrong. But there aren't many people teaching this to those folks.  I sympathize with them a little more now. Now when they continue to dig themselves into deeper and deeper holes and use their tax returns to buy a $3,000 sound system for their TV.... I pretty much lose all sympathy for those folks. 

A lot of people grow up thinking that holding onto debt and having interest payments every single month for the rest of their lives is a normal thing... when it shouldn't be.

Debt collection is a crazy thing. I'm shocked it a multi-billion dollar industry actually, that's news to me. The whole thing is a big pile of sad. If I went to school in finance wanting to "make it big" in the business world there are just things that I consider bottom-feeding behavior that aren't worth the guilt. Buying debt at pennies on the dollar and then heckling people to pay up and "doing the math" on my margins for being able to pester people is at the absolutely bottom of my list. Right there with the power-house computers doing buys/sells for the ultra-rich hedge funds. I never want to be a part of that, and I've grown up as a programmer starting at 12 years old and having dabbled in it ever since (16+ years). I find it amazing that they're able to do it now, but I still loathe the fact that it's actually used to make people richer and richer.

My grandfather never owed anyone a dime, he paid cash for his house, his cars, etc.  He had a credit card but only used it when it was an emergency and he'd pay the bill off every month.  He did without things until he had the cash to buy them, he didn't own a lot of fancy things but he was content and slept well every night.  

We're now a consumer society, television shows, commercials, magazine ads all convince us we need the latest and greatest everything and if we can't afford it, we can buy it anyway on credit.  You're right that people aren't properly educated on credit and debt, it's another failure of our education system.  

I'm not sure how you compare debt purchasing and collections to writing software and using computers to trade stocks and futures.  Computers are tools, if people can use them to make themselves more money what's the harm in that?  

[jkelley9]

11 minutes ago, newtogolf said:

My grandfather never owed anyone a dime, he paid cash for his house, his cars, etc.  He had a credit card but only used it when it was an emergency and he'd pay the bill off every month.  He did without things until he had the cash to buy them, he didn't own a lot of fancy things but he was content and slept well every night.  

We're now a consumer society, television shows, commercials, magazine ads all convince us we need the latest and greatest everything and if we can't afford it, we can buy it anyway on credit.  You're right that people aren't properly educated on credit and debt, it's another failure of our education system.  

I'm not sure how you compare debt purchasing and collections to writing software and using computers to trade stocks and futures.  Computers are tools, if people can use them to make themselves more money what's the harm in that?  

That was a little bit of a sidebar in terms of people pursuing business ventures. Firstly, I'm not talking about your simple Scottrade, TD, etc home account softawre. I'm talking about machines that are on the front-line of the information system and actually make calculated buys/sells in nanoseconds before any of us peons can even see the data, let alone interpret it. 

I put it on the same level as people buying up debt and heckling people to make their margins. They are inflicting pain to cover their margins, albeit justified. The super-computer hedge funds I lump in there with them because they are making huge profits without lifting a finger (now) and that technology is exclusive to them (yes, I understand that they had to invest in those programmers, hardware, etc but they've now beat the system to be able to pad their pockets with almost zero operating costs). But they aren't providing any service at this point. They're finding rich people, making them richer, and taking nice cuts from that without actually doing anything. Just like the debt collectors aren't "making the world a better place." They're just in the business of making money. Not actually doing any good (in my opinion, as naive as it may be)

[colin007]

possibly OT, but have any of you guys seen the movie The Big Short? i know its not all exactly factual, but im just not sure which part was spot on?

[saevel25]

6 minutes ago, colin007 said:

possibly OT, but have any of you guys seen the movie The Big Short? i know its not all exactly factual, but im just not sure which part was spot on?

I really enjoyed that movie. I loved the 4th wall breaks to educate the audience. Steve Carell was awesome. 

Here is a pretty good article on the shortcomings of the movie. http://www.politico.com/magazine/story/2016/01/what-the-big-short-gets-wrong-213535

 

 

[colin007]

19 minutes ago, saevel25 said:

I really enjoyed that movie. I loved the 4th wall breaks to educate the audience. Steve Carell was awesome. 

Here is a pretty good article on the shortcomings of the movie. http://www.politico.com/magazine/story/2016/01/what-the-big-short-gets-wrong-213535

ok cool. thanks bro.  the main issue i had was with the adjustable rate mortgages that they were selling, and the fault of course is with both sides. the consumer doesnt do their HW to research what the payment could eventually become, and the banks seemed to have a cavalier attitude about the possibility of huge percentages of mortgages being defaulted on. it just seems like a bad idea all around.

[newtogolf]

59 minutes ago, colin007 said:

ok cool. thanks bro.  the main issue i had was with the adjustable rate mortgages that they were selling, and the fault of course is with both sides. the consumer doesnt do their HW to research what the payment could eventually become, and the banks seemed to have a cavalier attitude about the possibility of huge percentages of mortgages being defaulted on. it just seems like a bad idea all around.

It was, there was such a push by the government to to offer lower income people the opportunity to buy homes that the banks, especially mortgage banks, went nuts putting together loans that financially made no sense.  The game was to grab all the fees you could up front because after the initial protected rate period expired there was no way most homeowners would be able to afford the payment.  The mortgage banks didn't care because they planned to sell off the loan as quickly as they could.  

I had an acquaintance that worked for a mortgage company during that time and some of his co-workers were doing anything they could (including short term personal loans) to get these mortgages to close so they could collect the commissions and fees.  It was the wild wild west and everyone was willing to look the other way until it blew up.  

The same thing is now happening with > 5 year car loans and used car loans.  It will be the next bubble to burst along with student loans.  

[GolfLug]

Most people understand interest but magnitude of leverage it generates over time is not an understanding issue. It is a depth of perception issue. Of course it is worse if never educated about it in the first place. Regardless of all the declarations in the fine and not so fine print loan papers the effect it will have on your finances simply do not register. It is relatively easy to get in over your head. The young, the newly employed, and the inexperienced are some of the most easy prey.   

I guess debt purchasing is simply the evil offshoot of this phenomenon. Has always been an opportunistic business. The % of recovery required to be profitable is ridiculously low.    

 

 

[iacas]

5 hours ago, newtogolf said:

My grandfather never owed anyone a dime, he paid cash for his house, his cars, etc.  He had a credit card but only used it when it was an emergency and he'd pay the bill off every month.  He did without things until he had the cash to buy them, he didn't own a lot of fancy things but he was content and slept well every night.  

That's a bit extreme.

I have no problems owing 0.9% interest on my car because my money can earn more elsewhere. Or the 2.9% we have on our house. Or whatever.

And owning a house even at 5% beats paying to rent, for many people.

We have credit cards and use them almost exclusively. I almost never use cash except for small purchases (and even those, if they have Pay, I use that, which is tied to a credit card). We just pay the bill off each month.

[jkelley9]

8 minutes ago, iacas said:

That's a bit extreme.

I have no problems owing 0.9% interest on my car because my money can earn more elsewhere. Or the 2.9% we have on our house. Or whatever.

And owning a house even at 5% beats paying to rent, for many people.

We have credit cards and use them almost exclusively. I almost never use cash except for small purchases (and even those, if they have Pay, I use that, which is tied to a credit card). We just pay the bill off each month.

Of course that's the better way to handle it. My wife and I pay almost everything exclusively with credit cards. But we have never paid a dime in interest. Better yet is the cash back/points and stuff from the cards to get better than face value.

[iacas]

3 minutes ago, jkelley9 said:

Of course that's the better way to handle it. My wife and I pay almost everything exclusively with credit cards. But we have never paid a dime in interest. Better yet is the cash back/points and stuff from the cards to get better than face value.

Yeah. And a friend of mine who is a bit more insane than I am and who checks ALL of his receipts says that he gets about 5% of his purchases free because they aren't processed fully or there is a bank error or something. One month it'll be the $15 he spent here, and another month the $87.32 he spent there… etc.

Though I think that's exaggerated.

And yeah, every Christmas (smart that they do it in December) we get our cash back rewards. So our items cost us 1-2% less than they actually cost us.

My dad actually put one year of my college on his credit card because he got something like $1,500 back on it.

[CarlSpackler]

I get frequent flyer miles for using my card and then my bank gives me awards that translate into a little cash when I pay it off with with electronic bill pay. I hate paying interest on anything.

[StevenR84]

So a question with these debt buying companies and the original debt holders. If Debt Buyer A buys Bank B's debt for the discount that they do (60 cents? 50 cents on the dollar?) and lets say that the debt gets paid back to Debt Buyer, but the Bank still writes it off as a loss. Does Bank get to write that off as a loss? If so isn't it awful that that payment is essentially being made 2x, or at least 1x?

[iacas]

1 minute ago, StevenR84 said:

So a question with these debt buying companies and the original debt holders. If Debt Buyer A buys Bank B's debt for the discount that they do (60 cents? 50 cents on the dollar?) and lets say that the debt gets paid back to Debt Buyer, but the Bank still writes it off as a loss. Does Bank get to write that off as a loss? If so isn't it awful that that payment is essentially being made 2x, or at least 1x?

No.

$100,000 is owed to A.

A sells it to B for $30,000, and writes off $70k.

B recovers $25k. Or $50k, resulting in either a loss of $5k or a profit of $20k.

What's 2x?

[StevenR84]

4 minutes ago, iacas said:

No.

$100,000 is owed to A.

A sells it to B for $30,000, and writes off $70k.

B recovers $25k. Or $50k, resulting in either a loss of $5k or a profit of $20k.

What's 2x?

say that B collects the full amount. So now A has written off 70 but that same 70 has been paid to B.