h a l f b a k e r yExpensive, difficult, slightly dangerous, not particularly effective... I'm on a roll.
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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.
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]
[link]
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I wish financial debt could be traded on the stock market and using the profits to pay off the debt. |
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Isn't that essentially what our latest real estate crash was all about ? |
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If only there is an insurance against loss of money via
political connections and being too big to fail. |
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I guess housing derivatives and credit card companies are too big to fail. |
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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. |
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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. |
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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. |
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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. |
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How do you get the bad actors out, when they are more
profitable then the more noble actors? |
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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? |
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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? |
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Financial/facial hybrid perhaps? |
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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. |
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Sorry about the misspelled title... "Finacial" changed to
"Financial". |
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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. :) |
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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. |
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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. |
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