Debt Buying: How Debt Portfolios Change Hands

FTC Report Offers Insight into Debt Buying

In February 2013, the Federal Trade Commission released the results of a study entitled, “The Structure and Practices of the Debt Buying Industry.” The FTC study was illuminating in its description of how debt portfolios are compiled and sold. It noted that, when an original creditor sells a debt portfolio, the accounts typically have elements in common. For example, they may be of a similar age or have been worked by the same number of debt collection agencies. Portfolios may be sliced and diced in a number of other ways: “For instance, some portfolios contain only debts from debtors with recent credit scores within a given range, or debtors whose last known address was within particular states,” the report stated.

Debt portfolios are most often offered by age. The FTC report said that portfolios typically fall into one of four categories: “fresh debts,” zero to six months old, that are sold by original creditors who haven’t tried to collect post-charge-off; primary debts up to a year old where original creditors have had one third-party debt collection agency try and collect post-charge-off; secondary debts, which are up to 18 months old and which have been worked by two or more third-party debt collection agencies; and tertiary debts, which are up to 30 months old and which have been worked by two or more third-party debt collection agencies.

Some debt buyers purchase portfolios and then resell them. In some instances, they may sell it without attempting to collect on any of the accounts, while in other instances, the original purchasers further slice and dice the portfolios prior to resale. Other times, debt buyers will put the accounts through the process of debt collection prior to reselling those deemed uncollectible. Potential buyers bid on portfolios, and base their bids on a number of factors. These factors may include the time elapsed since charge-off, the time elapsed since the last payment was made, the states in which the account holders reside, and how many collection attempts have been previously made. The FTC study found that for every dollar of debt, debt buyers paid an average of four cents. Not surprisingly, old debt (six to 15 years old) costs less (2.2 cents) than newer (less than three years old) debt (7.9 cents). Interestingly, debt buyers generally pay more for mortgage debt than for credit card debt, and less for medical and utilities debt than for credit card debt.

The FTC also examined the sales agreements between debt sellers and debt buyers. Interestingly, but not surprisingly, those who sell debts typically refuse to guarantee the accuracy of the information they’re selling. Unfortunately, determining how accurate or inaccurate debt portfolios were was outside of the scope of the FTC investigation. Given how often consumers complain about debt collectors who try and collect debt that doesn’t belong to the consumer, or debt that has previously been paid by the consumer, this is an area ripe for study.

One fascinating aspect of the FTC report was the ability (and restrictions) of debt buyers to obtain originating documentation and contracts for specific accounts. The FTC noted that a contract typically outlines a certain number of requests for documentation that the debt buyer can make; the debt buyer has to pay a fee for subsequent requests or for requests after a certain time period. This can mean that, when a consumer disputes a debt, the debt buyer may have to decide whether or not to use its allotment of requests to obtain the validation.

If a debt buyer has been hounding you, to speak with a representative directly and immediately call 844-685-9200 for a free, no obligation case evaluation. Our attorneys have experience in fighting debt buyers and standing up for consumers. If a debt buyer has violated the Fair Debt Collection Practices Act, you’re entitled to file suit in federal court, and could be awarded up to $1,000.