For the millions of Americans who struggle with debt, paying back the money they owe can become a life-consuming ordeal. These overstretched individuals either take years to settle with creditors or end up defaulting entirely. Since most lenders want to avoid the latter option, they sometimes opt to sell off delinquent debt to a third party for pennies on the dollar. For instance, a bank might sell off $100,000 of debt to another institution for just $1,000. While the lender receives a fraction of what they are owed, they at least walk away from the deal with something rather than nothing.
Meanwhile, the firm that purchases the debt stands to earn a windfall if they can succeed where the bank failed and collect the money. That’s not always easy, though, since many of these delinquent customers have no cash to cover their obligations. After all, any bank willing to sell off a debt for less than 1 percent of its worth cannot be too confident that the customer can pay up. This isn’t a problem for some unscrupulous companies, however. These firms employ intimidation tactics or even threats to ensure that individuals settle their debts. Due to a lack of regulation and oversight, they even press hard on people suffering from debt incurred by medical emergencies or lack of insurance.
Predatory debt collectors like these have been in the sights of consumer advocates for years. In 2013 an Occupy Wall Street offshoot called Rolling Jubilee spent $400,000 on nearly $15 million worth of personal debt only to abolish it quickly after. On Sunday night the TV host John Oliver performed a similar stunt by forgiving $15 million of medical debt that his company Carp (named for the bottom feeding fish) acquired for just $60,000. In both instances, the debt buyers wanted to show how easy it was for the wrong people to impose themselves on the financial lives of others. “We bought it, which is absolutely terrifying because it means if I wanted to, I could legally have Carp take possession of that list and have employees start calling people, turning their lives upside down over medical debt,” said Oliver.
Questions:
- Should regulators place stricter guidelines on the types of firms that can purchase personal debt?
- What do Rolling Jubliee and John Oliver’s debt forgiveness stunts tell us about the nature of debt?
Source: Jana Kasperkevic, “John Oliver Buys And Forgives $15m Worth Of Medical Debt,” The Guardian, June 6, 2016. Photo by Simon Cunningham.