Ethics behind the validity of a debt once sold to a DCA

andrew1 · October 16, 2006

One person put this into their posting (Nailpost actually, thank you):

" The evidence that all the paperwork has made the journey from original creditor to debt buyer. This isn't always the case - a debt seller has already written the sum off and made a claim under its bad debt insurance and claimed it off against tax and isn't too particular about the paperwork as long as it makes a few more quid. "

and it started me thinking about the ethics behind the dca chasing for a debt that actually, if the above is true, doesn't exist anymore.

A person has a debt with a bank for £1000 who sells the debt to a dca for say 15% leaving them £850 out of pocket. If they write the debt off and claim the monies back from the insurance for their 'loss' where's the £1000 come from the dca are asking for?

legalmick · October 16, 2006

When you say claim back on insurance what insurance do you think they have against debts that they get? Credit insurance is generally only used for businesses making credit decisions to other businesses not to consumers. The insurance individuals have (payment protection insurance is purely between the consumer and the insurance company). Obviously banks get a kick back for recommending consumers to take this up!

The banks take the hit of the net difference to their P&L this is what their charge off of bad debt is which is what you get all the reports in the papers about - i.e. bank charge off rates increase ...x% . As all banks cannot claim back VAT then they also cannot claim bad debt relief and therefore the difference of what they are owed to what they sell the debt for is a real loss. Obviously this is what they anticipate/forecast forward on which also determines what they set interest rates on so they can still make "huge" profits.

With regards a debt purchaser they have to try and recouperate their upfront investment + any cost they incur in the process. Therefore I guess they are weighing up their upfront risk to what they believe will happen over time. If it's of any comfort not all debt purchasers make money on debts they buy as there was one recently that went into liquidation.

andrew1 · October 16, 2006

Hallo legalmick - we meet again

Actually, I don't know if there are bad debt insurances the bank hold. I know trading companies can cover their debt, I was picking up on Nailposts posting on the capquest thread where he seemed to imply they did. It set my mind going.

As for the debt purchaser - that's just a commercial decision and sure they must lose heaps in uncollectable debt, but to be honest the dca in the equation is what I wondered about. IF the debt is accounted for in bad debt write off with the bank, then it would seem reasonable to believe that the shortfall they expect to have due to bad debt is reflected in their interest rate charges - or charges per sa. In which case they have accounted for any anticipated loss by including it in their overheads and by charging others. IF they also have a bad debt insurance such as Trade Indemnity provide that too would cover certain loss. What might be a reasonable assumption then may I venture, is that although the DCA pay a % in the £ on a commercial transaction basis the debt to the bank has for all tense and purpose been satisfied.

For example - on my credit file I have a credit card account I took out before my business crashed (landing me in a financial mess). The detail on my report states that the debt was 'satisfied' long before any dca's got involved despite there being over £2500 remaining on the outstanding balance. I had a number of dca's contacting me about the debt by telephone all of who I had not heard from by letter nor had I heard anything from the card holder. I have now been advised the debt has been sold and passed to yet another dca. So, how would my report state it is ' satisfied ' unless the card company had effectively written it off?

Forget the actual debt scenario and dca's, but what exactly do you think has been done by the bank to trigger that satisfied statement to the credit reference agencies?

Now, if the debt has been dealt with by the bank, whether they were paid through insurance or not where do the ethics stand as to the DCA now asking me for the full balance assuming they get it all their % profit is enormous 85% ( I have no issues with commercial profit or the %- just the the other issue outlined) and do they really have a moral right to ask for something that actually doesn't exist?

.

legalmick · October 16, 2006

As far as the bank posting it as satisfied it's either an error or it isn't actually satisfied but marked as sold to a debt purchaser. What is "supposed" to happen is a bank marks the file as sold by posting "8" on their status on the account when they update - this 8 = sold to debt purchaser and then the debt purchaser opens the account as open again under their own banner. This is what is known as the rules of reciprocity between a seller and a purchaser. This is an obligation by both sides of the transaction so one "shouldn't" exist without the other.

With regards the bank forecasting their losses it doesn't stop them trying to minimise this loss (i.e. by selling the account and getting back what they can).

With regards the purchaser they also have to work on the basis that they have to fund the transaction upfront (i.e. if they are buying a large portfolio this could in itself be millions - rather ironic really they get in to debt to buy debt!). This financing obviously has a cost upfront and so does the cost of the call centre and staff etc,etc. You can also assume that there will be a high % of the accounts they will never be able to find or even strike up an arrangement with. On top of this the payments that they will expect to receive will also be over a long time given most people they will talk to will be in severe financial difficulties by the time they get the account. Add to this obviously not all will either have any ability to repay or even any will to repay. All this amounts to their "calculated risk" upfront on what they pay as a % on the debt. Either way if they get contact they are going to be keen to get an arrangement one way or the other to clear the amount. Obviously the more payments they get the lower their risk is in what they have paid upfront.

This doesn't give them the right however to mistreat/misguide/treat people unfairly which is clearly why these forums have alot of use to advise consumers accordingly.

actionagainstcapquest · October 16, 2006

Capquest make money by sending loads of letters which have very legal weight, harass people with automated phone calls and generally become a bad absecc on peoples backside. What I cannot understand is why people pay them a penny. They have recently parted company with their legal team as the directors at Keppe and Partners didnt enjoy the post they were getting (at home as well as work). George Keppe has a nice holiday home in Wales!!

A few facts on Capquest, the main man is Paul McQuilkin, married to Deborah, he is an accountant by trade, works for Fujitsu. Look his house up on Google Earth!!! One director lives in Switzerland and another Dircetor Michael Daniels is an American living in London. The fourth director has registered a false address with companies house. Home Addresses to follow...send them post with stamps missing...costs them £1 for every envelope.

Their OFT license expires in Dec 08

So the message is clear, dont pay them a penny; you do not need to. They dont even know how to file a N1 claim form let alone threaten anyone that they are doing so. (Rumour has it, McQuilkin is under investigation by the Inland Revenue....see you behind bars soon chap :-) )))

Best regards

Actionagainstcapquest

andrew1 · October 16, 2006

Actionagainstcapquest - I dont think you'll get very far with an attitude like that and you'll fall straight into the hands of people who seem to think we are all nutters. What on earth are you talking about?

Whether a director of a company lives in Switzerland or has a holiday home or not, doesn't pay his taxes, or is married to someone called Deborah has absolutely NOTHING to do with getting justice for people.

If you started a business and broke laws then there are procedures and courts to deal with that, if you made profits from the venture and had taken risk to start a company and bought yourself a ferrari with the profit - good on you, praise for the success. But hang on a bit - what are you angry about or campaigning about? Profit or the fact they have holiday homes?

If it's the business activities and they break laws use the system to change it and challenge it, just as all on this forum are doing. If a CCA request establishes they own the debt then that's the people you have to pay. Thames water have just been sold to the Aussies tonight for £8billion - so everyone will have to pay them rather than the previous owners would you complain that the directors have holiday homes then and not pay them a penny either?

No, I thinkyou are going the wrong way about your quest. Use the tools available within the laws of the land - stop the harrassing phone calls ( communications Act 2003 ) stops it dead. Use the Consumer Credit Act prove ownership. Use the Data Protection act - stop the processing of your data if you wish - and search through the threads and use the rest of the laws available and try not to be a hothead blowing daft hot air and acheive nothing.

Sorry Actionagainstcapquest, but despite the fact that I too despise the way these DCA's work - the only way is to play them at their own game and intimidate them with FACT & THE LAW.

andrew1 · October 16, 2006

As far as the bank posting it as satisfied it's either an error or it isn't actually satisfied but marked as sold to a debt purchaser. What is "supposed" to happen is a bank marks the file as sold by posting "8" on their status on the account when they update - this 8 = sold to debt purchaser and then the debt purchaser opens the account as open again under their own banner. This is what is known as the rules of reciprocity between a seller and a purchaser. This is an obligation by both sides of the transaction so one "shouldn't" exist without the other.

With regards the bank forecasting their losses it doesn't stop them trying to minimise this loss (i.e. by selling the account and getting back what they can).

With regards the purchaser they also have to work on the basis that they have to fund the transaction upfront (i.e. if they are buying a large portfolio this could in itself be millions - rather ironic really they get in to debt to buy debt!). This financing obviously has a cost upfront and so does the cost of the call centre and staff etc,etc. You can also assume that there will be a high % of the accounts they will never be able to find or even strike up an arrangement with. On top of this the payments that they will expect to receive will also be over a long time given most people they will talk to will be in severe financial difficulties by the time they get the account. Add to this obviously not all will either have any ability to repay or even any will to repay. All this amounts to their "calculated risk" upfront on what they pay as a % on the debt. Either way if they get contact they are going to be keen to get an arrangement one way or the other to clear the amount. Obviously the more payments they get the lower their risk is in what they have paid upfront.

This doesn't give them the right however to mistreat/misguide/treat people unfairly which is clearly why these forums have alot of use to advise consumers accordingly.

Firstly my status went S321000000000 - that to me says satisfied but I'll phone the CRA to check that is what it means. There is also the matter of the 'end' date and no further processing after that - hardly a mistake. Not an 8 to be seen !

Anyway

Thanks for that insight legalmick. Just to clear the wood from the trees here for you as I seem to hear two things from you, let me just expalin something. I run a business ( in the credit industry as it happens) I fully understand profit, bad debt provision, risk, risk management, the need to cover running costs and I also understand the motives for the DCA to exist in the equation, make profit, lose a lot, take risk and I can see you are beginning to understand that this job they do is not always executed in the fairest and authodox manner ( putting it kindly!)

I also understand that if a bank does not get paid by the debtor then they are going to make a loss on that transaction and can do what they like with it to leesen (! freudulent slip there !) 'lessen' the impact (ie: sell it for something rather than get nothing) fine, I have no problem with that either. What I am trying to get at is the cover the bank then take in addition to the proceeds. Such as the insurance (if any) they take out which actually PAYS out for their loss and covers the loss thereby cancelling out the debt loss. What is the ethic of the dca then to charge us for the full amount of the debt, effectively how can the bank then sell something which by definition now doesn't exist? Do you follow my though trail here?

caledfwlch · October 17, 2006

What baffles me is, if they are happy to sell to a debtor for 15% of the debt or whatever the figure is why not just offer it to the CUSTOMER first at that price? Banks are just mad. It would be a better system for them when things get to the stage that they consider selling, as the original creditors I believe they also hold a responsibility for the actions of the institutionally corrupt DCA'?

andrew1 · October 17, 2006

What baffles me is, if they are happy to sell to a debtor for 15% of the debt or whatever the figure is why not just offer it to the CUSTOMER first at that price? Banks are just mad. It would be a better system for them when things get to the stage that they consider selling, as the original creditors I believe they also hold a responsibility for the actions of the institutionally corrupt DCA'?

Actually, that's just common sense, but don't you think the threat of dca's make a lot of people pay? If we all knew they would do a deal then nobody would pay, but it would be a really nice way to retain customer loyalty if they offered us the option to buy our own debts back at a reduced amount. Some offer full and final settlements but they are nothing like the figure they sell the debt to a dca for.

lookinforinfo · October 17, 2006

I can understand your point Andrew, and have a certain amount of sympathy with it.

And yet, and yet.....

If you turn the argument around, what you are saying is that just because a

bank for example, has sold on a debt, then that should absolve the debtor

from repaying the whole amount.

Why should that be? The bank will have been allowed firstly to offset the bad

debt against its other profits tax wise. But that doesn't cover the whole debt.

In addition, who is paying for that concession that the Inland Revenue has

allowed? All taxpayers.

So just because part of the debt has been written off at the bank, that amount

written off been transferred to the taxpayers. So when the debt collectors

recover any part of that debt, they will be liable to tax on an element of the

monies reclaimed which then goes back to repay the taxpayers.

On a moral note, is it equitable that one debtor should be let off paying, whilst

another pays the whole amount? I am as guilty as probably others on this forum

of being unable to repay my debts on time, but I accept that as I got the product/

service whatever, that I should have to repay it. Maybe not right now, but at

some time.

What does concern me more, is that once you are down, the present system seems

to want to keep you down by imposing ever harsher financial penalties when you

are already incapable of repaying the original debt.

What you are asking is that once a debt has been written off and or sold on,

that the debtor should not then be liable for the whole debt. I don't follow your logic. If someone borrowed say £10,000 and only repaid £4,000, then regardless of

how much is written off and what is sold on, and for how much,the debtor still has

a liability and a responsibility to pay the outstanding £6000.

andrew1 · October 17, 2006

I can understand your point Andrew, and have a certain amount of sympathy with it.
And yet, and yet.....

If you turn the argument around, what you are saying is that just because a

bank for example, has sold on a debt, then that should absolve the debtor

from repaying the whole amount.

Actually, that's not quite what I am saying lookinforinfo, I wasn't coming from the angle of not taking ownership and the responsibility of repayment of the debt on the contrary.

Why should that be? The bank will have been allowed firstly to offset the bad

debt against its other profits tax wise. But that doesn't cover the whole debt.

In addition, who is paying for that concession that the Inland Revenue has

allowed? All taxpayers.

You are quite right, the taxpayer picks up the tab in that case.

So just because part of the debt has been written off at the bank, that amount

written off been transferred to the taxpayers. So when the debt collectors

recover any part of that debt, they will be liable to tax on an element of the

monies reclaimed which then goes back to repay the taxpayers.

Perfectly understandable

On a moral note, is it equitable that one debtor should be let off paying, whilst

another pays the whole amount? I am as guilty as probably others on this forum

of being unable to repay my debts on time, but I accept that as I got the product/

service whatever, that I should have to repay it. Maybe not right now, but at

some time.

No, it is not equitable and I couldn't agree with you more. Life is about negotiation and we all negotiate our way through life doing the best we can within our means so you are right.

What does concern me more, is that once you are down, the present system seems

to want to keep you down by imposing ever harsher financial penalties when you

are already incapable of repaying the original debt.

Thats the unfairness of it all and where better practices by both the banks and the consumer needs a lot of work doing to it.

What you are asking is that once a debt has been written off and or sold on,

that the debtor should not then be liable for the whole debt. I don't follow your logic. If someone borrowed say £10,000 and only repaid £4,000, then regardless of

how much is written off and what is sold on, and for how much,the debtor still has

a liability and a responsibility to pay the outstanding £6000.

Not exactly, No. What I was really asking maybe doesn't have an answer which can be easily explained. I was working on the premise that there could/is/may be insurance cover, like a lot of businesses have to cover trade debt. Yes, of course that has to be paid for through higher interest charges and general bank charges but then so are write offs. They are built into their 'running costs' bad debt provisions etc. which I know has to be paid somehow by the end user ie the consumer. If you can remove the moral issues which I am 100% behind you on, think about the debt, say £10,000, we repay £4k there's 6k left unpaid for whatever reason. Either our own insurance pays it or some of it, or in the case that it is technically 'written off' wouldn't the banks trade bad debt cover insurance pay it? If so the insurance company loss adjusters would expect salvage money - step in the debt purchasing company who then pay say 10% for it. That reduces the debt loss for the bank by £600 paid by insurance to £5400 or whatever % they are prepared to payout. Leaving the bank with a loss but much reduced loss ( we'll forget the tax write off benefits from the equation for the reasons you state ).

Now, given the balance of loss to the bank is now considerably less, the dca have to recover their initial cost and make a profit, but they are chasing the £6k having paid £600 + their running & profit costs to collect.

My point is after all that process is it right that we should be chased for the £6k ?

Simple as that !!!!! maybe I should run off and annoy Vamp or someone !!!

lookinforinfo · October 17, 2006

Your argument appears to be that if the original creditor does not pass on trhe debt,

then you are ok about them pursuing the debtor for the outstanding £6000, to

continue the example.

Yet, where the creditor passes on the debt because they feel they are unable or

unequpped to collect further sums, and even though the debtor has made no further

payments, you feel that it is unethical for the debt collector to attempt to claim

the same £6000 that you agreed was ok to collect by the first creditor.

What if the debt collector had bought the debt for £5000? Would they then be justified in your eyes in claiming the £6000?

If yes,then your argument falls down. Since if they caanot recover anythiing and sold it on for £4000 say, would the new collector still be justified in going after

the £6000. After all they know that it is not going to be easy [or cheap]

to collect this outstanding amount- and it will also probably take a long time.

Now they give up on the collection and sell it on for £3000 and so on. At what point

in those circumstances do you think it becomes unethical for the collector to not

attempt to reclaim all the debt?

By purchasing the debts at such a low price, the market is reflecting the likelihood

of the debt collector collecting on those debts. If there were massive profits

to be made from this situation, then either the original creditors, on seeing this,

would either improve their method of collection, or sell for a higher price.

andrew1 · October 17, 2006

Hi Lookinforinfo, I think I'm running you around in circles !:-| I know what you are saying and the more I try to explain myself the more I am fuzzing my original thought :oops: ( when in a hole stop digging !) Everything you have said is perfectly acceptable and I have no issues with the scenarios you suggest and no I don't expect to reduce a debt either to the original bank or to the dca - that wasn't the point I was persuing. However - you are contributing to many other worthier causes on this site than me on this particular daft point so I really ought to let you get back to them they need you more than I on my carousel . Now I'm beginning to wonder what I was asking in the first place! I know what I mean I'm just having trouble getting the precise point across I was trying to make - it's not important anyway. I think this site gets us asking too many questions, fogging the brain ! ! Maybe I'll come back to it once I know how to say it ! I'll work on it ! :confused:

Thanks anyway - nothing ventured !.....

redfox · October 31, 2006

Hi,

I wonder if you could answer a couple of questions for me on behalf of a friend please?

If a debt company buys your debt from a credit card company, is the debt company then entitled to add charges and interest to your outstanding amount?

Also, is there a time limit on outstanding debts? ie; If you have had the debt for more than 6 years?

Thank you.

andrew1 · October 31, 2006

Hi,

Let me direct you to another post http://www.consumeractiongroup.co.uk/forum/debt-bailiffs-advice/41497-debt-grow-1000-month-2.html

You will see the answer to your first question there in more detail, but the answer is NO.

You often find though that if you have come into an arrangement to repay the dca then they do try to add charges and interest if you default on the payments.

As for the 6 years. That relates to the statutes of Limitation where a debt is ruled uncollectable if you have had no contact whatsoever with the people chasing the account be it the original finance company or a Debt collection agency. BUT one call, one letter one murmour and your 6 years starts all over again.

Come back if you need more help. Start you own thread and let us follwo you. Just post a link to it here.

slowlybutsurely · October 31, 2006

Interesting topic - one way of looking at it, say for a £5,000 debt

Creditor

You have had an XYZCard for years and always made at least minimum payments, your balance and credit limit is £5K. Your circumstances change and you cannot maintain payments. XYZCard has probably been paid back the 'capital' amount and faces losing profit as opposed to capital if you default. The fact that this is unsecured lending is factored into the interest rate you have been paying and probably assorted charges, XYZCard also has no direct route to getting their money back as the sum is unsecured, therefore they will have to litigate and queue with other creditors to force payment. They may try and negotiate with you but XYZCard is not really keen on DMP's as they take too long and are too costly and time consuming for them to bother with. XYZCard then sells your account for a figure based on several factors, age of debt, payment history - say the DCA pays 30% for it - XYZ receives £1,500 - so in probability (this will not be the same in all cases) XYZ has actually collected the original capital sum loaned to you from your payments to date and receives £1,500 from the DCA.

In round figures, over the life of the account you have repaid the capital sum (and some probably) plus the payment from the DCA - XYZ card has received £5,000 plus £1,500 = £6,500 - there is no physical loss of money to XYZ Card over the life of the account, only a reduction in margin. I suspect this is why the majority of card companies 'sell' accounts. Clearly this is only the case for long term cardholders - say 5 years. For a recent cardholder XYZ would face a clear loss but then again if a cardholder defaulted so early then XYZ's lending policy would be under question.

DCA

XYZ DCA buys the above account for £1,500 and now claims the full £5,000 balance or boy will there be trouble, you 'owe' them bigtime you are a feckless fool who deserves all they throw at you......(really...?)

XYZ DCA has bought the equivalent of a car with no MOT, without even seeing it....which is reflected in the price. They don't know you from a bull's foot and they don't care - you have no relationship with them. They have bought this account for next to nothing, knowing that you are in financial difficulty and cannot pay the balance. They will use the length of time this has been 'outstanding' as a stick to beat you with even though they have only 'owned' it for 5 minutes.

They can take you to court (even though most don't due to either the upfront costs or not actually having the paperwork in place to do this), but they could and some do.

So in summary, XYZ DCA can use the full weight of the court - to recover the 'full amount' of a debt 'plus costs' they recently bought for 30% of the value - knowing you are a debtor in the first place - purely to make money out of you - a mark up of over 300%. For a capital sum that (as outlined above) you have largely or completely paid to the original creditor over the life of the account.

This doesn't strike me as a very equitable situation.

andrew1 · October 31, 2006

2 things. 1) are you suggesting this applies to 'rolling credit' like a card?

2) what are you suggesting in summary?

simonjohn · October 31, 2006

Hi,

Let me direct you to another post http://www.consumeractiongroup.co.uk/forum/debt-bailiffs-advice/41497-debt-grow-1000-month-2.html

As for the 6 years. That relates to the statutes of Limitation where a debt is ruled uncollectable if you have had no contact whatsoever with the people chasing the account be it the original finance company or a Debt collection agency. BUT one call, one letter one murmour and your 6 years starts all over again.

Just a point of clarification on the 6 year period.

This can only really be restarted If:

1) You acknowledge the debt in writing

2) You make any payment towards the debt in the 6 year period.

Simply speaking to the creditor or a request for information under the consumer credit act is not sufficient evidence that you have acknowleged the alleged debt.

slowlybutsurely · October 31, 2006

2 things. 1) are you suggesting this applies to 'rolling credit' like a card?
2) what are you suggesting in summary?

I'm suggesting this applies to some form of agreements - for example if you had paid 36 out of 48 personal loan payments you will have repaid the capital sum plus an element of the interest. This would also apply to some long term credit card holders who had made continuous minimum payments.

I am making the distinction between a financial institution facing a capital loss - if you haven't made sufficient payments to cover the amount loaned , over a situation whereby the bank is effectively losing margin.

I was also posing the question of whether it is morally equitable for a DCA to have the same powers of recovery as the original creditor, when they have bought the account at a substantial discount knowing it is a debtor and purely to make money from the situation. Surely there is an element of force majeur?

It would be like buying a car without an MOT, knowing it doesn't have an MOT and then having the power to sue because it isn't a new car......

On another note, it has been conveyed to me in the past that a DCA didn't care if I paid or not as the bank would claim off their insurance anyway - I don't know if this was bluster or is true.

By the way, I'm not condoning anyone avoiding payment or not making agreements to meet their debts, I'm just posing the question (which you also asked) about where the loss is in the system. Is there, or should there be a distinction between a total loss of the capital sum or a bank taking a hit on their profit on the account? And then selling this account for less than they would settle with you for,to a DCA to make money out of who has the same powers of recovery as them?

Is this equitable was my question?

lookinforinfo · October 31, 2006

Your explanation of how creditors fare is a tad over simplified.

Staying with your analogy of a £5000 bank loan first.

You must surely accept that borrowing from a bank is vastly different to a personal

loan between members of a family say. The bank is subject to laws and will have

incurred expenses such as staff, buildings, rent, taxes, advertising, printing,

insurance, licences etc etc. Now admittedly those costs will be spread across all

their products and services, but at the start of the loan the breakeven point for the £5000 may well be around £5500 over a four year payback time, when inflation is taken into the equation. And with interest rates being so low at the moment, it

would probably be about the end of the third year before the breakeven point arrives on a four year loan, and that is before tax is taken into the calculation.

Obviously, most people do complete the loan term, but equally obvious that of the

ones who don't, they will be spread right across the term from year 1 to 4 in this case. So few possibilities to find a profit within the defaulters except those who do

so in the closing months.

Moreover, the point of lending money is to make a greater profit than would

otherwise be made by simply depositing the money in a building society savings

account for example. The risk in lending, especially when unsecured, must be

reflected in higher interest rates or what is the point in lending?

lookinforinfo · October 31, 2006

Now I will look at a credit card company, which is a completely different kettle of fish to a bank advancing a loan. For a start with a loan, the money comes from

in-house, whereas a c/c company has physically paid another company for a

product or service on its customers behalf.

With a loan, the balance is [or should be] constantly reducing thus giving a much

clearer picture of when an account is in profit. A c/c account may well fluctuate

from month to month and indeed, the customer may well have paid off more than

£5000 over time. But if the account is now standing at £5000 again, it means

that the c/c company has again laid out a further £5000. Admittedly, their

interest rates are usually higher than bank loans, but it is a reflection on the

greater risk involved in c/card lending. Not to mention greater possibilities of

cheque card fraud than bank loan fraud, thus diluting their potential profits.

lookinforinfo · October 31, 2006