Most defaults are small. This fact drives everything about debt collection; it has to be done scalably, by the cheapest labor available, with a minimum of customization or thoughtful weighing of competing interests. The average defaulted credit card debt is on the order of $2,000, the median is between $500 and $1,000. These are processed like McDonalds burgers, not like grant proposals.
Debts are sold as part of a portfolio, where (typically) thousands of relatively similarly situated debts in a cohort are sold as a packet. The value of portfolios is a huge discount to the face value of the debts; at the point where a lender has only worked it themselves and the debt is a few months delinquent, portfolios generally fetch about 5 cents on the dollar. That value will continue to decay over time. There is an entire ecosystem of brokers supporting contractual infrastructure to convey these debts to buyers and insulate the issuing financial institutions from the actions of the debt buyers.
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Debts are conveyed to the debt buyers as large CSV files with minimal supporting documentation. The legal reality of a credit card debt begins with a contractualized promise to pay. You might assume that the owner of the debt necessarily has read that contract. Reader, if the debt has been sold, they have not merely not read that contract, they have likely not received a copy of that contract. They might have the contractual right to ask the seller of the portfolio to ask the entity it bought the portfolio from to follow a few more links in the chain to eventually ask the financial institution for a copy of the contract. In principle, financial institutions always have the contract… somewhere. In practice, they will frequently not organize themselves to actually locate it; this business is off their books and Operations has better things to do than hunting in the archives for a paper copy of a low-value contract signed several years ago.
Again, we’re talking about promises frequently denominated in the hundreds of dollars. It is a consensual social fiction that there is actually a legal process operating here. That consensual social fiction has real consequences, and sometimes bubbles up uncomfortably in actual courts of law, which we will return to in a moment.
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The rights of debtors are observed by both primary lenders and eventual debt buyers mostly in the breach. One of those rights is to a written “debt verification”, with specified information in it, and (surprisingly, if you haven’t worked in this field) despite that being the law many debts are sold in such a fashion that the buyer couldn’t produce a responsive verification even if they wanted to. That isn’t even a political claim; it’s just the engineering reality of which columns are in their CSV file.
The former advocate in me will observe that the single most effective method for resolving debts is carefully sending a series of letters invoking one’s rights under the FDCPA (and other legislation) to a debt collector who is operationally incapable of respecting those rights, then threatening them with legal or regulatory action when they inevitably infringe upon them in writing, leading to them abandoning further attempts at collection.
This effectively makes paying consumer debts basically optional in the United States, contingent on one being sufficiently organized and informed. That is likely a surprising result to many people. Is the financial industry unaware of this? Oh no. Issuing consumer debt is an enormously profitable business. The vast majority of consumers, including those with the socioeconomic wherewithal to walk away from their debts, feel themselves morally bound and pay as agreed.
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The FDCPA and state legislation provides for automatic damages for illegal behavior from collectors, the incidence of illegal behavior is extremely high, and a debt collector with a high school education and three months of experience will frequently commit three federal torts in a few minutes of talking to a debtor then follow up with a confirmation of the same in writing. (You think I am exaggerating. Reader, I am not. “If you don’t pay me I will sue you and then Immigration will take notice of that and yank your green card” contains three separate causes of action: (frequently) a false threat to file a suit where that is not actually a business practice of the firm, a false alleged affiliation with a government agency, and a false alleged consequence for debt nonpayment not provided for in law.)
As a result, private companies compiled databases of (public in the U.S.) court filings and organized them by Social Security number, address, and similar to allow debt collectors to identify which debtors are aware of their legal rights. In principle, a debt collector could do anything they wanted with that fact, like being extra careful to follow the law in contacting them. But the economics of debt collection do not counsel careful, individualized consideration of credit card debt.
I will bet you that, in practice, they simply avoid collecting against anyone who demonstrates ability and financial resources to enforce their rights. This is one for the history books of borked equilibriums. We devoted substantial efforts to pro-consumer legislation to address abuse of (mostly) poor people. We gated redress behind labor that is abundantly available in the professional managerial class and scarce outside of it, like writing letters and counting to 30 days. (People telling me they were incapable of doing these two things is why I started ghostwriting letters for debtors.) We now have literal computer programs exempting heuristically identified professional managerial class members from debt collection, inclusive of their legitimate debts, so that debt collectors can more profitably conserve their time to do abusive and frequently illegal shakedowns of the people the legislation was meant to benefit.
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As a former advocate, I’d report that it is never in a debtor’s interest to verbally speak to a debt collector under any circumstances. One’s likelihood of being abused or lied to, including in financially consequential fashions, is high, and one’s ability to counter that is minimal. Instead, force them to do all correspondence on paper, where lies are self-documenting, illegal threats are immediately admissible to regulatory processes or court, etc.
[…]
When debtors actually contest their debts, or have competent legal representation, the debt collectors frequently get beaten like drums. Many judges take an unsurprisingly dim view of lawyers who profess to have personal knowledge of the facts of the case then can’t locate the contract they are suing over. (Again: they do not and never did possess a copy of the contract. The lawyer does not actually know any facts of the debt other than that the firm purchased a name, address, and perhaps a Social Security number in a CSV file. They don’t have the contents of any previous correspondence about the debt, owing to some combination of incompetence and unwillingness to present evidence of crimes in court.) Then comes some gamesmanship, where the debt collector will attempt to ask for an extension to get their paperwork in order and the debtor’s attorney will push for dismissal, claims under the FDCPA and similar, and costs.
This is so much true. Many times people are hesitant to write a simple two line letter. I think we learn in school to write this letter in this format, formal letters or informal letters, which...
We gated redress behind labor that is abundantly available in the professional managerial class and scarce outside of it, like writing letters and counting to 30 days. (People telling me they were incapable of doing these two things is why I started ghostwriting letters for debtors.)
This is so much true. Many times people are hesitant to write a simple two line letter. I think we learn in school to write this letter in this format, formal letters or informal letters, which puts many people off. I still don't know if it's yours or yours' or your's, I just write warm regards at the end now.
Same thing as calculators or computers, I suspect. Some will use it to lie or cheat or steal, some will use it as a legitimate tool to address and improve their weak spots, or to automate the...
Same thing as calculators or computers, I suspect. Some will use it to lie or cheat or steal, some will use it as a legitimate tool to address and improve their weak spots, or to automate the routine or tedious portions of tasks leaving the user free to use their skills more efficiently and devote more time to more complex work.
Yeah, on second thought, I expect that debt collectors (and their lawyers) learn to use it first. They will probably get job training. They lack relevant information to write legal letters but...
Yeah, on second thought, I expect that debt collectors (and their lawyers) learn to use it first. They will probably get job training. They lack relevant information to write legal letters but they can probably write letters that sound threatening.
Edit: an interesting discussion on ChatGPT and coding just popped up about an hour ago so adding it here in case anyone else is interested in this stuff. https://tildes.net/~tech/19c8 /edit That's...
Edit: an interesting discussion on ChatGPT and coding just popped up about an hour ago so adding it here in case anyone else is interested in this stuff.
That's an interesting thought! There are of course plenty of businesses which already have bots covering phone or chat lines, and occasionally I've come across one where you just can't get through to a human for love nor money - but they're all pretty equally shit to anyone who is even remotely familiar with googling for answers before asking for help. The equivalent of "have you tried turning it off and on again?" I don't think AI is much beyond that yet, but that's certainly an industry that's proved itself ready and willing to dump employees and anger callers in order to save a (not even adjusted for inflation) buck in wages.
I've worked in inbound call centers before, around 20 years ago, and they already had us on scripts that we weren't allowed to deviate from. I'm curious how it would handle problems described by people who don't know what's wrong... I might plug a few of the more memorable call problems into CHATGPT today just to see how it currently responds!
As for lawyers... I've worked for some of them, too, not in that field but I've seen my share of good and bad threatening legal letters. Those kinds of letters are generally already an existing template that requires few changes, and since I used ChatGPT to assist me in making a cover letter I'd written more succinct (my comments are an ever-current demonstration of that weak spot), I know it can definitely handle that, BUT that was the first time I'd tried it, so I began by asking it to write a cover letter based on a job description I copied and pasted in, and I got what I suspected I would get - the exact kind of cover letter that a lot of people use today and don't realize that's probably why they're not getting call backs. Hi my name is bla, I want to apply for bla, here's a repeat of the stuff you just saw on my resume. I then took my letter, which I've worked and reworked over several years of reading askamanager, but which was still a good 2 1/2 to 3 pages long, plugged it into CHATGPT and this time didn't give it a job description, just asked it to edit for length. It immediately popped out a much better letter, but I still reviewed my original and it and wrote a third letter that was a hybrid of both. So there's definitely a good argument that it could be used for form letters, but it's can't fix lazy and stupid, so bad lawyers are going to continue to produce lower quality work and have a higher risk of getting in deep shit for it - the debacle of the lawyers who used ChatGPT to write a court brief that cited fake previous cases. Briefs are also often already set up as much as possible to already be generated with standard language, formatting, etc. It's the legal reasoning that takes all the time, something lawyers spend a shit ton of cash going to law school to train in. These two both had years of experience but the lawyer who used the program fucked up by not reviewing the work, and the lawyer who accepted it from him fucked up by submitting it without reviewing it himself either. If these lawyers are sending legal threats to a non-lawyer, CHATGPT can definitely handle that because it's already easy to scare people with little money and no experience in legal matters by threatening legal consequences. But get any half decent lawyer on the other side and they will be gleeful if they get shit like that, because bot author or human author, bullshit smells the same. It's a signal that either the other side is writing their own legal correspondence without legal oversight via googling legal sounding letters, or the other side has a very, very stupid and lazy lawyer. Either way it's easy money for our side because - well, specialized or not, any good lawyer will immediately find cited cases to review them and how the opposing side is using them to reinforce their arguments. In this case... the opposing side's lawyers in this case must have passed that brief around to each other for a good laugh (we absolutely did this with garbage threatening "legal" letters) because they specialize in aviation law and hell, even their admin staff were probably familiar enough with case law to spot a fuck up so egregious.
So anyway, the people I see most affected by this will be admin staff that are dumped for technology by greedy and clueless business owners. My biggest concern is for those job losses and its definitely one of the biggest and best arguments I've seen to date to push hard for universal basic income. Hell, I was already all for it anyway because I've also worked for a large number of greedy/lazy/stupid people, and I want to help other people get out of the toxic kinds of workplaces those create a lot faster than I was able to.
Thanks for the article. Another thing that many of the poorest and most vulnerable debtors have in common is a lack of knowledge about how bankruptcy can stop the collection process. Although...
Thanks for the article. Another thing that many of the poorest and most vulnerable debtors have in common is a lack of knowledge about how bankruptcy can stop the collection process. Although bankruptcy does not solve the precarious living situations that cause some people to get into debt repeatedly simply to survive day to day.
At least in the US, bankruptcy is a sophisticated and finely tuned mechanism that can be extremely useful for dealing with overwhelming debt, while also being staffed by professionals who are experts at sniffing out fraud and kicking bad actors to the curb.
This was a generally well written article. Thanks for sharing it. I already had a general understanding of debt collections, having had the displeasure of dealing with one years ago… I bought a...
This was a generally well written article. Thanks for sharing it. I already had a general understanding of debt collections, having had the displeasure of dealing with one years ago… I bought a phone in the early 00s which was supposedly delivered to my porch. It either wasn’t delivered or was stolen. I called t mobile and let them know, they send me a new phone. I then get a bill for the replacement phone, something like $500; which I hadn’t agreed to. I fight with them and my account gets closed. At this point I think the matter is resolved. Lo and behold a year or two later I get a letter demanding I pay an outstanding debt. I look up what to do and found some advice online: 1. Don’t make any payment because it resets the clock and confirms you are the debtor they are looking for 2. Ask for written documentation of the debt. I send them a letter asking for documentation and never hear back from them again. In retrospect, I have even more questions as to how this was possible. T-Mobile would have had a huge account with ups or whoever and would almost certainly have insurance. They could have just deactivated the phone / black listed it. They should have made it explicitly clear that I was buying a second phone out of pocket, would bill my account and leave me on the hook. They instead chose to probably collect the insurance, bill me, close my account, write off and sell the debt to collections.
From the article:
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This is so much true. Many times people are hesitant to write a simple two line letter. I think we learn in school to write this letter in this format, formal letters or informal letters, which puts many people off. I still don't know if it's yours or yours' or your's, I just write warm regards at the end now.
It will take a while, but I wonder what happens if ordinary people learn that AI can write formal business letters for them?
Same thing as calculators or computers, I suspect. Some will use it to lie or cheat or steal, some will use it as a legitimate tool to address and improve their weak spots, or to automate the routine or tedious portions of tasks leaving the user free to use their skills more efficiently and devote more time to more complex work.
Yeah, on second thought, I expect that debt collectors (and their lawyers) learn to use it first. They will probably get job training. They lack relevant information to write legal letters but they can probably write letters that sound threatening.
Edit: an interesting discussion on ChatGPT and coding just popped up about an hour ago so adding it here in case anyone else is interested in this stuff.
https://tildes.net/~tech/19c8
/edit
That's an interesting thought! There are of course plenty of businesses which already have bots covering phone or chat lines, and occasionally I've come across one where you just can't get through to a human for love nor money - but they're all pretty equally shit to anyone who is even remotely familiar with googling for answers before asking for help. The equivalent of "have you tried turning it off and on again?" I don't think AI is much beyond that yet, but that's certainly an industry that's proved itself ready and willing to dump employees and anger callers in order to save a (not even adjusted for inflation) buck in wages.
I've worked in inbound call centers before, around 20 years ago, and they already had us on scripts that we weren't allowed to deviate from. I'm curious how it would handle problems described by people who don't know what's wrong... I might plug a few of the more memorable call problems into CHATGPT today just to see how it currently responds!
As for lawyers... I've worked for some of them, too, not in that field but I've seen my share of good and bad threatening legal letters. Those kinds of letters are generally already an existing template that requires few changes, and since I used ChatGPT to assist me in making a cover letter I'd written more succinct (my comments are an ever-current demonstration of that weak spot), I know it can definitely handle that, BUT that was the first time I'd tried it, so I began by asking it to write a cover letter based on a job description I copied and pasted in, and I got what I suspected I would get - the exact kind of cover letter that a lot of people use today and don't realize that's probably why they're not getting call backs. Hi my name is bla, I want to apply for bla, here's a repeat of the stuff you just saw on my resume. I then took my letter, which I've worked and reworked over several years of reading askamanager, but which was still a good 2 1/2 to 3 pages long, plugged it into CHATGPT and this time didn't give it a job description, just asked it to edit for length. It immediately popped out a much better letter, but I still reviewed my original and it and wrote a third letter that was a hybrid of both. So there's definitely a good argument that it could be used for form letters, but it's can't fix lazy and stupid, so bad lawyers are going to continue to produce lower quality work and have a higher risk of getting in deep shit for it - the debacle of the lawyers who used ChatGPT to write a court brief that cited fake previous cases. Briefs are also often already set up as much as possible to already be generated with standard language, formatting, etc. It's the legal reasoning that takes all the time, something lawyers spend a shit ton of cash going to law school to train in. These two both had years of experience but the lawyer who used the program fucked up by not reviewing the work, and the lawyer who accepted it from him fucked up by submitting it without reviewing it himself either. If these lawyers are sending legal threats to a non-lawyer, CHATGPT can definitely handle that because it's already easy to scare people with little money and no experience in legal matters by threatening legal consequences. But get any half decent lawyer on the other side and they will be gleeful if they get shit like that, because bot author or human author, bullshit smells the same. It's a signal that either the other side is writing their own legal correspondence without legal oversight via googling legal sounding letters, or the other side has a very, very stupid and lazy lawyer. Either way it's easy money for our side because - well, specialized or not, any good lawyer will immediately find cited cases to review them and how the opposing side is using them to reinforce their arguments. In this case... the opposing side's lawyers in this case must have passed that brief around to each other for a good laugh (we absolutely did this with garbage threatening "legal" letters) because they specialize in aviation law and hell, even their admin staff were probably familiar enough with case law to spot a fuck up so egregious.
So anyway, the people I see most affected by this will be admin staff that are dumped for technology by greedy and clueless business owners. My biggest concern is for those job losses and its definitely one of the biggest and best arguments I've seen to date to push hard for universal basic income. Hell, I was already all for it anyway because I've also worked for a large number of greedy/lazy/stupid people, and I want to help other people get out of the toxic kinds of workplaces those create a lot faster than I was able to.
Thanks for the article. Another thing that many of the poorest and most vulnerable debtors have in common is a lack of knowledge about how bankruptcy can stop the collection process. Although bankruptcy does not solve the precarious living situations that cause some people to get into debt repeatedly simply to survive day to day.
At least in the US, bankruptcy is a sophisticated and finely tuned mechanism that can be extremely useful for dealing with overwhelming debt, while also being staffed by professionals who are experts at sniffing out fraud and kicking bad actors to the curb.
This was a generally well written article. Thanks for sharing it. I already had a general understanding of debt collections, having had the displeasure of dealing with one years ago… I bought a phone in the early 00s which was supposedly delivered to my porch. It either wasn’t delivered or was stolen. I called t mobile and let them know, they send me a new phone. I then get a bill for the replacement phone, something like $500; which I hadn’t agreed to. I fight with them and my account gets closed. At this point I think the matter is resolved. Lo and behold a year or two later I get a letter demanding I pay an outstanding debt. I look up what to do and found some advice online: 1. Don’t make any payment because it resets the clock and confirms you are the debtor they are looking for 2. Ask for written documentation of the debt. I send them a letter asking for documentation and never hear back from them again. In retrospect, I have even more questions as to how this was possible. T-Mobile would have had a huge account with ups or whoever and would almost certainly have insurance. They could have just deactivated the phone / black listed it. They should have made it explicitly clear that I was buying a second phone out of pocket, would bill my account and leave me on the hook. They instead chose to probably collect the insurance, bill me, close my account, write off and sell the debt to collections.