December 13, 2005

 

What is the Junk Debt Buyer? And How to Understand Them...Beating the Bill Collector, Series 4

I constantly see questions about companies like Sherman Acquisitions and Arrow Financial (among others). I feel it's time to address how to deal with them.

These companies are in a category called "Junk Debt Buyers" (JDB's). They purchase huge portfolios of defaulted consumer debt at about 2-3 cents on the dollar, and seemingly try to collect a dollar and a half. They increase the amounts claimed by astronomical amounts by reinstating the contract interest rate and re-calculating the amount claimed, adding interest at the contract rate, from the date of charge off (when the Original Creditor stopped calculating interest) up to the time they get paid.

In the portfolio that they purchase will be debts that have been discharged in bankruptcy, debts where there is an Automatic Stay in place because the debtor is still involved in an active bankruptcy case, debts that have been reduced to Judgement, debts that have aged past the Statute of Limitations for Collection (SOLC) in the debtor's State and debts that have aged past the FCRA Statute of Limitations for Reporting (SOLR).

The principal collection tactic of JDB's seems to be a combination of patience and complete disregard for the mandates of the Fair Credit Reporting Act (FCRA). They do this by re-aging the debt so that FICO interprets it as a recent default, not a default that happened many years ago. This causes a HUGE drop in the debtor's credit score (Each CRA has its own name for the score - FICO, Beacon, whatever - it's all basically the same thing). Then they wait for the debtor to complain that he/she can't get credit because this account suddenly appeared on their credit report. At that point they have you where they want you - desperate and on the phone.

They will (as all CA's do) press for immediate payment of some amount. The reason is simple - to bring the debt back into collectability under SOLC. Then they are free to file suit against you and have a chance at winning.

Unfortunately, most consumers don't realize the illegality of what is happening. The JDB has committed at least ONE of the following violations in just about every case:

1. By posting the debt as a recently defaulted case (I have personally been told by BOTH Sherman and Arrow that they consider the date they BUY the debt to be a NEW status date-in direct contradiction to the FTC Amason Letter Section 2), they have violated FCRA Section 605(a) as interpreted in Section 2 of the Amason Letter (All letters are FTC Staff Opinion Letters and are posted on the FTC web site - http://www.ftc.gov/ ). This is the re-aging provision of FCRA.

2. By posting the debt after the debt has been dischaged in Bankruptcy they are violating the Permanent Injunction provision of the Bankruptcy Discharge as well as FCRA 623(a)(1)(A) - Maximum Accuracy mandates on Providers in that if the debt had been dischaged in Bankruptcy BEFORE they purchased it, they should know that the debtor whose credit they are trashing never legally owed THEM anything. I would also consider that they have violated Fair Debt Collection Practices Act (FDCPA) section 807(2)(A) in that they are representing as due and payable a debt they know has been discharged in Bankruptcy.

If either of the above is what happened to you (and the odds are very great that at least ONE of them does apply) then you have solid grounds for a FCRA or FDCPA suit against the JDB. The JDB will probably cave in on the mere threat of a credible suit (both Sherman and Arrow did in my case) and pay you the $1000 damages rather than press it and incur huge legal costs (see my other posts on THAT topic) on an obviously lost cause. They look at these settlements as a cost of doing business, because the vast majority of debtors still don't know or enforce their rights under law. You can pay a lot of $1000 settlements if you can collect $1.25 for each 3 cents you invested in a million dollar portfolio.

You can enforce your rights under law even if you are still involved in a Bankruptcy. Debts in Bankruptcy are allowed to be sold, and the new owner of the debt reporting to the CRA's that they are the new owner and the debtor owes $X dollars is not a violation.

If the debt is still within SOLC you can treat the JDB as you would any CA. The JDB usually will not send you any or many collection letters (their tactic seems to be trashing credit just as the debtor is trying to repair it). If that is the case, demand Validation of the debts, and if it can't be validated, challenge it as inaccurate with the CRA. Of course, it is still highly probable that the debt has been re-aged, so you have suit potential.

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