[NOTE that comments reported in this section may have originally been made under another subtopic. Similarly, comments originally made on this subtopic may be reported in another, more relevant section. Information in parentheses comes from commenter response to interest survey; the “servicemember” designation may apply to the commenter or someone in their family. Numbers in parentheses for industry-perspective commenters refer to number of people involved in debt collection in the firm.]
Commenters who took the consumer point of view uniformly supported a notice requirement. At least two commenters who reported being in the debt collection industry (debt collection law firm; 20-50 and a “former bill collector for over 17 years; >50) explicitly supported the basic concept of a notice rule. No commenter opposed requiring notice to the consumer when the debt was sold.
These reasons were given for requiring notice:
- Without notice, debtors might pay the wrong person. A notable theme, across topics in the debt collection discussion, was consumer stories of collections that came about when payments were misdirected or otherwise mistakenly not credited.
- Sale of debt can lead to a single debt appearing multiple times on the debtor’s credit report. This makes it appear that the debtor has more defaults, or more recent defaults, than is actually the case. Notice of sale would at least make it easier for the consumer to figure out what is going on with their credit report.
- Notice of ownership changes would also help consumer identify source of fees and other charges, and track down errors. E.g., “With regards to costs, most consumers and most debt buyers are unable to detail how a 2200.00 debt becomes a 7000.00+ debt. And I found that very few [collectors] even knew the original creditor’s named, yet still attempted to collect this debt.”
- Notice would help consumers identify who is contacting them about a debt. It can be hard now to tell if a call is just a solicitation or even a scam, rather than a legitimate contact about the debt. “Consumers should be able to verify change in ownership for their own peace of mind.” Moreover, without a “paper trail” of ownership, consumers may make a payment to someone who claims, falsely, now to own the debt or have authority to collect. E.g., “I once paid a debt to a collection agency, only to find that I had paid one of 3 collection agencies who claimed to own the debt.” Alternatively, consumers may ignore contacts they don’t recognize and inadvertently create a more serious problem. E.g., “About a year ago we started getting phone calls from Discover in regards to student loans and we all assumed that it was a sales call because no one living at my address had student loans with them. Eventually we managed to be home when they called and we discovered that two of my brother's loans were sold to Discover and he was never notified. So all this time thinking it was a sales call, because Discover only gave a 1-800 number to call about student loans and not even the name of the person they were trying to reach, his loans were actually in default because Discover cancelled the forbearance he had upon purchase. When he attempted to put them back into forbearance, Discover told him they ‘didn't have a system for that yet’.”
- Notice would also help identify the particular debt the consumer was being contacted about. E.g., “I have been in situations where I had no idea what a firm was actually trying to collect on because it had been passed along (presumably sold) so many times).”
- Notice of sale might help the debtor negotiate repayment. This was often part of a larger discussion about whether the debtor should have the opportunity (or even right) to settle the debt at the discounted purchase price (see below). Even commenters who didn’t go this far thought that knowing the debt had been sold might help the debtor bargain.
- Notice of sale might motivate debtor to attempt repayment, especially if the notice made clear that terms such as fees or minimum payments would now be less favorable. Even if such changes weren’t involved, notice “would give the debtor another chance to pay in the simplest way, before getting tangled up in idiot phone calls.”
- Notice might help consumer avoid negative credit reporting (See Serial credit report entries below).
As to who should send the notice, one consumer commenter insisted the rule should be the same as for mortgages: a “goodbye letter” from the original creditor when the debt is sold, and a “hello letter” from the new owner. Others agreed that the notice rule should be the same as for mortgages. However, one commenter (debt collector; < 20) predicted that consumers would be confused if both seller and buyer were required to send notice. At least one consumer commenter thought notice from either the seller or buyer was sufficient.
On content of the notice, one consumer commenter suggested: name and contact info for original creditor and new owner, and effective date of sale. Another consumer commenter also wanted “the street address of the company so that face-to-face meetings can be arranged.” A third included “what [telephone] number [the debtor] can expect to receive calls from regarding the debt.” A fourth wanted the amount of the debt when sold. Another consumer asked for more extensive disclosure, including “how the change will affect the debt—will there be a change in interest? In due date? In collection fees? In the way payments are applied or minimum payment amounts? This should be done with ample time for the consumer to understand the change and take any actions.”
In terms of cost, one of the industry-perspective commenters who supported notice wrote:
“I agree that it benefits everyone when notice of sale or assignment is given to the consumer. I am not aware of any part of the industry other than mortgage servicers who presently give notice. The benefit is clear - it reduces confusion, reduces the risk of misapplied/lost payments, and produces a clear chain of ownership. It would be costly to the creditors selling the debt, but not so much as to be prohibitive. Creditors have to send notices under a variety of other laws. I don't think this addition would make that much of a difference. I think the notice should state the account number, the entity to whom it is being sold (including contact information) and the amount currently owed. It should be sent by the seller, who has the most current information for the consumer, and a copy should be provided to the debt buyer as part of the sale package.” (debt collection law firm; 20-50)
Many comments called for changes beyond simply a notice requirement. At least one commenter proposed each of the following additional rules:
- The debtor must get proper credit for a payment made to either the seller/assignor or the buyer/assignee.
- “If a debt is sold, then it should actually be sold to a third-party, and not a subsidiary of the original lender.”
- Give the consumer “the opportunity to refuse this process [i.e., sale of the debt] if it entails negative financial changes” in e.g., interest, fees, minimum payment amounts, etc.
- Require that “when the original lender sells the debt to a JDB and the consumer pays off or settles the debt it should reflect paid or settled in the original lender’s internal records.”
- “[T]he entity selling the debt should give 90 days notice of the intent to sell giving the consumer notification of the intent to sell and maybe even offer a settlement amount. The entity purchasing the debt must honor any and all terms of the debt they are purchasing (i.e. payment plans, deferment/forbearance, etc.).” This consumer backed up this recommendation with a story: “My brother has several private student loans. About a year ago we started getting phone calls from Discover in regards to student loans and we all assumed that it was a sales call because no one living at my address had student loans with them. Eventually we managed to be home when they called and we discovered that two of my brother's loans were sold to Discover and he was never notified. So all this time thinking it was a sales call, because Discover only gave a 1-800 number to call about student loans and not even the name of the person they were trying to reach, his loans were actually in default because Discover cancelled the forbearance he had upon purchase. When he attempted to put them back into forbearance, Discover told him they ‘didn't have a system for that yet’.”
- "There ought to be a limit on the number of times debt can be sold." (consumer)
Serial credit report entries. Another set of proposals beyond simple notice of sale was motivated by a concern that shows up in other discussion topics as well: Sales of debt can inaccurately damage the debtor’s creditworthiness when a single debt shows up multiple times on a credit report. Even some creditor/collector commenters urged action to remedy this problem.
- On credit reports, require listing the name of the purchaser rather than merely the current practice: “sold to another lender.” Now, there can be problems matching what a consumer lists as debt vs. what is listed in the credit report. (debt collector; <20)
- Require the seller to report the sale to credit reporting agencies so that it appears as part of the debtor’s credit report. This could help avoid the appearance of multiple bad debts: “A consumer should not be penalized twice for 1 debt.”
- One frequent commenter (debt collection law firm; 20-50) endorsed this goal and urged:
The FICO impact on sold debts appearing twice needs to be addressed with the credit reporting agencies and the companies that create credit scores. Creditors have a right to report the status of a debt, and shouldn't be precluded just because it already appears by the previous creditor. However, the double penalty against the consumer is certainly unfair. But it's not the collectors' fault. It should be addressed in enforcement of the FCRA.
- “Rules should be written to discourage—no, to bar—collections companies from passing around debt for the purpose of keeping it on credit reports.”
- “One theme we see throughout comments is that debt sold adds confusion as to whom is the creditor, and also triggers a new credit entry, making the debt appear as incremental (additional), when it is simply transferred, and fresh. The solution to this is simple; do not allow credit bureaus to ever list more than one entry for the same debt. Put the burden of accurate recordkeeping on the bureaus, because they are the only entities who have a responsibility for accurate recordkeeping and they are paid to keep accurate records. Currently the cost of sloppy systems is externalized to both creditors and borrowers, both of whom tend to re-externalize it to other creditors and borrowers in the form of higher costs. It is irrelevant whether these dual entries are caused by negligence, incompetence, or malice on the part of the creditor or collector because it is the responsibility of the credit reporting agency to make this practice impossible.” (academic focused on consumer economics)
- “Another thing when these debts are being sold and resold and resold to where you may show up with 1,2,3,4,5, or more accounts which are the same account but since it has been resold many times with different company names and different amounts so you have to somehow piece this puzzle together and prove that they are one account and not several different ones. There needs to be some control over this and an account may be old past the 7 years and it looks currant just because it keeps being sold and they keep putting the date they acquired it not the original date of last activity.” (consumer)
- In response to comments requesting a federal rule that the debt could be reported only once, an industry-perspective commenter (debt collector; >50) said: “[T]hat wouldn't be very efficient. The FCRA does not allow reporting of a debt that is no longer being serviced by a creditor/collector. For example, if your creditor is currently reporting the debt but sells it to a debt collector, your creditor can no longer report on that debt. The buyer can, if he subjects himself to the corresponding federal regulation.”
- When one consumer (62 or older) complained "I have 13 lines of the same debt on the credit bureaus. The first one was bought and passed down." A creditor collecting own debts (<20) agreed: "This is a problem that needs to be corrected. In this case, the line of credit is negatively affecting your credit a multiple of times even though it is one line." A commenter who works for a consumer credit organization pointed out that this is a violation of the FCRA. S/he opined: "If the credit reporting agency refuses, there are many consumer protection attorneys that would happily take this case on contingency. This type of violation normally never sees the inside of a court room. A letter from a well know CP attorney will likely get awards and the prompt correction of the credit report." However, the number of consumer commenters complaining about this problem suggests that most are unaware of, or don't have access to, this solution.
Discounted debt buying. Finally, a set of proposals beyond simply notice requirements was motivated by a consumer sense that it is unfair for a debt buyer to pay a discounted price and the debt seller to get a tax write-off, while the debtor is still liable for the entire amount. E.g., “Debt buyers and collectors may go on a tirade about personal responsibility and windfalls. However, it is at least debatable as to which way such value judgments cut when a debt buyer is trying to get $100 from an impoverished consumer on an account for which the debt buyer paid only $3.”
- The notice of sale should disclose the amount for which debt was sold/bought (multiple consumer commenters made this proposal; one commenter would also include how much of a tax benefit is being claimed if a 1099c is issued.)
- The debtor should have a right to settle the debt at the sale price, or “a fair chance to bid on and purchase his/her own debt, on terms just as favorable as the terms offered to any other debt buyer.” Several consumers argued for this rule on grounds of fairness, while at least one defended it as in the creditor’s interest (“if I could get 10 cents on the dollar directly from the debtor, rather than 4 cents on the dollar from a debt buyer…”) This commenter urged “a rule that allows consumers/debtors the change to receive a onetime offer that is valid for only X amount of days (maybe 45 days)”—calling this a win-win approach that would stimulate the economy. An industry-side commenter, who participated extensively in the discussion, explained that the economics of purchasing a large portfolio of bad debt are very different than a one-on-one deal with a particular debtor.
- “I would like to comment on the predatory practices of debt collectors in regards to their purchasing bad debt for pennies on the dollar and then attempting to collect the full amount of the balance of the original loan. State regulations should preempt them from collecting exorbitant returns on such minimal investment (usury!!!). Other items to consider pertaining to this issue are: The bad debt buyer does not disclose what he/she purchased the bad debt for. This should be disclosed and transparent as they have the original debt information, including SSN, phone and financial information. I don't begrudge them making a profit, but their predatory practices need to be regulated. A superior court judge should be able to examine the original transaction, (for instance a 2nd mortgage in default), all the documents concerning the purchase of this debt by a third party and determine a fair and equitable payment to resolve the problem, avoiding bankruptcy.” (consumer)
- "Debts as assets is an outrageous concept." (consumer)
Personal stories on this topic included:
- "ATT has me owing a fee for terminating my cellular contract early (due to problems with their poor service). This $300 fee has been sold so many times (I have never been notified) but it appears several times on my credit report and has been made to look like a recent debt when it is from 2008."
- "I had the same situation with another cellular carrier. It seems it's a ploy to keep making the debt seem fresh. It was another early termination fee, and I wrote many letters before it was finally removed from my credit report. I think that the tactic of selling the same debt to keep it on a credit report definitely should stop."
- "Very confusing if I can pay my student loans directly to DOE or to one of the many private companies who have owned my loan over the years. They continue to try to entice me to restructure the student loan debt - very misleading - without disclosure of their fees - at this point I cannot even trace a $30000 fee that was double billed to my total. It is a web of confusion that I cannot escape. I intend to take my student loans to my death as I have no other way of making the monthly payments."
- "Debt was sold to another company. So now debt is listed on my credit twice. So debt will last more than 10 years on report. Plus I've been a victim of identity theft twice. Both times I reported it to the police and to the credit agencies. Unfortunately nothing police can do but write a report for proof. Credit agency was ordered to put a fraud alert on my social but fail to do so."