Your Credit and the SCOTUS's FDCPA Ruling ...

[David Dachtera]

Let me start off by saying that I am NOT a financial or legal professional and none of what you are about to read should be construed as either financial or legal advice. Always consult a qualified professional.

At my investing group's credit workshop today, the instructor made only general statements about how the SCOTUS's recent ruling about the FDCPA (Fair Debt Collection Practices Act) impacts individuals.

He did state, however, that the bulk of the impact centers on ownership of any debt for which an attempt to collect is being made.

His take is that this will focus primarily on third-party collectors who purchase defaulted debt. It was this group who actively pursued this case all the way through to the Supreme Court.

Up until now, no clear distinction was being made between an assigned collector - retained by a creditor to collect a debt - and those who purchase defaulted debt. Now, clearer lines are expected to be drawn.

In the case of third party defaulted debt purchasers, the consumer protections hereunto provided by the FDCPA now are no longer enforceable as the Supreme Court has ruled that those provisions within the FDCPA no longer apply to such collectors.

A large number of new collection lawsuits are expected to be filed by such collectors since they can now pursue collection ruthlessly and viciously with near-total impunity.

Let me say again that I am NOT a financial or legal professional and none of what you have just read should be construed as either financial or legal advice. Always consult a qualified professional.

[Frank Jiang]

Originally posted by @David Dachtera:

@Frank Jiang,

Yes - lenders and other creditors sell their defaulted debt and let it become someone else's problem. They have, none the less, effectively abandoned it. The original debt is erased.

This is just not correct in any way shape or form.  The debt has not been marked as "unlikely to be collected by the issuer."  This is definition of a writeoff.  This does not mean the debt is no longer owed.  That would be an agreement to absolve the debt.  Huge difference.  This is the primary flaw in your reasoning that you are refusing to acknowledge.  Debt that is written off is not "abandoned" "sunken".  It is simply "unlikely to be collected by my company."  In no way at all does this say that Tom does not still owe $10.  That is an entirely different process that is necessary to absolve Tom of his debt.

The collection of debt IS right, legal and moral.  In your example, you are making Bill (the debt buyer) out to be the bad guy or a vulture.  He is not.  The only bad guy in your scenario is Tom, who reneged on his debt.  The reneging of debt is both wrong and amoral.  I don't understand why you are trying to take a stance of protecting the one who is morally in the wrong.

You are claiming that Bill is in the wrong here?

No. No. No.

The US economy is run on credit (aka debt). Probably over 90% of transactions occur through the promise of future payment.

When I buy a house and get a mortgage from a local bank, what do you think happens to my bank note? Do you think that bank just holds it on their balance sheet? No, they immediately sell the bank to Fannie/Freddie to reduce risk and maintain liquidity.

If people weren't allowed to collect on purchased credit in default, the original underwriter would not be able to sell defaulted debt (because it would be worthless), and they would have to underwrite a higher rate of return or lower LTV. Do you have any idea what impacts this would have on our economy as a whole if that were the case? The slowdown of lending is what causes all the painful aspects of a recession.

What about foreclosure? What happens when a person stops paying their mortgage? The bank "writes off" the debt and then sells the note to an investor. Would you suddenly argue that the investor has no right to foreclose on the property because the bank "wrote off" the debt? Ridiculous.

The real "vultures" are people who renege on promises to pay.