The loan business

Simonsimon

I am trying to get information about the debt business,and so far I am not getting any response from any debt collectors I have asked for help - no real surprise I suppose.I want to be in possession of as much information that I can get with the aim of helping others.
As I understand it it goes like this When things get to a point that lets say the credit card people pass your file to a debt collector.The debt collectors buy your debt for 10 pence on the pound.So they buy my £4000 debt for £400,then they hope to get the other £3600 as pure profit?
But when they buy the debt then surely the debt is paid and is no longer a debt? Am I being far too simplistic?
I would love to hear from someone who perhaps was in the debt collection business or someone with a better understanding of the system.
I also wonder if the whole debt collection business model is a house of cards and has the potential to become another PPI scandal in the next few years?
Thank you.

[Deleted User]

The debt is not paid when it is sold. It merely transfers ownership.

Ebe_Scrooge

Yes, as ZX81 says the debt is merely transferred.


For example, you owe Company A £10,000. You've defaulted, and they decide it's too much hassle to chase you. So they sell the debt to Kneecap & Sons Ltd for £5000. Company A has then got £5000 in their pocket, which they have decided is better than nowt, and saves them the hassle and expense of taking you to court etc.


Now Kneecap & Sons will be keen to recoup their £5000 outlay, and make a profit on top. They'll be looking to get the full £10,000 from you - if it costs them £2000 in legal costs then they've made £3000 profit. Of course, if the court decides you simply don't have the money to pay then they're out of pocket, but that's the chance they take.


OK, that's a very simplistic example, but in essence that's how it works.

Brock_and_Roll

[QUOTE=
I also wonder if the whole debt collection business model is a house of cards and has the potential to become another PPI scandal in the next few years?
Thank you.[/QUOTE]




Not really. The legal or equitable assignment of contracts (of any nature) between two parties is a fundamental and long-established part of English company law.


In reality, the margins for debt collectors are very much smaller than in the initial example. For starters there is big competition amongst collectors to buy debts therefore this pushes the price up. The price itself depends on the nature of the debts, how long they have been outstanding, and many other factors.


To run with the original example, lets assume that a collector buys the rights to debts of 1,000 debts totalling £1m for 10p in the pound, then this obviously costs them £100k. They then have the costs of calling, mailing, chasing debtors which then generates a much smaller list of possible targets (i.e. those that have assets/cash that are worth pursuing). There are then further costs involved in pursuing and enforcing debts against these people. No one is stupid enough to carry on spending money chasing debts owed by people who don't have the ability to pay them - what they are really trying to identify are the "can pay, wont pays".


So in my example, they would need to make full-recovery against 100 people i.e. 10% of the debts to break even, but in reality they would need a much bigger success rate to stand a chance of making a profit. As a business model, it is not an easy way to get rich.

MEM62

A laudable thought no doubt but perhaps helping others should be left to the professionals - or, at least, the qualified.

poppasmurf_bewdley

Simonsimon wrote: »

I am trying to get information about the debt business,and so far I am not getting any response from any debt collectors I have asked for help - no real surprise I suppose.I want to be in possession of as much information that I can get with the aim of helping others.
As I understand it it goes like this When things get to a point that lets say the credit card people pass your file to a debt collector.The debt collectors buy your debt for 10 pence on the pound.So they buy my £4000 debt for £400,then they hope to get the other £3600 as pure profit?
But when they buy the debt then surely the debt is paid and is no longer a debt? Am I being far too simplistic?
I would love to hear from someone who perhaps was in the debt collection business or someone with a better understanding of the system.
I also wonder if the whole debt collection business model is a house of cards and has the potential to become another PPI scandal in the next few years?
Thank you.

No debt collection company is going to buy a £4k debt for £400. £40 would be nearer the mark.

somethingcorporate

Selling on debts is often a last resort and the company that buy the debt know that they are going to have a massive struggle to get it repaid (otherwise the company holding the original debt wouldnt have needed to sell it).

If they manage to get the entire debt paid then obviously they will incur overheads so the profit would not just be the differential between what they paid and what they recouped.

Hence debts are bought and sold for pennies in the pound.

mcpitman

Simonsimon wrote: »

I want to be in possession of as much information that I can get with the aim of helping others.

Who are you planning on helping? And in what capacity?