Most of the misery
that results from the debt that occurs when people lose their job (or
suffer some other unexpected calamity through no fault of their own)
comes as a direct result of banks selling off the delinquent debts to
debt purchasing companies (or debt collecting agencies or DCAs) who
will then turn peoples' lives into a living hell.
In reality, the banks have not really sold the the debts to the DCAs,
because the debts will in a short time be written off (or may well already
have been written off by the banks before the DCAs have knowledge of
them). In reality it is only the data of these accounts
which are sold (name, address, contact details of the account owner
and debtor).
But that's enough
to do the damage.
The banks cynically sell the data to the DCAs in the full knowledge
of the hell that is about to be unleashed on their customers. At the
same time the banks will then write off the debts themselves, thus receiving
a tax break for their "loss" and also a nice cash sum from
the insurance company as well.
But, in addition to the tax breaks and the insurance, the bank will
gain a bit extra by selling the data relating to the debt to the DCAs,
for around 10% or even less of the total sum outstanding,
who will then try to extort the full value out of the debtor by any
means they think they can get away with. The DCAs buy these in "job
lots" of hundreds or thousands at a time.
The law allows banks to do this because of a clause in the terms of
the credit agreement which the borrower signs which says that the borrower
allows the bank to sell data of the debt to third parties in the event
of a default.
(As a slight digression,
the law allows this anomally whereby the bank is allowed to write off
something as well as sell it on as if it hadn't already been written
off. Read about banks' write-off
sell-on trick here.)
The end result is that, when a default occurs, the bank gains in three
ways (tax break, insurance policy and sale from the DCA) while the debtor
is threatened to pay a debt which no longer exists.
The DCA, meanwhile, will put the idea in the mind of the debtor that
this debt is very much alive and that they are empowered to collect
the full amount even though they may have paid as little at 3p on the
pound for it.
The DCA is also
able to add on their own "expenses" to the sum "owed"
for whatever reason. DCAs also sell such accounts among themselves,
adding their own charges to the amount each time this occurs.
Some DCAs will pass
the account over to various internal 'departments' or outside solicitors
or even other debt collectors with whom they have a cosy relationship,
in order to justify an additional fee each time such a transition takes
place. Some
less reputable solicitors are known to operate a 'letterheads for hire'
service to these debt purchasing companies to turn the screw (and of
course to add on further fees).
The result is misery for the debtor and the fallout which results from
that, including the possibilities of losing one's home, marital tensions,
family break-up and even suicide.
This nonsense surely belongs in the past, along with the debtors' prison
and cutting off debtors' ears.
We could go further and say that this is even more preposterous considering
that the banks use the Fractional
Reserve Banking System, meaning that they will never lose out if
a borrower defaults, because the bank creates the money in the first
place rather than lends it, therefore it can never take a loss (thus
putting all the burden on the poor person at the end of the chain who
is in a situation where s/he is least able to deal with it) but that
is probably an issue treated separately.
One way of stopping the misery is to ban the DCAs from purchasing the
data in the first place. But we believe that a better way is to put
the onus on the banks to prevent them selling their data instead. We
recognise that the DCAs have a valid role in other areas such as the
recovery of clients' debt (rather than the purchase of debt for subsequent
financial gain, which is where the profit can really be notched up depending
on how much misery the DCA is prepared to inflict).
Some DCAs even bully the victim to the extent that they take out a second
charge on their home, then a little while down the line thay take out
an Order for Sale or Order for Repossession. Thus an unsecured debt
becomes an instrument of repossession.
Usually when people find themselves without an income they will have
several lines of credit open to them at a time, not just one. That means
that when redundancy or calamity strikes there will not just be one
DCA making threats but several all happening at once.
There is so much
profit to be made from the debt purchasing business that many DCAs are
foreign-owned or financed by overseas capital, eager to take advantage
of English law with its Dickensian attitude to debt. They can make a
fast buck making peoples' lives a misery. Most of the newer DCAS are
in the business solely for the purchasing of delinquent debts and the
attempted extortion of their full value (having bought them for pennies
on the pound). In other words, the newer DCAs do not have a traditional
debt collections role at all; there's just no money in it.
There's more money
in extortion. But then again, throughout history crooks have always
known that.
We call on the government
of the day to rise to the challenge and leave the Dickensian world behind.
Abolish the selling-on of written-off debts. It is an absurdity and
a disgrace which we can no longer tolerate in a civilised society.
There are four recommendations
we would like to make:
1 Stop the trade (the buying and selling) in bad debts.
2 End the ease with which unsecured debts may be turned into secured
debts.
3 Ensure that every pro-forma letter sent out by debt purchasing firms
is subject to scrutiny.
4 Tighten up on the enforcement of existing laws.
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For
details on specific debt purchasing companies see our Debt
Collectors' Register .
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