Debt Collectors making a fortune in 2020 article
We’ve all been going through this pandemic. We’ve seen the damage done to the economy.
How are these debt collectors and debt buyers fairing in these difficult times?
Generally, debt collection is an anti-recession business. When the economy is in recession, those tend to be the better years for the debt collectors.
It may be true that each individual dollar that they try to collect might be a little harder to get because the consumers don’t have extra money (although, as we will see in this article, this has been a little distorted by some of the stimulus efforts put forth by the government.) However, there is a bigger supply of defaulted debt.
It’s simple supply and demand.
When there’s more defaulted debt available to buy, the price goes down. This allows these companies to buy up cheaper debt to collect.
Today, I wanted to go through a few highlights from the article which show just how crooked these companies can be.
Let’s look at Encore Capital.
This might not be a name you immediately recognize, but they are a group that comprises one of the biggest debt buyers in the country. They include Midland Funding, Midland Credit Management, Asset Acceptance.
Encore recently announce that they have doubled their previous record for earnings in a quarter.
This is in the middle of a global pandemic.
This article suggests this is primarily a result of the CARES Act because there have been stimulus checks and laws that will slow down or halt foreclosures and evictions.
As a result, there is more money available with no prohibition on collecting old credit card debts.
This is Encore’s primary type of debt.
As the article mentions, those who suddenly found themselves with enough money to settle old debts began responding to collectors’ calls and letters.
The CEO of Portfolio Recovery, another large debt buyer, said this created “a perfect storm from a cash perspective.”
“analysts expect Encore to blow past $200 million in profit this year and reward stockholders with 40% earnings growth compared with last year.”
And Portfolio is set for similar results.
Portfolio files dozens and dozens of lawsuits every week just in Alabama.
Recently, the CFPB sued Encore. But investors didn’t really care.
Investors didn’t even show much concern when, in early September, the Consumer Financial Protection Bureau sued Encore, saying that it had broken the terms of a consent agreement struck in 2015. The agency had previously charged the company with “pressuring consumers with false statements and churning out lawsuits using robo-signed court documents”
Encore claims the recent suit was unnecessary because it fixed these problems years ago.
The funny thing is, every time these guys get sued, every time the government takes an action against them they say this same thing.
“Oh, that’s yesterday’s news. It’s not a problem anymore and we are perfect now. No reason to sue us.”
I’m confident that if you’re reading this is 2025, the CFPB will have sued them yet again and Encore will still be using this defense. Just as they did in their 2015 lawsuit.
The article points out that the only real bad news was that many of the courts throughout the country were shut down temporarily due to the pandemic.
These collection lawsuits are a major source of revenue for the company.
They call, they send letters, you don’t pay, and then they sue you.
In Alabama, this was not the case.
There was never a real shut down.
Many states said they would extend the Statute of Limitations, we’re going to shut things down for months.
Alabama didn’t do this.
So there is really no dip in the debt buyer lawsuits in our state. There was certainly a bigger dip in original creditor cases but not the debt buyer cases.
Now, with much of the country reopened, Encore, Portfolio, and others are back in full force.
To give you an idea of just how many lawsuits these companies file, the article cites some specific numbers:
In August alone, Encore filed about 1,000 suits in Indiana and over 2,000 suits in the metro Atlanta area. Other debt buyers jumped back in as well. In Chicago, Portfolio Recovery filed over 3,000 suits in July, while LVNV, a major debt buyer privately owned by Sherman Financial Group, filed over 2,700 suits in Maryland in August.
In Atlanta – only one city – that is 500 consumers being sued per week for the month of August.
All of these numbers are up.
I can tell you in Alabama, although there was never any slow down, they are certainly filing more cases per week than they were this time last year.
The companies claim to work with consumers, only suing as a last resort.
To say that this is wishful thinking is absurd.
Many of these companies do not even reach out before they sue you. They just sue you.
The idea that they even try to work with you is laughable.
Portfolio says they put a prohibition on seizing wages – but I can tell you for certain that this did not stop the lawsuits.
Encore says it isn’t seizing bank accounts, but it is seizing wages.
And they continue to file numerous lawsuits. This did not slow them down at all.
If no further stimulus is passed, unemployment will likely remain high.
So what does this mean for us?
It means more defaulted debts, which means the banks will continue to sell those at a cheaper rate.
People tend to be confused by this. They come to me wondering if the debt buyers are going to go out of business because they are trying to get money out of people who have nothing right now.
It’s all about supply and demand.
They are picking these debts up at a lower price.
If they get a judgment on the debt, the judgment grows.
In Alabama, that judgment is good for 10 years and can be extended another 10.
This means that judgment can grow for 20 years.
They are playing the long game. They know that, eventually, you’re going to get a job.
They’ll garnish your wages.
You put a few dollars in a bank account, they’ll take that. You get your house? They’ll put a lien on it.
Here’s what Encore / Midland has to say to Wall street about this:
The company is “particularly excited about the prospects for increased supply in the future.”
As Sen. Elizabeth Warren says in the article, they are “licking their chops” in anticipation of families losing their jobs and suffering financially.
Regardless of political stance or bias, Warren’s statement is accurate. This is extremely predatory behavior.
They are buying up more debt and they are going to go after consumers.
How do they earn a profit on a debt?
They perpetually pursue debtors.
As we mentioned earlier, in Alabama, a judgment grows for 10 years.
If the payment and its new interest has not been paid in full, the judgment can be renewed and continue to grow for another 10 years.
So, they buy debt, and they have maybe 3 to 6 years from the date of default to file a lawsuit depending on the debt and the state.
Once they file it could take two months or two years to get to a judgment. And then from judgment, they might have 20 years for that debt to grow.
It’s like farming. They plant the seeds knowing that one day there will be a harvest.
The key is the courts.
In Alabama alone, Midland, Portfolio, and LVNV account for well over half of all collection cases.
At the time of this article, a few original creditors have begun to file suits again.
There is a lot of confusion right now.
The article cites a few examples of real people dealing with these lawsuits in the confusing times we currently live in.
I’ve seen this first hand in Alabama, where I practice.
The court in Mobile, AL is in a government building that resembles a high-rise. It has a beautiful courtroom.
To get there, you walk in a huge area on the ground floor and there are lots of different government services there.
Then you get to the elevator to go up to the courthouse.
Well, unless you have a court date, you can’t go up there. The deputy stops you.
If you’re doing this on your own and you say you need to go to the clerk’s office, they say “No, leave something in this box and it will be delivered for you.”
They may not still be doing this, but that was what I saw this most recent time I was there.
These rules and procedures are constantly changing as the pandemic continues.
Everyone has different procedures.
I’ve been in courts in the last 6 weeks where there are 40 or 50 people packed into a courtroom, business as usual.
In other courts you must sign in, you sit in your car, and then the judge calls your cell phone to let you know when you can come into the courthouse.
Is it virtual? Is it in person? It is different everywhere you go.
This only adds to the confusion and makes it difficult for the consumer to fight the lawsuit.
Who predominantly gets sued?
People from all walks of life get sued for the defaulted debt.
Primarily though, it is those with income under $40,000.
These suits result in judgments.
As we’ve talked about before, the biggest danger when being sued is doing nothing and receiving a default judgment.
When they get a judgment, this means garnishment. This means taking your bank account.
This means taking your wages – up to 25% of your take-home pay in Alabama.
According to the article, 4,000,000 people have their wages garnished each year in our country.
This is massive.
That’s not counting the people who have just enough in their bank account which is subsequently wiped out due to the judgment.
In most states, they can both seize your wages and clean out your bank account simultaneously.
What happens when state legislatures have tried to protect funds from being garnished?
Encore has consistently been present to oppose it.
“And you’ve got to think, ‘Why?’ Who on earth thinks it’s a good idea to take someone’s last dollar? The only people who would do this are debt collectors who have no ongoing relationship with someone.”
It’s not the banks doing this, because they really do not want to have a bad relationship with their customers.
They want you to come back to them for your bank accounts, mortgages, etc.
These collection companies do not care about their relationship with the consumer.
They only care about the money.
In Alabama, there was a big battle over the garnishment of wages.
Can you protect your wages and your bank account?
There was some confusion over this, and the state legislature passed a law that basically hurt consumers.
The court came along and said this was unconstitutional because our Alabama constitution says you can protect a certain amount of your wages.
These collection companies were fighting like the devil against this.
There were some great lawyers fighting against this.
They asked me to help write what is called an amicus (“friend of the court”) brief.
I represented some advocacy groups that were there to help consumers and some low-income groups.
We argued against these attacks on this law and said the Alabama constitution makes it very clear that this is what we are entitled to protect.
The court ruled in our favor.
These debt collection companies will fight any protection of wages.
They believe the only way a consumer should be able to protect their money is by navigating complicated, difficult to understand exemptions which consumer may not even know are available to them.
The article mentions that these collection suits often have a long-term negative effect on consumers.
You may pay money and then this causes you to fall behind on other bills leading to foreclosure or bankruptcy.
This is one reason why we suggest that consumers really look at fighting these lawsuits.
It’s not the right option for everybody. But it definitely needs to be considered.
Even if you settle, you should settle in a way where you are not paying any money to these companies.
Consider all of your options before declaring bankruptcy or paying them all the money that you have.
Due to the CARES Act, the boost to unemployment, and stimulus checks, many people had a small cushion of cash.
Who benefited from this? Debt collectors.
According to the article, about 25% of people actually used this extra money to pay down debts.
There are a few negative aspects to using this extra to pay down old charged-off debt.
Normally, these debts are not growing with interest unless there is a judgment.
In a perfect world, you would not be spending your very limited funds on old charged-off debt.
The whole point of this extra money going into the economy was so that it would be spent.
The idea is to pump money back into the economy.
But this doesn’t happen when the money goes straight to the debt collectors.
Without further intervention, this problem will continue to grow.
And Encore knows they are in a position to capitalize on the situation.
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