3 Things to Know About John Oliver's Debt Collectors Takedown
HBO's Last Week Tonight host John Oliver has a knack for bringing much needed attention to some of society's more complex and ignored injustices. On Sunday, Oliver took on the sometimes shadowy world of debt collectors -- noting U.S. households collectively owe over $12 trillion with more than $400 billion in arrears.
To top off the segment, Oliver explained how the show created its own debt collection company known as Central Asset Recovery Professionals, or CARP -- after the bottom-feeding fish -- and spent about $60,000 to acquire $15 million worth of debt for less than a penny on the dollar. Rather than trying to collect, Oliver partnered with the non-profit RIP Medical Debt to forgive it.
Oliver's efforts notwithstanding, there's still a lot to know about the complex netherworld surrounding the collection industry. Here is some background:
It's Been an Issue for Years
While TV stars like John Oliver can bring publicity to a problem, the shady world of debt collectors has been chronicled for years in print. Some of the best work was done by Jessica Silver-Greenberg, who was nominated for a Pulitzer Prize in 2012, for stories in the Wall Street Journal that made many of the points that Oliver echoed, including how debt collection companies harass surviving spouses of debtors, even when they are not legally liable.
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From one of Silver-Greenberg's pieces:
Debt collectors often tell surviving family members that they aren't personally responsible for paying the debts of the deceased. But those words barely register with grieving relatives, according to interviews with a dozen lawyers who represent about 60 families pursued for money owed by dead relatives.
"Each call brought up fresh memories of my husband's death," Patricia Smith, 56, says about the calls she started getting last year about $1,787.04 in credit-card debt owed by her late husband, Arthur.
The debt-collection calls and letters kept coming and wore her down, says Mrs. Smith, who lives in Jackson, Miss. She agreed to scrounge together $50 a month 'just to make the calls stop.'
Another, journalist, Jake Halpern, also recently took on the industry, chronicling the unlikely partnership between an MBA named Aaron Siegel and a former criminal Brandon Wilson to create a debt collection outfit in Buffalo, N.Y, in his 2014 book, Bad Paper: Chasing Debt From Wall Street to the Underworld:
One imperative for Wilson and his collectors was conveying the calm, cool, unshakable understanding that they were, in fact, the rightful owners of these debts and that these debts needed to be paid promptly. It remained unsaid, of course, that this “paper” had often been purchased for as little as one penny on the dollar, and there was no mention of the fact that many of the debts that Wilson specialized in were too old to appear on a credit report or to be sued for in court. Most negative information disappears from credit reports after seven years and, depending on state law, debts may be unrecoverable through a lawsuit after as little as three years.
Yet Wilson’s pitch — you owe the money, and now you need to pay — was both simple and perfectly legal. In most states, you can still try to collect on a debt even after its statute of limitations has expired. As the Federal Trade Commission notes on its website: “Although the collector may not sue you to collect the debt, you still owe it. The collector can continue to contact you to try to collect.” Wilson knew the rules and used them to his advantage. As far as I could tell, that’s what Wilson loved about collections: It was a hustle, but a legitimate hustle.
Regulators Have Been Cracking Down
Attention from Oliver's program can mean action from regulators and lawmakers, which is already in the works. Late last year the Federal Trade Commission shut down four separate debt collection agencies as part of what it described as a national campaign to stop harassment.
The Consumer Financial Protection Bureau, which was created in the aftermath of the financial crisis, has taken steps of its own. Late last year it slapped Encore, the nation's largest debt collector and one of the companies singled out by Oliver, with a $10 million penalty, while also ordering it to refund consumers $42 million and stop collection efforts on another $125 million.
State regulators in Minnesota, New York, and elsewhere, have also co-ordinated with federal agencies to pursue bad behavior.
Medical Debt Has Its Own Rules
Medical debt, which represents about half of all debt on credit reports, has been a particularly controversial issue. Sen. Elizabeth Warren first came to prominence in part because of a study she conducted while still a law professor, which argued that a surprisingly high number of personal bankruptcies were caused by medical debts -- not profligate spending or bad business decisions. Even consumers with health insurance can get into problems because plans rarely cover all the costs. One recent poll conducted by the Kaiser Family Foundation and the New York Times found that about one in five people of working age had trouble paying medical bills, even with insurance.
Another problem with collections of medical debt: Medical bills are unusually complex and often riddled with errors. As a result, medical debts are frequently handed off to collection agencies, even when the patient is in good standing. The good news is that Fair Isaac, the company behind the widely used FICO credit score, recently agreed to give medical bills less weight when calculating scores. Meanwhile, medical bills that are eventually paid off should not affect your score at all after they have been paid. Last year, Equifax, Experian and Transunion, the three companies that create credit reports, made similar changes as a result of a settlement with New York State Attorney General Eric Schneiderman.