Inside America’s Debt Collection Industry

MS. DIANE REHM

10:06:53
Thanks for joining us. I'm Diane Rehm. The U.S. debt collections industry brings in around $50 billion a year. Today some experts are asking why so many Americans are still facing collectors even as the economy improves and certain kinds of debt are declining. Joining me to talk about debt collection in America and the industry driving it: Josh Boak of the Associated Press, Mark Calabria of the Cato Institute, Peter Holland of the University of Maryland's School of Law.

MS. DIANE REHM

10:07:36
And joining us by phone from Charleston, W.Va., Margot Saunders of the National Consumer Law Center. I'm sure many of you will want to weigh in. Give us a call at 800-433-8850. Send us an email to drshow@wamu.org. Follow us on Facebook or send us a tweet. And welcome to all of you.

MR. MARK CALABRIA

10:08:07
Thank you. It's nice to be here.

MR. PETER HOLLAND

10:08:08
It's a delight to be here.

MR. JOSH BOAK

10:08:08
Thank you for having us.

MS. MARGOT SAUNDERS

10:08:09
Thank you.

REHM

10:08:09
Good to have you with us. Josh Boak, I'll start with you. Talk about this new study from the Urban Institute. What does it tell us about debt?

BOAK

10:08:24
It tells us not just about debt but also about how our economy is working. The Urban Institute found that more than 35 percent of Americans with credit records have debt with collection agencies and that the average person with debt with collection agencies owes more than $5,000. More importantly, it gives us a geographic sense of things. A lot of the debt in collections is clustered in the South, in places like Texas and Florida, areas that might not actually have a lot of housing wealth but have a lot of non-mortgage related debt.

REHM

10:08:51
Hmm.

BOAK

10:09:01
And when I started talking to different credit counseling agencies and that kind of thing, two big things came up. One, a lot of the populations in this area, they either have low incomes -- so they're taking on debt to get by -- or they're older Americans who face medical expenses that they can't afford to pay. And 38 percent of all the debt that goes to collection agencies is medical related.

REHM

10:09:26
Medical related.

BOAK

10:09:29
Yes.

REHM

10:09:29
That's interesting. Mark Calabria, you say that one source of this delinquency is really job loss.

CALABRIA

10:09:39
Yeah, I mean, that's the interesting thing. And I think we've seen this, you know, be fairly standard over the last couple of decades is it does seem to be the same sort of drivers behind debt. It's job loss. It's medical bills. It's a divorce. It's a bankruptcy. And despite the fact that, again -- I think Josh, you know, greatly pointed out, you know, we have these very high debt burdens in places where the housing boom and bust really, you know, kind of didn't happen in a big way. It wasn't Louisiana, Texas, that boomed and bust in the same way like California or Nevada.

CALABRIA

10:10:07
So these aren't particularly instances that are being driven directly by the housing market. And of course, job losses in these areas could be indirect outcomes of the housing market. But it's also worth pointing out the Urban Institute study was benchmarked off a Federal Reserve study that was done about 10 years ago, same methodology, same data, that found actually fairly similar numbers. And of course we all -- I think most of us fondly remember 2004 being a slightly better economy than today. So the fact that it's not worse than it was in 2004, I think, is at least a small positive.

REHM

10:10:39
But the interesting thing, Peter Holland, is that so many have ended up in debt collection, in the hands of debt collection agencies. How does that happen?

HOLLAND

10:10:53
Well, as this report points out, they really draw a distinction between things that have been default between 30 and 180 days. And they call that debt past due. What they call in collections is anything that's 181 days or older. What's important about that is, at that 181-day mark, according to IRS regulations, the banks -- largely credit card companies -- they have to, what's called, charge that off. They have to write that down to a zero.

HOLLAND

10:11:25
They don't want that on their books. So they sell it. More and more they are selling it to investors -- debt buyers they're called. And in fact, the Urban -- what's being referred to as the Urban Institute study was co-written by an arm of Encore Capital Group, which is one of the largest debt buyers -- their Midland Funding LLC arm is one of the largest debt buyers and one of the largest plaintiffs in collection suits in the entire country. How it gets there is, again, the bank wants to get rid of it. They typically are selling these things for a couple of cents on the dollar. The…

REHM

10:12:03
To the debt collection agencies.

HOLLAND

10:12:07
Yes. To the debt buyer.

REHM

10:12:09
Right.

HOLLAND

10:12:09
So, for example, Encore, which is involved in this study, in 2012, they bought $18.5 billion worth of debt for an average of three cents on the dollar. What they are going to then do with that three-cent investment is they are then going to sue people. They might do phone collections or letters, but what I see mostly is the lawsuits. And they're going to sue people and ask to be paid 100 cents on the dollar for something they invested in at only three cents.

HOLLAND

10:12:41
It is an old adage that you get what you pay for. And for three cents, study after study shows that what is not being transferred is accurate data, complete documentation. And, in fact, many of the contracts of sale between the banks and the debt buyers actually disclaim warranties. Some of them say that the amount being represented as what's due is only approximate.

HOLLAND

10:13:09
It says that some of these accounts may include accounts that were discharged in bankruptcy. They may have already been paid. And so there are these broad disclaimers of warranty. And then people get sued or collected on it. And they don't know what to do.

REHM

10:13:25
And, Margot, why are we seeing this huge growth in the debt collection agency industry itself?

SAUNDERS

10:13:38
Well, I think the fact that 35 percent of all Americans have -- all Americans with credit reports have defaults on the credit reports is indicative of the fact that the credit industry must not mind default. In fact, there's been recent cases that show that some creditors deliberately create their products with an expectation of substantial default. A recent decision out of a federal district court in California found that one large installment lender expected and had a default rate for all of its loan products of 45 percent.

REHM

10:14:21
So what you're saying is that perhaps an automobile dealer might sell a car to a consumer, knowing full well that that consumer is not able to pay back on the automobile.

SAUNDERS

10:14:43
That's exactly what I'm saying, that too many in the credit industry have found ways to make money from the default. And no longer is the credit industry designing products where consumers will be able to repay the credit as originally created, but rather the industry makes more money when the consumer fails. And that's a problem.

REHM

10:15:09
Josh Boak, how large is the debt industry itself?

BOAK

10:15:18
It employs about 140,000 people, give or take. And it goes over -- the last year alone -- a billion delinquent accounts. And what's important to remember is that this just isn't a private issue. This is a public issue. If you look at the trade group numbers, about 25 percent of the debt it collects -- about 50 billion a year -- is student loans. And most of those student loans are public student loans. And another 10 percent of the debt is government obligations to state, local and federal governments.

BOAK

10:15:50
So this just isn't a private issue. This is also a public issue, believe it or not. And it's important to understand that synergy. And I only say that to give a sense of the depth of the problem because these are also unpaid tax bills. These are unpaid hospital bills. And 27 percent -- and this is a great stat -- 27 percent each year of the debt that's supposed to be collected gets closed either because the debt was disputed or the customer refused to pay. So there's a large amount of write-offs that still occur, even with the collection agencies.

BOAK

10:16:27
And that's kind of what makes it so complicated. The easiest thing an average American can do -- which one of my family members did as soon as the article came out -- was check their credit record. That's the first step every listener should do. One of my own family members found that they had delinquent debt and instantly decided to pay it off.

REHM

10:16:48
Delinquent debt that they had forgotten or had simply not paid or…

BOAK

10:16:54
Well, they just hadn't seen the notice.

REHM

10:16:57
Hadn't seen the notice. Peter Holland, what about this synergy between public and private debt?

HOLLAND

10:17:05
Well, I think Josh raises an excellent point. And his family member was one of the approximately 26 percent of Americans who, when they check their credit report, discover that there's a potential material error on the credit report. That's more than one in four people in this country who pull their reports, find an error. This study, by the way, didn't -- as far as I read -- didn't control for things like that.

REHM

10:17:34
You know, it's interesting because, several years ago, someone at a local department store called me and said, you have an outstanding debt at a particular store. And I said, no, I don't. And he called me at least eight times, hollering at me over the telephone, when it was another person with a similar name who had that debt.

HOLLAND

10:18:15
Right. And that is all too familiar of a problem, Diane. And you're lucky that it was only eight times. I've had people where it's eight times a day.

REHM

10:18:23
Peter Holland, he's a consumer attorney, adjunct professor at the University of Maryland Carey School of Law. Short break here. We'll be right back.

REHM

10:20:01
And as we talk about a new study from the Urban Institute that concludes 35 percent here in this country are facing debt collectors, here's an email comment from Joe who says, "I was mistakenly told I owed back taxes in D.C. during a period I was living in Texas. After proving I was not a resident of the District, I heard nothing. But three months later, I learned my debt was sold by D.C. to MuniServices. No matter how I tried to correct what should be a simple mistake, I cannot get this expunged. It's hurt my credit, and D.C. continues to regard me as delinquent." Margot Saunders, what do you say to Joe?

SAUNDERS

10:21:09
I say good luck. The problem is that the current regulations and laws don't really provide redress for people like Joe. We are hoping that the CFPB, the Consumer Financial Protection Bureau, will use its rule-making authority and make some significant changes in the debt collection industry. It's poised to do that. It has asked questions of the industry and consumer groups and the public about how it should do that. And it seems to be about to propose pretty massive changes in the regulation of both the debt collection industry and the creditor industry on how the creditor industry collects its own debt.

REHM

10:21:54
What kinds of changes?

SAUNDERS

10:21:57
Well, right now we have a federal law that provides some protections for consumers when debt collectors are collecting the debts of others. But we have no federal law that provides protections when creditors are collecting the debts of others. So we have a big hole. In regard to the caller or the person who emailed, Joe, that situation would be covered supposedly by the debt collection -- the Fair Debt Collection Practices Act because the law requires that debt collectors no longer collect on disputed debts unless they can in fact prove that the debts are verified.

REHM

10:22:37
I see.

SAUNDERS

10:22:39
But the problem is that the penalties under the Fair Debt Collection Practices Act are so low that collectors too often find that it's more beneficial -- it brings in more money if they violate the law than if they comply with it.

REHM

10:22:54
Mark Calabria.

CALABRIA

10:22:55
You know, I found Joe's story moving because I once had a tax dispute with the District of Columbia myself. And, fortunately, it was resolved after a lot of personal time. But I also think it -- I suspect it was partly resolved because I got there before the 180 days was up, before they sold it to somebody else. So I really would emphasize to listeners you have much better chance of resolving something in the first 180 days before it's sold off to somebody else.

REHM

10:23:21
But it sounds as though Joe did everything right.

CALABRIA

10:23:22
Right. They sold it (unintelligible). It sounds as though he did.

REHM

10:23:26
What else could he have done, Peter?

HOLLAND

10:23:29
You know, I don't know about his situation, but he describes what I see all the time. The person does dispute it over and over and over, and yet a bank -- in this case, the government -- but what I see is banks go ahead, and, despite the fact that there are disputes on record in their files, they will sell that to a debt buyer with this broad disclaimer that we may be selling you debts which are disputed or which may not be owed. The debt buyer than sues people, and they refuse to show that contract to the court or to the public.

REHM

10:24:02
Huh.

HOLLAND

10:24:05
And that is what is driving this flood of lawsuits and default judgments. It's one of the things is that they are suing on known junk debt, that the banks are knowingly selling junk debt and not telling the courts or the public that we have red-flagged this as being the stuff that's kind of questionable.

REHM

10:24:22
Margot.

SAUNDERS

10:24:24
So here's what's supposed to happen. When a consumer complains to a furnisher, which is someone who provides information to the credit reporting agency, and says, this is not my debt or the amount that you've reported is not correct, the furnisher is obligated to go back to the original creditor and determine the veracity of that debt and only re-report the debt to the credit reporting agency if in fact that verification has occurred.

SAUNDERS

10:24:58
And what's happening here -- I don't know what's happening here. I shouldn't address this particular case. But what often happens is that the debt collector fails to adequately determine what -- who owes what, fails to do a full investigation and simply re-reports, causing a disputed debt to continue to appear on the credit report. It's not the way the system is supposed to work.

REHM

10:25:22
And here's another email from Will who says, "What options do you have if you dispute an original bill, but the company sends the bill to collection anyway? I requested arbitration on the original bill. The company ignored my request and sent the bill to collections anyway." Josh, do you see that coming up in the report?

BOAK

10:25:58
How to deal with a bill is not really one of the things that comes out of the Urban Institute study because we're just getting our hands around the size of the problem and its nature and what allows it to exist and what allows it to persist. There's plenty of people here, even on this panel, that could probably do a better job of answering that question.

BOAK

10:26:19
But what I can say is this situation sets people up for economic failure because a credit report, a negative credit score, your employer can check. If you're applying for a mortgage, it becomes that much harder for you to get a house. And so the ripple effects of this is something we don't fully understand, but we know they exist.

REHM

10:26:38
Mark Calabria.

CALABRIA

10:26:39
You know, one thing I would say to -- for people to keep in mind and balance -- or the first thing you should do is simply not pay, and you should document that. And you should respond to, you know, why this isn't your debt, why they've confused you with somebody else, or why you've paid this. And certainly keep the documentation. I also certainly would emphasize Josh is correct that it dings your credit score.

CALABRIA

10:26:59
But, you know, I also -- I went through, 10 years ago, a dispute with a department store over something too. I didn't pay it 'cause I didn't owe it. And it ended up being that they would not resolve it for me, and it (word?) my credit score. But the fact is that the change in my credit score, it didn't, like, kick me from prime to subprime. So what I would say is don't let the concern over, you know, if I don't pay this small bill, I'm suddenly -- you know, you're going to lose most a hundred points on your credit score.

REHM

10:27:26
OK.

CALABRIA

10:27:26
That's a lot, but my point...

REHM

10:27:27
That's a lot.

CALABRIA

10:27:28
But my point is is that don't let that be the reason you give in.

REHM

10:27:32
All right. But what about Margot's talk about a new bill?

CALABRIA

10:27:39
You mean new regulation.

REHM

10:27:40
Right.

CALABRIA

10:27:41
So, you know, I think we have to see what (unintelligible) going to do. They're going to be doing a survey soon. I think we need to just see the results of that. You know, there are some things in my mind I think we need to be -- to balance. One of the things of course is privacy. You mentioned, you know, we've all been in situations where -- unfortunately, most of us have been in situations where the wrong name or something has been tracked.

CALABRIA

10:27:59
On one extreme, you know, that is solved if we all simply give our Social Security to every single thing under the sun, but I don't want to do that. So there is a balance between the accurate documentation -- a number of the panelists have mentioned that, and that really is a key part of this, the accuracy of the documentation. And so again, to me...

REHM

10:28:16
But you may document it accurately...

CALABRIA

10:28:19
Absolutely.

REHM

10:28:20
...but if the credit agency or the department store doesn't, what can you do?

CALABRIA

10:28:26
Well, there are remedies. There are the Fair Credit Reporting Act. There are remedies under the Fair Debt Collection Practices Act, which I don't really want to go into. There are remedies. You know, contact a lawyer who specializes in that.

REHM

10:28:39
And you're going to pay money there.

CALABRIA

10:28:41
Right. And so that's part of the problem of why these things go un-redressed. What I would point out though about this problem is the way that the current system is set up with credit reporting is basically you have got to prove that you are not -- you've got to prove your innocence rather than them proving you're wrong.

REHM

10:29:00
Exactly.

CALABRIA

10:29:01
It's a passive system. They agglomerate information, and suddenly your name is on the credit report. Now it's your burden to go spend all of your time and hours, hire a lawyer.

REHM

10:29:12
And, Margot, would the proposed new rules change that whole process?

SAUNDERS

10:29:20
We have not seen the rules. We have not seen the proposals yet, but we're all very hopeful. For the first time, we've got a federal agency that has real power and the willingness to protect consumers. And it's looking at all of these different questions and trying to come up with the appropriate answers in a way that will not impinge upon appropriate credit opportunities for consumers (unintelligible).

REHM

10:29:45
Now this was something that now-Sen. Elizabeth Warren had fought for, isn't that correct?

SAUNDERS

10:29:53
Yes, she did. And she's largely responsible for our having the Consumer Financial Protection Bureau. And the bureau was already doing a lot of good, but there's a lot more to do. There's one point I wanted to make in response to some of the others. And that's, if I might, the abusive debt collection unfortunately often leads to consumers making poor financial choices. Your situation where you had eight calls from a debt collector is pretty rare.

SAUNDERS

10:30:27
I was involved in a case here in West Virginia where one creditor called 290 consumers 84,000 times in the course of a year. And that number was available from the creditors' records. Luckily, the courts found that to be abusive. What happens when these harassing phone calls come in is that consumers respond in inappropriate ways. They often pay the debt that is causing the most abusive calls when that may not be the best use of their money.

REHM

10:31:04
Peter Holland, do we have any idea how much error we're seeing out there in credit reporting nationwide?

HOLLAND

10:31:16
Well, as I said, the FTC in a 2012 study, they did a survey, reported it to Congress, and they found that 26 percent of consumers reported a potentially material error in their report. So that's a huge -- that's a huge number. So it's a problem, and it needs rectifying. If I may though, on this question of collecting, kind of what happens? So the underbelly -- it starts with the sale of accounts with these broad disclaimers of whether they're accurate or not.

HOLLAND

10:31:49
The CFPB and their most recent enforcement action actually went after a law firm, a large law firm. And if the allegations are true -- I don't know if they are, but here's what they alleged, that in a four-year period, they filed 350,000 lawsuits against Georgia consumers and that the average time spent by a lawyer in reviewing the case before signing their name and filing the complaint was about two minutes. One lawyer was filing -- was signing his name 1,300 times per week.

HOLLAND

10:32:22
And so what the CFPB on those facts alleged was that there was obviously a lack of meaningful attorney involvement, but they also alleged they were using false affidavits from their clients, that the affidavits were not true. The list of clients, by the way, that they mention in the lawsuit is JP Morgan Chase, Bank of America, Capitol One, Discover, Portfolio Recovery Associates, and Midland's Funding, LLC. And so what -- the other thing that they concluded is that this firm was collecting from consumers who may not actually owe debts or may not owe them in the amount claimed.

REHM

10:32:58
Hmm. Hmm. Yeah.

HOLLAND

10:33:02
And one of the, to my interest, fascinating allegations in the complaint is that the lawyers failed to review the contracts governing the sale of accounts between bank -- in order to determine whether those contracts disclaimed any warranties regarding the accuracy of validity of the debts.

REHM

10:33:21
Margot, explain the difference for us between the debt collection industry and creditors collecting the debt.

SAUNDERS

10:33:33
Well, when you went to that store and bought something, presumably used a credit card issued by that store, that was the original creditor for the credit that you were provided to cover that purchase. When -- if you didn't pay that debt or the other Diane Rehm didn't pay the debt...

SAUNDERS

10:33:56
...the store sells that debt to a debt collector or hires a debt collector, keeps the debt on their books, and hires the debt collector to go after all the Diane Rehms until they find the right one who either actually owes the debt or who's willing to pay the debt. And, unfortunately, there's not always a difference there. But so what I was saying before was that the federal law provides protections on how debt collectors who are collecting the debts of others do their business. But there's no federal limits on how creditors provide their collections.

REHM

10:34:32
And you're listening to "The Diane Rehm Show." All right. We've got lots of callers. I'm going to open the phones now, 800-433-8850. Let's go to Joe in Cedars Hill, Mo. Hi there. You're on the air.

JOE

10:34:56
Yes. Good morning, Diane. Thank you for taking my call.

REHM

10:34:58
Certainly.

JOE

10:35:00
My question was concerning student loans, and I think your panelists gave some facts about the amount of debt owed by students. It occurs to me that these kids today are allowed to incur debt that might approach the value of a starter home with no security other than the hope of a job in this poor environment we live in at this time. And I'm wondering, how much longer will it be before the debtors realize that they have to have co-signers to ensure these loans before these kids are allowed to sink so far down in debt that they have a hard time ever recovering?

REHM

10:35:45
Mark Calabria.

CALABRIA

10:35:47
Well, that's a whole other conversation. It could take a whole other hour. I mean, certainly we -- in my opinion, we have a crisis in the trillion-dollar student loan market coming. I think there's going to be already elevated levels of default, continue to be levels of default. I think this is going to hang over Millennials for a very long time. I think we do need to see whole scale reform in here. And, to me, I think it has contributed to running up the cost of education as well. A lot of the value of the loans have been captured by the universities rather than the students.

REHM

10:36:12
Josh.

BOAK

10:36:12
Let's understand the issue though in a larger sense. A lot of people take on debt to make their life better. They buy a home. They get an education to get that job. If you look at the government data on the people most likely to fall behind on their student loans, they're not the people with the highest loans. They're the people who likely took out debt and dropped out of school and didn't have the benefit of a degree in order to get that income to repay the debt.

BOAK

10:36:37
So part of the problem is not just the debt itself but the means to repay it. We have to remember that all loans are essentially a bit on future income. And in a lot of these cases, people just don't have the income to repay that debt.

REHM

10:36:51
What do you think about that, Peter Holland?

HOLLAND

10:36:54
Well, to go to the caller's point, unfortunately, many -- a lot of these loans are co-signed, and they're co-signed by parents or grandparents. And so what we're seeing now is the parents and grandparents are getting sued so that their nest egg is being invaded.

REHM

10:37:10
And we are talking about debt of all kinds, debt collectors especially. We'll take more of your calls, your comments after we come back from a short break. Stay with us.

REHM

10:40:00
And welcome back. We'll go right back to the phones to A.J. in Baltimore, Md. Hi there.

A.J.

10:40:11
Hi. Thanks for taking my call.

REHM

10:40:13
Sure.

A.J.

10:40:14
I was sued by a junk debt collector a couple years ago. And when I was served notice to court, I started doing some Googling, and I found a paper by Peter Holland. So, first, I want to thank Peter Holland. He gave me the confidence to actually go to court by myself and defend myself. So I ended up going to court, and the lawyer for the debt company asked me, you know, could I afford a couple dollars a month, that sort of time -- that sort of thing.

A.J.

10:40:40
I was unemployed at the time. I was a student. I told him I couldn't afford anything. What ended up happening was they dropped the case. My question is, will I still -- is that debt still out there since they dropped the case? It -- the debt has fallen off my credit report. I check it religiously. But I don't know if I should have gone through with defending myself with what was in that paper. Yeah, that's my question right...

REHM

10:41:06
OK. Peter Holland.

HOLLAND

10:41:08
So, A.J., you're in Baltimore, so I know in Maryland, what you want to do is check the Maryland case search. If it indicates -- you need to know whether your case was dismissed with prejudice or without prejudice. You want it to be with prejudice which means, yes, it's gone. It cannot be filed again.

REHM

10:41:27
I hope that helps. Good luck to you, A.J. And, Peter, a number of people are asking about the proper way to get a trustworthy credit report.

HOLLAND

10:41:41
Right. That's an excellent question because there are a lot of improper ways to get one. There is one and only one website that is sanctioned by the federal government. It is annualcreditreport.com. Annualcreditreport.com...

REHM

10:41:57
And we'll have that on our website, so...

HOLLAND

10:42:00
Yes. And that gets you all three of your credit reports. You have to answer a number of questions, but there's a lot of other ones out there that want you to pay for credit protection, et cetera. Go to annualcreditreport.com. Walk through their thing. Get all three reports.

BOAK

10:42:14
Oh, well, you -- let me also emphasize. I think it's important, before you're thinking about doing a transaction like a mortgage, get your credit report long in advance, say, five, six months because it might take you quite a while if you find errors to fix them. And you want to do that before you enter another creditor debt transaction.

REHM

10:42:29
Mark Calabria, do you have any concerns, questions about the proposals to toughen these laws against collection agencies?

CALABRIA

10:42:44
Well, prefacing it with we have yet to see substantive proposals...

REHM

10:42:47
I understand.

CALABRIA

10:42:48
So, you know, so the...

REHM

10:42:49
Right.

CALABRIA

10:42:49
In many of these things, the devil is in the details.

REHM

10:42:51
Right.

CALABRIA

10:42:52
So, to me, I do think there needs to be a proper balance of how do we deal with debt that is not appropriate, not legitimate, that you didn't know versus how do we make sure we also don't give a stack of paperwork that allows people to get out of their obligations simply because some "T" on page 23 wasn't crossed. So, to me, is, how do you make sure that you're separating essentially those who owe from those who don't owe because, again, my perspective is, you know, if we are letting people who do owe out of their debts, the rest of us are going to have to bear the cost of that. There's going to have to be higher credit.

REHM

10:43:23
But from what Peter said, 27 percent may be in error.

CALABRIA

10:43:31
So we know that there are errors on the credit reports. We know that there's errors that are in both directions. There are things that aren't on your credit reports that might be against you, too, so there are errors that are good and bad on the credit reports. I would suspect that it's the bad ones that are caught by consumers more often. I don't know a lot of people who are going to volunteer that, oh, I didn't pay this debt, and somehow it's not showing up on my credit report. Obviously, more accurate credit reports is a better thing.

REHM

10:43:54
Sure.

CALABRIA

10:43:55
Accuracy is not a freebie. So, to me, any of these things have to be weighed against the cost. You know, we've seen this in the mortgage market already. You know, this year, over the last year, we've seen closing costs in the mortgage market go up 20 percent. Extra paperwork is not free. And that cost is ultimately passed on to the consumer. Now, that cost might be worth it, but it is not costless.

REHM

10:44:14
Margot.

SAUNDERS

10:44:16
The consumer groups have generally not asked for more paperwork when -- in this request for better regulations. We've asked for cleaner, clearer regulations, more substantive requirements, and the -- I think we need to keep in mind that while some people who are victims of debt collectors, abusive practices, really do owe the debt, they also really may not be able to make those payments.

SAUNDERS

10:44:45
And so you can't -- you shouldn't be able to get water out of a rock, and you shouldn't -- and many -- and the studies have consistently shown that people who fall behind don't fall behind because they say, oh, I'm not going to pay that debt, I don't want to, but because, in fact, they are unable to.

REHM

10:45:04
Josh.

BOAK

10:45:06
The individuals that we talk to when reporting these kinds of things out, we find time and time again a couple different stories come up. Either they have a medical crisis within their family, not just with themselves. Maybe they have a sibling that they suddenly had to put under guardianship, or maybe they had a parent who incurred debts and costs through their funeral.

BOAK

10:45:30
And all of that feeds into a system where it's very tough for people to save and prepare for these kinds of expenses, and they must take on this debt. In some cases -- remember, when we talked about the Urban Institute study, it excludes about 9 percent of the U.S. population who are even worse off and can't take on debt that gets reported officially to credit filings.

REHM

10:45:46
Huh. I see.

BOAK

10:45:51
So all told, you know, we're really talking almost about half the country, half of adults, have these debt problems. Now, the flipside is when you talk to younger people. A lot of the debt that seems to be incurred is almost like the startup costs of a life. How do you get an apartment? How do you furnish it? How do you do all those things? And, for an extended period of time, there was a philosophy that more stuff was OK. And now we see the devastating consequences of that not just in the downturn but in terms of the recovery. In a sense, our recovery has been so slow because people are now hesitant to take on debt because they see what happens.

REHM

10:46:30
All right. To Carrie in Tampa Bay, Fla. Hi. You're on the air.

CARRIE

10:46:36
Hello, Diane.

REHM

10:46:37
Hi.

CARRIE

10:46:37
Love your show.

REHM

10:46:38
Thanks.

CARRIE

10:46:39
I'm not getting into specifics. But exactly what your caller said -- I'm 56 and was doing fine economically and became totally disabled, and the insurance company got my settlement, so found myself in a limited income situation but, with my small part of the settlement, paid off everything and it -- from my past bill from the accident. What I'm finding is, even going back 20 years, I have some debt I paid off over 20 years ago that keeps coming back in dribs and drabs.

CARRIE

10:47:08
My question is -- just so you don't go over everything, and I don't want to go into specifics -- what kind of terms can someone who's pretty articulate use, such as the disclaimer of warranties and the red flags they supposedly put in these files when they sell them? Because my husband got one. And one of my questions was -- he went to court with a discharge without prejudice. Now I know what that means. But what can someone who is pretty articulate, where can they go to read some of these things? So if they want to do something themselves, if they can't afford an attorney -- I was a mortgage broker. I own insurance agencies.

REHM

10:47:41
OK.

CARRIE

10:47:42
I'm (unintelligible). Where can I get some of these terms or information so I can fight some of this myself?

REHM

10:47:47
All right. Peter.

HOLLAND

10:47:49
Use Google. I don't know what state you're in. But what you describe of these debts coming back is what we call zombie debts. It's a huge problem, something that you thought was dead, it was over, and suddenly it arises. Certainly, if you, you know, Google -- what state are you in? I don't know. Go to your -- yeah, go to -- she's gone.

REHM

10:48:08
She -- I don't think she's with us any longer.

HOLLAND

10:48:11
Oh, OK. So go to your local...

REHM

10:48:13
Actually, I think she was in Florida.

HOLLAND

10:48:15
In Florida?

REHM

10:48:16
Yeah.

HOLLAND

10:48:17
There's a great number of consumer lawyers in Florida. Go to naca.net -- N-A-C-A-dot-N-E-T -- and look in Florida, find a lawyer there, or other states. Naca.net has consumer lawyers. Talk to them.

REHM

10:48:29
All right. To Whispering Pines, N.C. Hi, Sarah.

SARAH

10:48:35
Hi. Thank you.

REHM

10:48:37
Sure.

SARAH

10:48:37
I wanted to share, and my brother-in-law owns a small construction company in Virginia. He brings in $36,000 a year is his income. Two years ago, he could not afford his health insurance at 400 a month. Last year, he suffered a brain aneurism, and he was rushed to MCV in Richmond. As soon as they determined that he was not in a life or death situation anymore, he said, I want to leave.

SARAH

10:49:05
I don't want any more treatment. I don't have insurance, and I can't afford it. They brought this financial representative in. And she said, don't worry. We will work with you. We use a sliding-scale fee that will reduce your overall based on your income. And we'll give you a payment plan that you can afford. So he stayed an additional two weeks that they wanted to keep him. When he gets home, the bill is $140,000.

REHM

10:49:34
Oh my.

SARAH

10:49:35
He went to them, and they said -- first, the woman said, well, if you had still kept your Blue Cross Blue Shield, based on our fee arrangement, we would have accepted 20,000 from them, and you would just owe your deductible. But now he owes 140,000. Thirty-six thousand a year income is too high for us to reduce your total debt owed. And can you pay $2,000 a month? And when he couldn't do that, his business attorney said, don't pay it. Soon as they sell your debt, which they did within 45 days, then refinance your house and offer a debt settlement payment.

SARAH

10:50:18
So I help with his books. I contacted them to make the offer, and they said, you know, we've been doing this -- this particular woman, she said, I've been doing this 20 years. MCV is one of our clients that specifically does not allow settlement offers because they've already gotten the credit for writing this off. They'll only allow a lump payment of 80 percent of the total 140,000. Other than that, they will not do any sort of settlement offer.

REHM

10:50:49
All right. Peter, I know you cannot offer legal advice over the air.

HOLLAND

10:50:57
Right.

REHM

10:50:57
But generally speaking, what would you say to this call?

HOLLAND

10:51:02
I mean, I think -- I'm sorry to hear about the thing. I'm sorry about the medical injury. I'm sorry to hear that you're facing this. And this person needs to consult a lawyer. I mean, it's that simple.

REHM

10:51:13
Of course.

HOLLAND

10:51:14
There are consumer lawyers out there. Again, go to naca.net, find somebody in your state, and hopefully they can...

REHM

10:51:20
She's in North Carolina.

HOLLAND

10:51:22
In North Carolina, there are some excellent lawyers down there.

REHM

10:51:24
OK.

HOLLAND

10:51:25
And talk to them, and I wish you the best of luck with that.

REHM

10:51:29
All right. And Margot.

SAUNDERS

10:51:31
Well, I want to add that the Fair Debt Collection Practices Act and other consumer protection laws are generally no fee to the consumer laws so that the attorney, if successful in recovering for the consumer, will be able to have his or her attorney's fees paid by the defendant. So that's a very valuable tool. Also, bankruptcy should always be considered.

REHM

10:51:59
And to James in Elkhart, Ind. Hi there.

JAMES

10:52:05
Hi, Diane. Thanks so much for addressing this topic. It's really interesting.

REHM

10:52:08
Good.

JAMES

10:52:09
I wanted to address not only the widespread reform that your panelists were discussing but also the comments on consumers or personal responsibility. And I wanted to call in to voice kind of the voice that surge of consumer -- the consumers' change of attitude that my wife and I have joined in. We've decided to eliminate all of our debt.

JAMES

10:52:30
About seven years ago, we chose to get out of this vicious cycle of harassing phone calls and bad debt. And I finally, after seven years, have paid off all of our debt, including our home. And in addition, I'm -- I've been going back to college, and I'm actually cash-flowing that. And it's very rewarding, and it's very refreshing to get away from that debt collection cycle.

REHM

10:52:55
James, good for you. Congratulations. I just wish more people were in that situation that they could pay off all their debt and be free and clear, Josh.

BOAK

10:53:09
So one of the interesting things in the Urban Institute studies that 20 percent of people with credit records have no debt. And it's going to be worth monitoring how that percentage changes over time during the recovery.

REHM

10:53:21
Explain that. How could it be that 20 percent who are being followed have no debt?

BOAK

10:53:31
This is 20 percent of everyone with credit records.

REHM

10:53:34
Oh, OK, fine. Fine.

BOAK

10:53:36
So these are people who paid off their mortgage, paid of their credit cards. Maybe they don't even have credit cards. And as a result, they're debt free. And it's going -- I think it's really critical that we see how that population changes in the next few years.

REHM

10:53:49
Do you think it will?

BOAK

10:53:51
It depends on a bunch of different factors. Some economists say that as soon as the economy heats up again, people are going to feel as though they can take on more debt. Other economists have said, look, the Great Recession was so intense. It's a generational shift, just like what you saw in the Great Depression, and that younger people coming up are much less willing to take on debt.

REHM

10:54:15
Especially because there are so few jobs out there, Mark.

CALABRIA

10:54:20
Absolutely. So the job market is part of it, too. But I did want to echo that point of view 'cause I think back to my late grandmother who, you know, lived through the Great Depression, and she hated debt, never wanted to take on any and would save up when she could. So I do think we're going to see a bit of a generational shift where, you know, people who have lived through this last several years are going to be far more skeptical of debt than others have been.

REHM

10:54:40
Margot, would you agree?

SAUNDERS

10:54:42
Yes, I would. Unfortunately, student loan debt is almost inevitable for many people who want to get education. And student loan debt is not dischargeable in bankruptcy. So we've saddled our youngsters with a pretty difficult proposition, but they must get -- take on debt to get an education. They need the education to get good jobs. And then they're saddled with huge amounts of debt that they can't discharge, even if they often can't pay it.

REHM

10:55:14
One last caller who is in Elizabeth, Penn., says he's thinking about filing for bankruptcy. His wife's credit is bad. He's out of a job. There's lots of debt. Are there ramifications that make bankruptcy not worth it?

HOLLAND

10:55:42
Again, I can't give legal advice without knowing the facts. But bankruptcy is an option. If you have nowhere else to go, that is an option that should be seriously explored with a lawyer. What I have looked at is what these junk lawsuits, I call them -- if we could defend that and beat a lawsuit that the money really isn't owed, wouldn't that then preserve the money for the individual and the economy to keep things flowing smoothly? So I don't know about his situation other than to say contact a bankruptcy lawyer. And, again, I give that same thing, naca.net, and you need to sit down and explore the options.

REHM

10:56:18
So the advice, I would think, from all of you is probably to take on as little debt as you absolutely have to. Mark? Sorry. Josh. Go ahead.

BOAK

10:56:38
Take on what you can manage, and make sure you're using it not to just consumption and live beyond your means but to make an investment into yourself, human capital, things you're going to pay off. But I do think you should be -- debt is a tool, but you need to be weary of it.

REHM

10:56:50
Peter.

HOLLAND

10:56:51
Yeah. I agree. But keep in mind a lot of the people we're talking about have already incurred the debt from years past (unintelligible).

REHM

10:56:57
Exactly.

HOLLAND

10:56:57
So that's the crisis of today.

REHM

10:56:59
All right. Peter Holland, Mark Calabria, Josh Boak, and Margot Saunders, thank you all so much. Let's watch the economy and the debt accruement. Thanks for listening. I'm Diane Rehm.

ANNOUNCER

10:57:18
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