Patric McKenzie, aka @patio11, is a great writer, and as the article discusses, he has done a lot with helping people manage debt collectors. I once had a ISP send me to collections over a paperwork fuckup (not my fault) when returning a cable modem. Patrick’s writing helped me understand my legal rights, and how to handle it (and how to find additional trustworthy information).

This article was really interesting in the context of my $150 cable modem. I wrote the collection agencies a letter with a paper trail (as he suggests) informing them about how to contact me, and my dispute of the debt. The debt magically disappeared. This article really illustrates what happened behind the scenes, which was a pretty cool full circle.

As someone with a high credit score, it makes sense why they bothered to contact me. When I wrote the letter, informing them I understood the law and required paper correspondence , I clearly became “not profitable” to them - regardless of the debts legitimacy. Surprisingly powerful insight about how it works behind the scenes. When reading the article, I couldn’t help but think that you could almost intentionally avoid paying debts if you had a lawyer willing to help you fight the system. The economics of the debt collection system seems like it’s not worth fighting anything.

I am in a different western country, where the nuance of laws and systems differs, but the notion of CC debt collection as a miserable, shoddy, shady system holds true.

Facing $10K of CC debt following a mental and work breakdown, I subsequently endured years of quasi-legal harassment. Each illegal demand and unfair treatment had to be painstakingly fought against - weeks, months and years sitting at the computer composing lengthy rebuttals, and appeals to government regulators.

Only to have the bank blatantly perform the same illegal tactics again-and-again, with virtual impunity - their semi-automated wordsmiths will simply trot out a few pages equating your repayment shortcomings with the fairness of their actions, retract their infringing action, and the music will restart...

I am surprised that un-chased debt can be bought at 5 cents on the dollar, yet then turned into court default judgements and wage garnishments or liens worth 80 cents on the dollar.

The dollar amount of the debts increases too, since debt collection firms can attach their costs at highly inflated rates.

I would assume that ~75% of debtors will earn some on-the-books wages at some point in the future or own a house. Therefore, this stage of the process seems insanely profitable.

The real issue is reputation risk.

Banks do not want to be in the news because they put someone on the street because of $100 or $500 or $1000 - the reputation cost is just too high.

Further, most banks will not sell debt under a certain amount., they plan for the losses, adjust for it in lending rates and just write off the debt as a loss.

You will see this in their annual statements as provision for credit loss (the planned losses) and net credit losses (actual losses). The amount for large banks is in the hundreds of millions and it is taken as part of the cost of being in the lending business.

There is, of course, some every fluctuating number based on the type of lending and amount, at which debt is pursued with vigor.

Not really, because you're just looking at the upside without looking at the costs

>labor frequently costs more than than underlying debt does, even when one is paying four cents on the dollar and hiring collectors straight out of high school

For phone calls and stuff, sure. But for identical court cases, the legal labour per-case is low. I would imagine the biggest costs are any fixed court costs like filing fees and perhaps costs of sending letters (a 60 cent stamp starts to look expensive when it's a $300 debt).

You’re missing the lower success rate of a court case. And the reputational damage to the lawyers involved. As the article mentioned, the debt collectors (by design) don’t have enough information to validate the debt is real when faced with a real challenge and not a default judgment. The article also mentions that the legal penalty of trying to falsely collect debt (which is what it looks like when they don’t have the required paperwork to fight in person) is a lot more than the actual debt. I imagine a growth in legalized debt collectors would be met with better counter-lawyers to force penalties.

Each state has different rules about the required notifications of legal action against the debtor. If they're not easy to find, giving the required legal notice might become a costly process. Sending a "You owe us $500" letter to the wrong person is generally different downside from having a process server give notice to the wrong person and them ending up in court with a judge demanding to know why you forced them there.

A recorded lien that was issued in connection with a court process is certainly worth a lot more than a line in a csv about a debt that is easily challenged and hard to document when challenged.

Liens can be challenged too, but there's a presumption of validity that increases with age, and property sales are hard to do without clearing liens, and challenging a lien seems difficult and time consuming, so it is ignored until a sale is needed with some urgency, chances are the lien will be paid rather than challenged.

I don't have any specific thoughts about wage garnisment, but the % of people that don't get on-the-books wages in the general population may be significantly different from the % in the population that has become the target of debt collection.

Anyway, how many of the debts can be turned into a lien or a garnisment is a question too. You've got to turn the line in the csv into someone you can plausibly sue; and you've got to have upfront capital for the court costs (which probably you can add to the lien, but maybe not?).

> a line in a csv about a debt that is easily challenged and hard to document when challenged

From the perspective of someone who's dealt with finance and exports most of their life, CSV files of this nature are more of a gentleman's agreement between engineers (who all died years ago) than a statement of fact. I don't know how you'd convince a judge that your csv file is error-free when the transaction process itself is full of clawbacks due to all the buggy data and creaky code.

In theory, you might be able to use the csv entry as a hook to trace back both the original lender and ask them for their documentation of debt as well as the chain of custody that leads you to be authorized to collect it; but most likely it's going to be default judgements because nobody showed up. Default judgements are more of a punishment for not showing up than a statement of likely results on the merits of the case.

> In theory, you might be able to use the csv entry as a hook to trace back both the original lender and ask them for their documentation of debt as well as the chain of custody

In practice, you'll have created a billion-dollar SaaS corporation and helped write legislation. The fundamental issue is that data quality and handling practices mean this information will always be "truthy". At a base level your input comes from an office clerk who's medium-engaged in the process and who's asked for quantity over quality.

The entire financial network (imho, from my perspective, etc etc) is "best effort" and mutual agreements. Nobody involved wants to cast a string to a legal agreement.

Is the difference the legal cost?

> Very soon the judge is going to just say "send over your CSV file of all the cases with identical facts".

Until a couple people challenge the court case and the 1000-case lawyer looks like a crook. Remember that the CSV doesn’t actually include the required information to fight a case in court, just enough to win a default judgment. The penalty for illegal debt collection is severe and they’re a lawyer standing in front of a judge, they can’t exactly hide from the law here.

Sorry, I'm very ignorant about the laws around debt collection, but from this article it looks like that if you're sufficiently informed / prepared you can essentially not pay your debt repeatedly because debt collectors will automatically put you in the "not worthy" category. Is that correct? How can the system be so prone to abuse and why don't more people do that?

It's still on your credit history so even if you avoid paying the debt, you'll find it difficult to find anyone willing to loan you money going forward. For many services, you'll be required to prepay or make a large upfront deposit.

This seems like one area that LLMs will revolutionize (for bad)

I don't think it's that bad but I've seen it happen. A relative was contacted several times over weeks about debt that they never had taken; turns out the real debtor had a similar (but not identical) name and lived hundreds of km away.

That is good to know. My only experience with this stuff was in university where someone defaulted on a credit card from a big five bank. They called them up and overall managed the process pretty well.