More On Zombie Debt, Why Some Debt Just Won’t Go Away
The kicker, said Mick Ranck, was when the debt collector complained about getting stiffed by a stiff.
Ranck, a former Lancaster County District Attorney, said he doubted it. His client had been dead for eight months.
But Ranck said other clients who are still very much among the living are also being “tortured” by collection agencies calling or writing letters, threatening to sue to collect “stale” debts.
It used to be that consumers could outlast creditors. Banks or other lenders would chase a debtor for several months, then turn the matter over to collection agencies, which in Pennsylvania had four years to file a lawsuit seeking repayment. But few were sued, and those
Today, a new industry has emerged: Financial firms buying these old debts and using aggressive tactics to try to pry the money from consumers who thought the matter had been put to rest.
It’s been called “zombie” debt because “you can’t drive a stake through its heart,” said Mitchell Sommers, an attorney in Ephrata. “I hate it, I despite it, I loathe it. You’ve always had people who would buy old debts, but the industry is new, and it’s really exploded in the past four or five years.”
“There’s something creepy about buying someone’s old debts for cents on the dollar and going after it,” he said. “But [the credit agencies] are just playing the averages.”
The averages can pay off quite well.
The industry took root in the late 1990s, experts say, when banks and other creditors began selling debts they couldn’t collect to the collectors. If those agencies couldn’t collect, they might sell the debt yet again.”A lot of creditors found it more advantageous to sell their debt” rather than let it just sit, unpaid, said Nate Thompson, public relations specialist for ACA International, the Association of Credit and Collection ProfessionalsRanck, a Lancaster attorney who does estate work, said he got a phone call recently from a company that had bought a pile of old debts. The collection agent said he was concerned: “I would think that your client is worried about his credit rating,” he told Ranck.
The older the debt gets, the cheaper it gets. In a 2006 column for MSN Money, Liz Pulliam Weston reported that in 2005, one company, Asset Acceptance, purchased $4.2 billion worth of old debt for $102.3 million – just 2.4 cents on the dollars.
A company only needs to collect on a mere fraction of the debt to turn a profit. And times are good in the zombie debt business, Weston wrote, noting that the amount of old debt sold in 2006 was expected to be twice that sold in 2000; between 2001 and 2005, some companies saw profits quintuple.
Profits have cooled somewhat in recent years, Thompson said, simply because there is more competition; more companies are snapping up old debt. “Years ago debt buyers would suggest that their business model was that they hoped to recover three times their purchase price within three years,” he said. “But the industry is maturing.”
One company, LVNV Funding LLC, seems to be particularly active in Lancaster County. In 2007, according to county court records available on the Lancaster County Prothonotary’s Web site, the company had active cases against 95 county residents.LVNV Funding LLC is a subsidiary of Resurgent Capital Services LLC of Greenville, S.C.
Tom Becker, a spokesman for Resurgent Capital Services, said the company would not comment on LVNV.
Ranck said several of his clients have been contacted by another firm, AFNI Collections.
Verizon spokeswoman Sharon B. Shaffer confirmed that Verizon sold approximately five million accounts to Bloomington, Ind.-based AFNI in August 2007. AFNI, she said, has collected overdue or never-paid bills for Verizon predecessor companies like GTE, Bell Atlantic and NYNEX.
“Verizon carefully reviewed all accounts before the debt sale to AFNI,” Shaffer said. “Certain accounts were marked and set aside so that they weren’t included.” That included accounts that were part of a bankruptcy, if the account owner had died or the account was fraudulent.
All the accounts, she said, previously went through Verizon’s collection process before being sold to AFNI. “It is a common practice for companies to sell old, unpaid receivables,” Shaffer said. “It’s an acounting practice used by many companies.”
She said Verizon encourages customers who receive a bill from AFNI and don’t feel they’re liable for the account to call AFNI, which “deals fairly and quickly with customers and will help to clear the charges as quickly as possible.”
Many of the debts involved are small; Ranck said one client was getting pestered over an old $40 phone bill.
Even though the statute of limitations on filing a debt-related lawsuit in Pennsylvania is four years, collectors can still take a debtor to court. The statute is “an affirmative defense,” Sommers said, meaning that “it’s up to you as a debtor to raise it.” When consumers do, “the creditor will slink off into the dead of night,” he said.
But should a debtor choose to ignore a lawsuit, it can result in a default judgment in favor of the collection agency.
Other consumers may make a small, token payment, perhaps hoping it will make the whole matter go away. Instead, Sommers said, it restarts the clock: “In effect, you’ve waived the statute of limitations, and you’re liable once again.”
The new industry seems to hit low-income Pennsylvanians the hardest. “The vast majority of calls we get about debt collectors involves this real old debt that’s been churned and churned and churned,” said Patrick Cicero, an attorney with in Harrisburg, “And we have seen a tremendous increase in debt collection cases. Our clients are being harassed and sued.”
Indeed, the tactics of the aggressive collectors often cross the line. Cicero said there have been cases in which a client gets sued for a debt he or she has already satisfied, or never incurred in the first place. “We defend those cases,” he said. But the vast majority of cases, he said, wind up in default judgment, meaning consumers are on the hook.
“Recycled debt is so cheap,” Cicero said, that just a few default judgments – or consumers who finally pay – can mean big profits for the collection firm.
Nils Frederiksen, a spokesman for the office of Pennsylvania Attorney General Tom Corbett, said the state doesn’t track zombie debt complaints, but credit-related issues in general are “constantly the No. 1 topic for consumer complaints,” generating more than 7,500 complaints in 2007.
Whether the debt’s old or new, collectors have to adhere to the same rules: They can’t call before 8 a.m. or after 9 p.m.; can’t contact you at work if you’ve told them not to; can’t contact you directly when they’re aware you’re being represented by an attorney. They can’t tell third parties that you owe debt; they can’t threaten you, use obscene language or falsely imply you’ve committed a crime.
Consumers who feel that “zombie” debt collectors, or any debt collectors, have violated the law can call the state’s Consumer Protection Hotline at (800) 441-2555.
But Mick Ranck thinks the attorney general may need to tackle the issue of “zombie” debt directly. “I called the attorney general and said, ‘I’m a small operator and I’ve seen a number of these cases. It’s inviting fraud.’ “
“I tell people, ‘Don’t talk to them,’ ” Sommers said. Better to call a lawyer; it might be better still, he said for the state to get involved.
“Since this is really a new industry, it’s probably past time for some kind of regulation,” he said.
Story by Gil Smart, Lancaster Sunday News, Lancasteronline.com
