Sunday, December 11, 2011

Large Banks Hire Debt Collectors to Collect Debts from Dead People

And From Their Relatives Who Don’t Owe the Money

The process of debt collection and the people who do it are a necessary part of an economic system, regardless of the type of system.  If there is going to be lending, and there always has been and there always will be, then there will be people who for one reason or another do not pay their debts and so there has to be companies and people who collect those debts.  No debt collectors, no lending, no economy advanced beyond subsistence levels and bartering.

Because the pressure on debt collectors is so great (they only get paid if they collect) the incentive to act in unethical and illegal manners is large.  And because there is relatively little regulation, and even less enforcement debt collectors can and do engage in unethical and illegal practices. 

The investigative reporting in the Wall Street Journal reports on the practices of debt collectors trying to collect debts from people who have died.  Let’s state upfront what the situation is.  If a person dies his or her debts are the obligations of the estate.  If the estate does not have sufficient assets to pay off the debts, the amount that is not paid off is lost by the lender.  It is not the obligation of anyone else unless the anyone else specifically agreed to pay the debt and acted as a co-signer on the loan.

This of course does not stop debt collectors. 

debt collectors have found a way to help lenders get their money anyway. Working on behalf of financial giants from Bank of America and Capital One Financial Corp. to Discover Financial Services and Citigroup Inc., collection firms target survivors who might agree to pay at least part of what the dead person owed.

And how do debt collectors justify trying to make people who do not owe a debt pay that debt?

Debt collectors say the survivors have a moral obligation to pay, especially in cases where they benefited from purchases rung up by someone else.

Of course debt collectors are not doing this for themselves; this is to help everyone else.


ACA International, the industry's main trade group, says that collecting payments on debts owed by the dead helps ensure that lenders will continue to extend credit at competitive interest rates to older Americans. David Cherner, corporate counsel for the ACA, says lenders must try to collect the debt or else write it off. "Just because someone has passed doesn't mean the debt is wiped clean," he says.

Actually, that is exactly what it means, if someone passes on the debt is wiped clean.  Really, it’s in all the law books. And everyone knows that people like Mr. Cherner wouldn’t be doing it for the money, or would he?  Like this

Typically, death-debt collectors get paid based on the amount of money they recoup for the lenders, say lawyers for debt-collection firms. Firms can pocket up to 40% of the payments collected, roughly double the rate for other kinds of delinquent consumer obligations.

And what is the Federal Trade Commission, who regulates debt collectors doing about this. Not much.

FTC officials rejected requests by lawyers representing family members for an outright ban on calling surviving family members. The agency also declined to impose a cooling-off period during which relatives couldn't be contacted by debt collectors.

leaving all of us to wonder once more about just whose side the regulators are on.

But not too worry, those great people at Bank of America and Citibank have everyone’s best interests at heart.

None of the financial firms would say how much debt-recovery work is outsourced. Nor would they comment on any individual collection cases. The companies say that they comply with all applicable laws and make sure surviving relatives are approached with sensitivity.

Well it’s easy to comply with existing laws when they are practically non-existent, and as for the sensitivity part, why that the core of every large bank and every debt collector’s persona.