There's a thriving industry of debt buyers who purchase very old and long-neglected debts for pennies on the dollar. They tack on fees and interest, and then try to collect the entire amount for the full amount plus interest.
They're junk debt buyers, and while their business isn't necessarily wrong or illegal, their practices often are. Problem is, a lot of debt buying firms are bottom-feeding scumbags who will resort to any sleazy tactic to make a buck, and have no respect for the law. Specifically the Fair Debt Collection Practices Act, which they regularly abuse, taking advantage of consumers' ignorance of their rights and timidity when confronted by tough collectors.
Their secret is, they purchase old, bad debts that the original creditor wrote off as uncollectable, and then pursue them years later when your credit score has come back up. See, they aren't stupid. If you're the same 420-credit score who never paid that bill for the last 10 years, they won't waste your time. But if you've gone on to purchase a home and clean up your act and you're now enjoying a 650-plus score, you're their prime target. These debtors, they (correctly) reason, are more likely to settle up these old debts now that they've achieved some financial security. Especially when the collector has illegally reaged the account and brought the debtor's credit score crashing to earth.
I've dealt with this firsthand. One of my brothers had some old account that had been following him around since college. It wasn't his, and we disputed it and got it removed from his credit report. Years later, after he'd bought his first home, a junk debt buyer started trying to collect on this old debt. Not only was the debt not his, it was older than the legal statute of limitations. So we disputed again with the credit bureaus and got it removed.
For a good analysis of all of this, check out artofcredit's forums, which are always an excellent place to go if you have questions about credit or debt collection matters.
As for the matter I was discussing, it brings up a particularly disturbing trend I've seen in my work: creditors selling debts they know to be fraudulent. Both in the case of my brother, where they sold a debt that had already been successfully disputed as erroneous, and in the case of my roommate, where a creditor sold a debt to a collector that was the result of identity theft, I've seen creditors rip off collection agencies this way.
Isn't that fraud? If I'm Macy's or some other retailer, and I find that an identity thief has written a forged check, is it right (or even legal) for me to sell that bad debt to a collector? What can the collector possibly hope to recover from that account? It just creates more work for the identity theft victim, but in the end, there's no way for the collector to win. The retailer or original creditor has at least recovered a few cents on the dollar (or possibly a lot more, since we're not talking about ancient accounts here), and the collector is sent on a wild goose chase.
My impulse is to say they deserve it. And if they're a massive junk debt buyer, they do. But smaller collection agencies who follow the rules (do any exist?) would be undeserving victims of such a scheme.
More tomorrow with the evils of Junk Debt Buyers.