Saturday, July 31, 2010

The Difference Between Junk Debt Buyers and Collection Agencies

All junk debt buyers are collection agencies, but not all collection agencies are junk debt buyers.

Let me explain. 

When your creditor turns your debt over to a collection agency, nine times out of ten it sells the debt. In some cases, it outsources the debt and pays the debt collector a percentage of the recovered amount, but that is no longer a common practice. 

The collection agency will then go to work trying to collect the debt. It will try...and try....and try. Sometimes this process goes on for years. Phone calls, settlement letters, phony threats to sue...blah blah blah. Somewhere along the way the company will give up and you'll hear from them less and less. Eventually, they'll stop contacting you....but you aren't out of the woods yet. 

Enter...the junk debt buyer (I want you to mentally play some scary sound effects in your head right about now).

Here come the junk debt buyers!

Surprised? Don't be. The collection agency didn't forget about you. Not by a long shot. Businesses know when to cut their losses and you just got cut. 

When a collection agency decides that an individual costs it more to track down, call and send letters to than its ever going to recover, and a lawsuit isn't an option due to an expired statute of limitations or the person's judgement proof status, they sell the account to a junk debt buyer. 

Junk debt buying is a much seedier industry than run-of-the-mill collecting, if that's even possible. While collection agencies will pay a percentage of the total debt when they purchase it from the original creditor, junk debt buyers pay mere pennies to claim ownership of your account. They're also far less likely to bother following federal laws that protect debtors' rights. 

Debt Recovery Cleans Up Its Act

Once upon a time, all collection agencies harassed debtors using threats, swear words and intimidation. It was an industry standard. Believe it or not, over the past ten years that practice has died down quite a bit. Around 2001 the FTC decided to start enforcing the consumer protection laws that govern debt recovery and credit reporting. Around the same time, a consumer information movement was spawned and forums everywhere exploded with various techniques for going on the offensive and dragging collection agencies to court. 

The end result of all this is that many (note that I say "many" and not "all") companies dedicated solely to debt recovery starting training their agents better regarding how to avoid getting the company into deep water legally. Thus, collection agencies still break the law, but not nearly as blatantly as they once did. 

Collection agencies don't want to get sued.

Why Junk Debt Buyers Break the Law

Junk debt buyers don't get their grubby little paws on unpaid consumer accounts until after the collection agencies deem the debts worthless. If a collection agency considers your debt worthless, you can pretty much rest assured that it is. 

A representative will then call you asking for payment. He's unlikely to harass you or utilize any other sort of illegal tactic. This is the first call and he's feeling you out. You see, the junk debt buying company knows that, if you're well-informed of your rights, you'll tell that representative all the reasons why the debt is uncollectable and you cannot be contacted and so on and so forth. If you stammer around a bit, claim you don't know anything about the debt, promise to pay, apologize, etc., they know you know absolutely nothing of your rights and they have you over a barrel. At that point, the real harassment begins. You won't sue them, because you don't know that they're even breaking the law. The goal is simply to harass and frighten you into doing one of two things.

1. Paying up – either via settlement or in full.

2. Resetting the statute of limitations 

Don't get me wrong, collection agencies have the exact same goal and many use almost identical tactics to achieve it. There are, however, a few major differences:

1. Collection agencies often still have the right to file a lawsuit. Thus, their threats are only illegal if they don't intend to follow through. Most don't, but since they have the right to do so, you can't prove that. 

2. Junk debt buyers often have NO documentation of the debt at all. NONE. ZIP. ZILCH. ZERO. Collection agencies may have records, depending on who the original creditor is, but junk debt buyers almost never do. No records = no debt validation. 

3. Companies that purchase junk debts are lower budget operations. Their collection success rate is lower than that of the companies that purchase fresh debts. These aren't the people who buy their debts from Citibank. These are the people who buy their debts from the people who buy their debts from those that originally purchased the overdue accounts from Citibank. Convoluted? You bet. 

4. If you don't pay, a junk debt buyer has no option other than to break the law and harass the hell out of you. It can't sue you; the account is too old. It can't take a tax loss like a normal collection agency (ok, it could, but a tax loss of a few cents? C'mon) and there just isn't anybody else to sell the debt to that would give the company even a shred of profit. 

There you have it. This information is important as occasionally (not often, but sometimes) fighting tactics differ depending on which tier of this dirty little system you're dealing with. Regardless of what you may hear or see while perusing the web, now you know the actual difference between a collection agency and a junk debt buyer.


  1. Thanks for differentiating for me. Wonderful post too!

  2. Like HELL they can't sue you! I've been sued three times in the last five years, by three different junk debt buyers. Trust me... courts DO consider their suits valid. If you don't have the money to fight -- and believe me if I HAD the money I would have paid the credit collection agencies BEFORE it got this far -- then your only option is to settle. If the courts declare a judgement against you, then the JDB has real teeth to get the full amount of what they're suing for, and they WILL go after your assets, even for as little as $1000. Times have changed, friends. Don't ignore credit collecting attempts to collect on valid debts. Address them as soon as possible by opening a dialogue, at least! If you don't do that and just ignore them, they WILL come back in future, once a JDB buys your "worthless" account! It's unethical, yes, but NOT against the law.

    1. Most junk debt buyers get accounts that are old. Say, 10 years or so. Beyond that point, if they file a lawsuit but all the debtor has to do is answer the summons and use the expired statute of limitations as a defense. It doesn't matter whether the debt is valid or not, if the SOL has expired and you use that as your court defense, they have to prove otherwise or drop the suit. Plus, if the collector knew the statute of limitations had expired (and they do) bringing the suit is a clear violation of the FDCPA. It's illegal. Granted, so few consumers know their rights that these companies get away with it enough to make it worth it financially.

      Your post has shown me that I need to update this article to warn people that sometimes desperate JDBs will file out-of-statute lawsuits. Thank you for bringing that to my attention. Sometimes I get so caught up in the technical side of things that I forget these places are often crooked enough to break the law just to get paid.

      Just for reference, if you were sued after the statute of limitations expired and can prove it, you may be able to have the judgment set aside. Act quickly though, most states have time limits for vacating a civil judgment. I am truly sorry you had to go through this.

    2. Or else Anonymous here works for/is a JDB, and is trying to scare people....

    3. Good point. That never crossed my mind, but it certainly wouldn't be the first time that has happened.

  3. Lee by reading the comment from Anonymous feb 13 sounds like a JDB trying to scare people..Thank You for your insight.

  4. If bank of America sends you a refund check from privacy source from supposed account that JDB's are trying to sue you over and you cash it, can the JDB prove account stated just because you cashed a check?
    Any help

  5. I've represented myself in 3 debt lawsuits and won all of them. I've dealt with all the tactics of the plaintiff's attorneys (all deliberate). It's always the same "dance" with the junk debt collectors. They never have a valid assignment. Yeah, they try and pawn off a generic Bill of Sale or something similar, but in my three cases, there was never anything that clearly proved I owed the debt, although they wanted me to believe that they had me "cornered" through a ridiculous amount of legalese and third party affidavits that would never hold up in court. Junk debt collectors are in the business of default judgments. They don't want further proceedings. Their entire business models revolve around the fact that 94 to 96% of their complaints never get a response. It's easy money. They know that they typically have no substantial proof regarding any of the many individuals that comprise the aggregate debt (the distressed paper) that they buy. And, yes they'll file a lawsuit even if they willingly know that a debt has surpassed the SOL. Again, they know that most won't answer. -Zack Nolan,