Sunday, November 8, 2015

Zombie debt threat

Even after Halloween, we are being threatened by zombies:
Officially, zombie debt is defined as money that someone once owed but has discharged in bankruptcy or has already paid off – or, in the case of so-called phantom debt, that an individual never owed at all.
And if you think the latter scenario sounds implausible, you may want to reconsider, suggests Lisa Madigan, attorney general of Illinois. The collectors “tell people that their wages are going to be garnished, they tell people that they are going to send people out to arrest them, they tell people their driver’s license will be revoked … their children will be taken away, lawsuits will be filed against them, that they will be put in jail unless they pay up,” she says. Exhausted and unable to cope, scared people pay “hundreds or thousands of dollars just to get these people to go away”.
If the debt collection industry is a disorganized mess, the “business” of zombie debt is just as terrifying as its moniker would suggest.
Buying and selling debt on the secondary market isn’t well-enough regulated, meaning that even when you think you are paying off, or have paid off, a debt to one collector, another could have the same file and insist that you pay the same sum to them.
It isn’t just shady guys in one-room offices that are doing this, either. Regulators just nailed JP Morgan Chase for trying to collect debt on accounts that it wasn’t legally entitled to, or for selling those accounts to other debt collectors. The original borrowers had already settled their accounts or paid them off, or had discharged them in bankruptcy. In some cases, this was true “zombie” debt: not even owed by the people whose names were on the credit card documents. And Chase lawyers filed fraudulent documents with the court. In light of those facts – and Chase’s status as the single largest consumer bank in the country – the $216m in penalties and fines looks like a slap on the wrist.
There are some measures that are encouraging, since they go beyond punishing abusive debt collectors to addressing some of the problems that keep zombie debt half-alive. Ohio senator Sherrod Brown introduced a bill last summer that would have required banks and debt buyers to tell credit agencies when a consumer discharged loans and credit card debt as part of a bankruptcy filing. The proposed legislation would give consumers the power to sue anyone who continued to report that debt for damages.
I'm not an expert but I would wager that Brown's bill is not undead---it is just plain vanilla dead.
Debt collecting is a high-growth business and it’s booming. Fair enough, if the reason for that growth is that Americans simply aren’t handling their debt well. But if it’s because the under-regulated industry is running amok, and spawning zombies right, left and center, it’s time to put a stop to it.
Cue Fsociety:

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