Junk Debt Buyer (JDB)

What is a Junk Debt Buyer?

A junk debt buyer is a collection agency who has purchased a large portfolio of delinquent or charged off accounts from credit card companies, or even other collection agencies. Also referred to in the industry as "bad debt buyers", "zombie debt collectors", or simply "debt buyers", these companies fall under the Fair Debt Collection Practices Act definition of Collection Agency ("CA"). As the visibility and profitability of this rapidly expanding new industry has grown, junk debt buyers range in size from small private businesses up to million dollar publicly traded Wall-Street companies! Credit card debt accounts for nearly 70% of the accounts sold to JDBs, followed by auto loans, telecommunications debt and retail accounts.

What to be Aware Of

Junk debt buyers generally buy alleged debts for cents on the dollar and then attempt to find ways to collect on the debt. Often times, the debt is "out-of-statute" (Thatmeans that the statute of limitations has expired and it no longer legally needs to be paid back). The buyer then attempts to get the debtor to pay a small portion of the debt or the entire plus added on interest, or "other" fees. If the debtor does pay on the debt, they have reaffirmed the debt and started the statute of limitations all over again.

For example...Lets say that you owed a credit card company $800 and, for whatever reason, you have been unable to pay on that debt for 3 years. The statute of limitations in your state, for example, is 4 years in the state you live. At this point, legally you don't even have to repay this debt. The credit card company has long since written it off and sold your account to a JDB. Its over 3 years later and the JDB is attempting to collect this amount from you. After numerous letters and threats, you decide to try and make payment arrangements and send them a payment(no matter how small)...You have now reset the statute of limitations on this debt.

It is very important that consumers be aware of their rights and the laws that protect them as an alarmingly large number of these debt buyers are barely operating within the law.

Some typical unacceptable practices by JDBs include pursuing debts that are not actually owned by the consumer in question; harassment or verbal abuse; multiple listings of the same debt; and, as stated previously, attempting to collect a debt that has passed it's statute of limitations. Frequently in these situations, the JDBs will use the practice of "re-aging" an account which basically means that they report it as more recent than it really is.

An abbreviated list of JDB's:

• Asset Acceptance (AAC)*
• Sherman Acquisitions/Sherman Financial Group/Alegis
• NCO Group*
• Portfolio Recovery Assoc.*
• Asta Funding* Encore Capital Group (parent of Midland Credit Mgmt)*
• Allied National/Interstate Risk Management Alternatives (RMA)
• JBC & Associates Arrow Fin. Svcs. (majority interest acquired by Sallie Mae 9/04)
• RJM Acquisitions
• CAMCO (Capital Acquisitions & Mgmt Co)*
• New Century Financial
  
• Excalibur
• Cavalry Portfolio Services
• Unifund Group
• Phoenix Asset Acceptance
• First Select Corporation (part of Providian)
• Collins Financial Services
• Oliphant Financial Corp.
• OSI Portfolio Services

^*These have been the subject of recent FTC legal actions and penalties for illegal/abusive collection practices.

How much do JDB's pay for portfolios of debt?

• Debts that have recently been charged off: 6 to 7 cents on the dollar.
• Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.
• Years-old, out-of-statute debts: A penny or less.

^* Source: Sean McVity, portfolio broker at Keefe, Bruyette & Woods.

The above figures are handy when calculating how much you should offer as a settlement to these companies.