Selling Debt

Did you know that banks and other institutions actually sell peoples debt?  Some of you are thinking, what the heck is this guy talking about.  Well apparently banks group bad loans together with some good ones and then sell them off to other business or people to collect the money instead.  In short, banks do not want to deal with people they know will probably never pay back their loan and then sell the debt to someone else to recoup some of their losses.  

The people who buy the debt do not buy it at its full amount, as some people can buy someone’s debt for as little as $50.  I guess the debt that banks sell are ones they made most of their money back on and the sale of that debt makes up for the remaining loss.  However, the person who owes money still owes the full amount they have to pay, but this time to the new owner of their debt.  So you get a loan from Bank of America, then they sell it to Citibank.  You now owe the full amount of what you were loaned to Citibank and not bank of America.  An issue arises where you could be still sending checks to your debts original owner, which they will gladly take, but it will still not pay down your loan as you now legally owe it to someone else.  As such people have inadvertently become delinquent on debt payments ruining their credit scores and preventing them from taking out new loans or lines of credit (I think the term Zombie loan is used to describe this situation).  The icing on the cake is that many States do not require a license for people to buy a person’s debt and thus becoming the equivalent of a loan shark.  

What can be done?  John Oliver of "Last Week Tonight" actually bought a bunch of people’s debt and forgave it.  As such, you could even potentially buy a person’s debt and then say they no longer owe anything anymore.  Another is a business that negotiates with the current debts owner and the debtor.  In this case the business agrees to buy the debt from the current owner.  From there the business now owns the debt, but rather than collecting, they charge a fee to the debtor equal to what they paid to buy the debtors debt plus an additional amount of money so that they can make a profit.

Other problems with this system are that people are not always properly notified of the transfer of ownership of their debt.  As such, the people who buy the debt typically notify their new debtors, but the original owner sometimes doesn't do so.  Therefor people discard the notification as spam mail or fraud.  You can figure out what problems occur from there.  But this can be solved if the original owner of the debt (the seller) notifies the debtor of their debts new owner.  This could help to alleviate some of the confusion people have when paying back their loans.

Final Thought:  So we got a business model and a charity model to forgive peoples debt.  We can help people in debt in a way that many probably did not think possible before.  It is amazing how selling debt, something that helped contribute to the financial crisis that ushered in President Obama can now be used to help end debt crisis for millions of individuals and businesses suffering from punishing debt.