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Much of the progressive intelligensia has been yawning over Occupy’s newest initiative to buy up and forgive distressed debt. The effort is seen as futile or useful only as a means of attracting attention to the issue of staggering personal, educational, and medical debt as a result of decades of declining household income. There is more to the story.
Strike Debt Protest Inside Chase Bank HQ, September 17 2012
In the not too distant past, debtors would often make deals with collection companies where they would pay all or a portion of the debt in exchange for completely removing the collection account from their records. In effect, these “pay for delete” agreements allowed a debtor to “buy” a better credit score. Despite claims to the contrary, this was and is completely legal. This was a good deal for the debtor because a collection account marked “paid” or “settled” on your report is only slightly better than an unpaid collection account–and can result in the collection account staying on your report even longer. With this arrangement, a person who had come on hard times, but was now able to pay could improve their credit score quickly. It was a good deal for the collection company because it provided something to bargain with besides harassment and created a real incentive for recovery of debt purchased for five cents on the dollar. The only people who didn’t make out in this deal were the credit reporting agencies (CRAs).
CRAs got hip to this arrangement and were not amused. Their industry is based on providing data which banks and credit providers use to assign risk, and they make metric shit tonnes of money doing it. They also provide the threat under which our modern system of debt peonage labors. Want to find a decent job or place to live? Better not miss a payment or get sick without insurance. If people could get rid of blemishes that would normally stay on credit reports for years, this meant that the data that banks bought from CRAs was less valuable and the threat of collection activity wasn’t as great. The CRA’s sprang into action and began cracking the whip on collection agencies to stop “pay for deletes,” if they continued, the CRAs would stop reporting their debts, which would make it impossible to do their seedy business. So now when a debtor offers to pay for a delete, most collection agencies will refuse, sometimes saying it’s illegal (it’s not) or that CRAs won’t let them.
Here is where Occupy (or others like them) come in. The trick is that the debtor needs to know that the debt has been purchased and forgiven (this would be an added expense for those involved in the effort). With this knowledge, the debtor disputes the collection activity (this is legitimate, because the debt is no longer owed). The CRA will contact the owner of the debt to find out if the debt has been paid or settled or if they even own it. If the owner does not respond (nothing requires them to), the CRA is required by law to remove the collection account–like it never happened. If this starts happening on a large scale, the value of the CRAs data is reduced as their expenses are increased.
So there is a chance to disrupt the credit reporting complex, but it would take a lot of money to even make a small dent. As for helping those whose debt is being purchased and making a statement about the function of debt in our financial system, those are worthwhile goals too.
Photo by Elizabeth Brossa of the Chupacabras Affinity Group, used with permission.
12 Comments
Great post. The CRA’s are the heart of darkness that nobody ever looks into.
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Thank you for the post. It’s important for these details to be discussed by people with the expertise. There was a tweet posted recently saying the project will be publishing a FAQ soon, so I hope people can review and comment to make it as understandable as possible. Recommended.
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This is brilliant. It uses the CRAs own rules to help ordinary people. The system is designed to do just the opposite.
The question is what pretext the CRAs will seize upon to stop this. It is a common sense – and humane – solution and a perfect turning of the tables on a credit reporting system that runs on fraud and misrepresentation.
Look at the garment rending over pay for delete. This is a private matter between creditor and debtor, a resolution of the breach of contract, and they are perfectly free to negotiate whatever they wish to settle it. The creditor isn’t legally required to report anything. The CRAs squeal it will affect the integrity of their data and reduce its value. That doesn’t make sense, because it is the creditor and the debtor, not the CRA, who determines what is or isn’t a debt or a default, and if they’ve agreed there is no debt, there’s nothing to report. The real reason is because their data really only have value when they’re negative. The car dealer wants to know you owe a hospital 50 bucks from five years ago so they can jack up the rate of your car loan. Not paying your Visa card because you’re unemployed? Not a responsible person, no job for you!
Contrast the stupid creditor tricks that the CRAs overlook or reward. A consumer defaults. Original creditor reports the default. Now the collection agency reports it, and the debt will reage – another full six years plus before it will drop off the report. Two years later another collection agency buys it and reports it and poof, another six years. And now it looks like 3 defaults, not one. This is illegal. Once the debt is sold to someone else it isn’t owed to the first creditor anymore, and should be deleted because it’s not a debt anymore as to that creditor. The successors are tied to the original default date for reporting purposes – the debt doesn’t become 6 years younger just because someone else bought it. But it goes on all the time.
Then there are the debts that reappear. I had a Verizon account in 2000. We parted ways and they slapped a $72 charge on my credit report without my even knowing it. I got a mortgage in 2009 and had to pay it off although it was no longer collectible in my state and Verizon couldn’t tell me what it was for anyway. Two years later I got a student loan for my daughter but only AFTER paying off Verizon again (despite my showing proof of the first payment). Or zombie debt – like a 10 year old electric bill I never paid because it was generated by a broken meter, which was a nice trick. It still comes to visit every once in a while.
Heads must be exploding at Experian, NCO, Portfolio Recovery, all those humanitarians…
You should contact these folks: rollingjubilee@gmail.com
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Thanks so much for doing this. The Rolling Jubilee is just a flat out good, and good-hearted, idea. How much better to do it in a smart way that has positive ripple effects.
And how helpful to learn more about the CRA’s and what they really represent in our *ahem* system.
CRA’s are required by law to remove any negative credit lines 6 years and 9 months after the first delinquent payment is reported. If it comes up again, they are required by law to verify or remove the line within 30 days of your written complaint – and it cannot be reported multiple times just because it’s bought by a bottom feeding collections company. These are the same companies who call debtors, even after their bankruptcy is discharged, screaming and threatening legal action in court if they don’t agree to talk to them that exact minute on the phone.
Pulling someone’s credit report for a job that does not involve money or other financial responsibilities is illegal in many states. Illinois passed that law in 2010.
Rolling Jubilee is a great effort that all Occupy and other like-minded groups should work together on since that would help clear up the debt cloud hanging over millions of people. The only thing I would suggest they do beyond just buying and forgiving the debt would be to report it to the CRAs as paid in full. That last step is what will help raise credit scores.
As to any tax implications, which was noted in some of the original article comments, the IRS does consider charged off debt to be income (although why is a complete mystery since the average person would not have thousands of dollars at their immediate disposal just because it was charged off by a creditor), but that creditor has to submit the proper 1099 form to them in order for it to be noted as income. They also have to send the debtor the 1099 notice so they can include it on their tax forms. I’m not 100% on this, but I believe only housing debt in the form of a deficiency judgment is waived through the end of 2012. There have been a couple of bills in Congress, but nothing has passed to extend that deadline yet. It’s also very under-reported, but we may see that change once we get closer to the end of the year.
This is an issue of POWER.
The CRA’s relevance to recording events to which meaning is assigned only works when THINGS DON’T CHANGE. Because the current banking print-to-loan is now a large scale fraud upon the populations of the planet, the CRA operations will mutate into being the weapons for thieves who seek to “mark you for bleeding” much like israel did to the muslims during their extermination campaign known as NAKBA 1948.
We have thus entered that state.
I do like the idea. The trouble is that the debt has to be bought off. That requires money.
This is wonderful and I hope it is only just a start. This could be expanded in so many ways.
This problem will not be solved “goodly” until it is written and enforced and abided by that people and life come first. The twisted society we have today mostly believe that the power of money is the driver of economy and thus the nutrition of life no matter how many censors or constraints or regulations one applies. That is because as long as money comes first, all the rules will be made to be broken as a cost of doing business. That aspect of the relationship is the “governing force” that dictates all decisions. And the object aspects of the relationship are the environment that attract the types of people willing to profit at the demise of others. It’s automatic. It’s predatory. It’s ineviteable.
As I understand it, a paid collection account does not raise your score. A collection account is still a collection account on your report whether it’s unpaid, paid in full, settled, or charged off. The only thing that will make an appreciable difference on your score is to delete the collection activity or have enough time pass with good payment history. That being said, there may be times when it is advantageous to pay off a collection account even if the statue of limitations has run out on collecting it, but this would be for things like applying for a mortgage or a job with a background check where you don’t want to look like a total deadbeat.