[londons_explore]

I am surprised that un-chased debt can be bought at 5 cents on the dollar, yet then turned into court default judgements and wage garnishments or liens worth 80 cents on the dollar.

The dollar amount of the debts increases too, since debt collection firms can attach their costs at highly inflated rates.

I would assume that ~75% of debtors will earn some on-the-books wages at some point in the future or own a house. Therefore, this stage of the process seems insanely profitable.

[throwaway201606]

The real issue is reputation risk.

Banks do not want to be in the news because they put someone on the street because of $100 or $500 or $1000 - the reputation cost is just too high.

Further, most banks will not sell debt under a certain amount., they plan for the losses, adjust for it in lending rates and just write off the debt as a loss.

You will see this in their annual statements as provision for credit loss (the planned losses) and net credit losses (actual losses). The amount for large banks is in the hundreds of millions and it is taken as part of the cost of being in the lending business.

There is, of course, some every fluctuating number based on the type of lending and amount, at which debt is pursued with vigor.

[gruez]

Not really, because you're just looking at the upside without looking at the costs

>labor frequently costs more than than underlying debt does, even when one is paying four cents on the dollar and hiring collectors straight out of high school

[londons_explore]

For phone calls and stuff, sure. But for identical court cases, the legal labour per-case is low. I would imagine the biggest costs are any fixed court costs like filing fees and perhaps costs of sending letters (a 60 cent stamp starts to look expensive when it's a $300 debt).

[vineyardmike]

You’re missing the lower success rate of a court case. And the reputational damage to the lawyers involved. As the article mentioned, the debt collectors (by design) don’t have enough information to validate the debt is real when faced with a real challenge and not a default judgment. The article also mentions that the legal penalty of trying to falsely collect debt (which is what it looks like when they don’t have the required paperwork to fight in person) is a lot more than the actual debt. I imagine a growth in legalized debt collectors would be met with better counter-lawyers to force penalties.

[Mountain_Skies]

Each state has different rules about the required notifications of legal action against the debtor. If they're not easy to find, giving the required legal notice might become a costly process. Sending a "You owe us $500" letter to the wrong person is generally different downside from having a process server give notice to the wrong person and them ending up in court with a judge demanding to know why you forced them there.

[toast0]

A recorded lien that was issued in connection with a court process is certainly worth a lot more than a line in a csv about a debt that is easily challenged and hard to document when challenged.

Liens can be challenged too, but there's a presumption of validity that increases with age, and property sales are hard to do without clearing liens, and challenging a lien seems difficult and time consuming, so it is ignored until a sale is needed with some urgency, chances are the lien will be paid rather than challenged.

I don't have any specific thoughts about wage garnisment, but the % of people that don't get on-the-books wages in the general population may be significantly different from the % in the population that has become the target of debt collection.

Anyway, how many of the debts can be turned into a lien or a garnisment is a question too. You've got to turn the line in the csv into someone you can plausibly sue; and you've got to have upfront capital for the court costs (which probably you can add to the lien, but maybe not?).

[gopher_space]

> a line in a csv about a debt that is easily challenged and hard to document when challenged

From the perspective of someone who's dealt with finance and exports most of their life, CSV files of this nature are more of a gentleman's agreement between engineers (who all died years ago) than a statement of fact. I don't know how you'd convince a judge that your csv file is error-free when the transaction process itself is full of clawbacks due to all the buggy data and creaky code.

[toast0]

In theory, you might be able to use the csv entry as a hook to trace back both the original lender and ask them for their documentation of debt as well as the chain of custody that leads you to be authorized to collect it; but most likely it's going to be default judgements because nobody showed up. Default judgements are more of a punishment for not showing up than a statement of likely results on the merits of the case.

[gopher_space]

> In theory, you might be able to use the csv entry as a hook to trace back both the original lender and ask them for their documentation of debt as well as the chain of custody

In practice, you'll have created a billion-dollar SaaS corporation and helped write legislation. The fundamental issue is that data quality and handling practices mean this information will always be "truthy". At a base level your input comes from an office clerk who's medium-engaged in the process and who's asked for quantity over quality.

The entire financial network (imho, from my perspective, etc etc) is "best effort" and mutual agreements. Nobody involved wants to cast a string to a legal agreement.

[supertrope]

Is the difference the legal cost?

[londons_explore]

Presumably, yes.

But I'd guess the legal cost is pretty minimal when you can have 1 in house lawyer do 1000 identical cases a day standing in front of a judge. Very soon the judge is going to just say "send over your CSV file of all the cases with identical facts".

[vineyardmike]

> Very soon the judge is going to just say "send over your CSV file of all the cases with identical facts".

Until a couple people challenge the court case and the 1000-case lawyer looks like a crook. Remember that the CSV doesn’t actually include the required information to fight a case in court, just enough to win a default judgment. The penalty for illegal debt collection is severe and they’re a lawyer standing in front of a judge, they can’t exactly hide from the law here.