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Financial Counselor Debt Collectors

Help the debtors help themselves and you.
  (+6, -1)
(+6, -1)
  [vote for,

The idea is a debt collector that purchases debt, but rather than recovering the debt by hounding the person and threatening lawsuits etc, they provide free financial counseling to the debtor. Once the debtor gets their finances in order they are able to pay back their debts.

This could theoretically be self-sustaining since dept collectors buy the debt for pennies on the dollar. Traditionally a debt collector will try to extract that money with as little effort as possible. Apparently some are a little nicer and go as far as meeting and arranging payment plans or even forgiving part of the debt. Those are maybe fine for someone with a bad debt due to an extenuating circumstance and will eventually catch up, but I'm guessing that a significant percent are in debt because they don't know how to handle money. Teach them that and then get paid back. Of course this costs time/money to provide the counseling, but if the percentage of the debt that gets repaid is increased enough it could come out positive.

This could be a bit tricky to avoid abuse since there is a large potential conflict of interest. However there is also a large common interest. If this was started by a team of talented financial counselors who are doing it because they care about people and want to help them , it might just work.

The hardest conflict to resolve is when a good financial counselor needs to recommend that the person declare bankruptcy. I haven't figured that one out yet. You could have the financial counselor working as a subcontractor for the debt collector, but there's still conflict because if a particular counselor has a tendency to help the debtor declare bankruptcy more than another, the debt collector will tend to recommend the other counselor. And besides, if this is going to have a chance to work out financially for the debt collector, the counselor probably does need to have a vested interest so they can optimize cases individually, spending time on counseling where it will do good and cutting their losses early on cases that they deem as hopeless.

scad mientist, Nov 03 2015

Jubilee - wikipedia https://en.wikipedi.../Jubilee_(biblical)
Such "clean slate" decrees were intended to redress the tendency of debtors, in ancient societies, to become hopelessly in debt to their creditors, thus accumulating most of the arable land into the control of a wealthy few. [mofosyne, Nov 04 2015]

My favourite story about debt purchased for pennies http://www.forbes.c...presidential-plane/
[calum, Nov 04 2015]

Translated to Hebrew https://www.faceboo...ts/1679480742268700
on "The Brain" facebook page [pashute, Nov 08 2015]


       I wish financial debt could be traded on the stock market and using the profits to pay off the debt.
travbm, Nov 03 2015

       Isn't that essentially what our latest real estate crash was all about ?
normzone, Nov 03 2015

       If only there is an insurance against loss of money via political connections and being too big to fail.
mofosyne, Nov 03 2015

       I guess housing derivatives and credit card companies are too big to fail.
travbm, Nov 03 2015

       People who are in such bad debt are already known to be less financially literate, and so they will be easier victims to further schemes.   

       For example, companies would know that, under your proposed noble scheme, they might have a $200 debt, that normally recovers $30, but with counseling (costing $80), might yield $100 recovered. That's still not a profit.   

       But, the company might also realize that they could make far more money by selling these easy targets "refinancing help", where they "consolidate bills" or otherwise kick the can down the road, netting them more money in the long term, & a life-time hooked customer to bleed.   

       That's in fact what they currently do: They offer "help" with "smart financial tricks & tools" which are essentially marketing to get the victims further entrenched.   

       How do you get the bad actors out, when they are more profitable then the more noble actors?
sophocles, Nov 03 2015

       by making something like a mini debt jubilee? As in, you have this set amount of time you can expect to get your money back legally? And beyond that, the extra interest rate you can squeeze out of them will diminish to a point, then after another set period of time the debt is auto forgiven?   

       I'm sure there is thousand of holes in this, but you wanted a possible approach. Then why not make debt, not a life sentence?
mofosyne, Nov 04 2015

       Financial/facial hybrid perhaps?   

       There's a good idea in here. The details might be tricky with the conflict of interest part but that doesn't mean there's not some possibilities.
doctorremulac3, Nov 04 2015

       Sorry about the misspelled title... "Finacial" changed to "Financial".
scad mientist, Nov 04 2015

       I don't imagine this working really well for small debts like $200. It's also not quite appropriate for the situation in [calum]'s link. :)   

       Preventing abuse is definitely the hard part. The current laws preventing unfair collection practices are actually fairly reasonable if properly enforced. The problem is that many people don't know the laws so they are still susceptible to scams. For example I know someone who gave $10k to a scammer who told him he would be arrested if he didn't pay. And unfortunately it was a complete scam and didn't actually go towards any of his debts. If financial counseling debt counselors became common, I think there would need to be some consumer protection guidelines put in place, or slight additions to the law. For example, it's really easy to reset the statute of limitations on debt. This is one tactic that debt collectors use. Basically, any time you agree to a repayment plan or have some of the debt forgiven, the timer is reset. While resetting the timer is often a fair trade for the change in loan terms, one of the main incentives for someone wanting to participate in this program would be that they might be able to dig themselves out in a couple years, so if the financial counselor has any confidence in being able to help the person, they shouldn't need to reset the statue of limitations.   

       One tweak to the laws might be needed. As I understand it, making a payment on an overdue debt, or apparently sometimes even acknowledging that the debt exists resets the statue of limitations, providing a disincentive to try to make small payments or even get involved in counseling regarding a loan that is already many years behind. It looks like the statue of limitation varies from state to state in the US, and also varies by loan type.
scad mientist, Nov 04 2015


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