https://www.bitsaboutmoney.com/archive/the-waste-stream-of-consumer-finance/
This was one of those articles I had bookmarked for months, and when I finally started reading it seemed like a lot of stuff I already knew. But, it got pretty interesting towards the end. I'd recommend reading the whole thing, but I'll quote some longer parts I found interesting here.
The rights of debtors are observed by both primary lenders and eventual debt buyers mostly in the breach. One of those rights is to a written “debt verification”, with specified information in it, and (surprisingly, if you haven’t worked in this field) despite that being the law many debts are sold in such a fashion that the buyer couldn’t produce a responsive verification even if they wanted to. That isn’t even a political claim; it’s just the engineering reality of which columns are in their CSV file.
The former advocate in me will observe that the single most effective method for resolving debts is carefully sending a series of letters invoking one’s rights under the FDCPA (and other legislation) to a debt collector who is operationally incapable of respecting those rights, then threatening them with legal or regulatory action when they inevitably infringe upon them in writing, leading to them abandoning further attempts at collection.
This effectively makes paying consumer debts basically optional in the United States, contingent on one being sufficiently organized and informed. That is likely a surprising result to many people. Is the financial industry unaware of this? Oh no. Issuing consumer debt is an enormously profitable business. The vast majority of consumers, including those with the socioeconomic wherewithal to walk away from their debts, feel themselves morally bound and pay as agreed.
Why are debt collectors so bad at debt collection? Partially it is because credit card issuers are large national institutions with large, automated processes sitting atop a legacy of corporate acquisitions, IT migrations, and similar that makes availability of non-critical information extremely fragmentary. They then want to dump that complexity through a very small pipe (CSV files) onto the debt collection industry.
And this
The FDCPA and state legislation provides for automatic damages for illegal behavior from collectors, the incidence of illegal behavior is extremely high, and a debt collector with a high school education and three months of experience will frequently commit three federal torts in a few minutes of talking to a debtor then follow up with a confirmation of the same in writing. (You think I am exaggerating. Reader, I am not. “If you don’t pay me I will sue you and then Immigration will take notice of that and yank your green card” contains three separate causes of action: (frequently) a false threat to file a suit where that is not actually a business practice of the firm, a false alleged affiliation with a government agency, and a false alleged consequence for debt nonpayment not provided for in law.)
As a result, private companies compiled databases of (public in the U.S.) court filings and organized them by Social Security number, address, and similar to allow debt collectors to identify which debtors are aware of their legal rights. In principle, a debt collector could do anything they wanted with that fact, like being extra careful to follow the law in contacting them. But the economics of debt collection do not counsel careful, individualized consideration of credit card debt.
I will bet you that, in practice, they simply avoid collecting against anyone who demonstrates ability and financial resources to enforce their rights. This is one for the history books of borked equilibriums. We devoted substantial efforts to pro-consumer legislation to address abuse of (mostly) poor people. We gated redress behind labor that is abundantly available in the professional managerial class and scarce outside of it, like writing letters and counting to 30 days. (People telling me they were incapable of doing these two things is why I started ghostwriting letters for debtors.) We now have literal computer programs exempting heuristically identified professional managerial class members from debt collection, inclusive of their legitimate debts, so that debt collectors can more profitably conserve their time to do abusive and frequently illegal shakedowns of the people the legislation was meant to benefit.
