29 April 2014

Debt Collection

Here's something short--only ten pages--to read about some proposed changes to the secondary market in debt. Several faculty at the University of California have drafted a Model Fair Debt Buying Practices Act. It's designed to apply only to consumer debt, which means the mammoth market in commercial distressed debt will not be affected.

One should be aware that credit card issuers, medical providers, student loan lenders, and others aren't always able to collect what's owed them. Credit card issuers and medical providers in particular are likely to write off uncollectible debt. But that's not the end of the story. Uncollected debt is bundled in the millions and sold at pennies on the dollar to those whose forte is, well, squeezing blood from turnips. There's nothing wrong with such a practice but it certainly has been abused by secondary collectors who try to collect debt that's no longer owed.

The proposed legislation has some valuable features but some rather fuzzy ones as well. Nonetheless, I think it's an idea whose time has come. After all, creditors have duties as well as rights.

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