How Efforts Like Occupy’s Rolling Jubilee Could Undermine the Credit Reporting System
Much of the progressive intelligensia has been yawning over Occupy’s newest initiative to buy up and forgive distressed debt. The effort is seen as futile or useful only as a means of attracting attention to the issue of staggering personal, educational, and medical debt as a result of decades of declining household income. There is more to the story.
In the not too distant past, debtors would often make deals with collection companies where they would pay all or a portion of the debt in exchange for completely removing the collection account from their records. In effect, these “pay for delete” agreements allowed a debtor to “buy” a better credit score. Despite claims to the contrary, this was and is completely legal. This was a good deal for the debtor because a collection account marked “paid” or “settled” on your report is only slightly better than an unpaid collection account–and can result in the collection account staying on your report even longer. With this arrangement, a person who had come on hard times, but was now able to pay could improve their credit score quickly. It was a good deal for the collection company because it provided something to bargain with besides harassment and created a real incentive for recovery of debt purchased for five cents on the dollar. The only people who didn’t make out in this deal were the credit reporting agencies (CRAs).
CRAs got hip to this arrangement and were not amused. Their industry is based on providing data which banks and credit providers use to assign risk, and they make metric shit tonnes of money doing it. They also provide the threat under which our modern system of debt peonage labors. Want to find a decent job or place to live? Better not miss a payment or get sick without insurance. If people could get rid of blemishes that would normally stay on credit reports for years, this meant that the data that banks bought from CRAs was less valuable and the threat of collection activity wasn’t as great. The CRA’s sprang into action and began cracking the whip on collection agencies to stop “pay for deletes,” if they continued, the CRAs would stop reporting their debts, which would make it impossible to do their seedy business. So now when a debtor offers to pay for a delete, most collection agencies will refuse, sometimes saying it’s illegal (it’s not) or that CRAs won’t let them.
Here is where Occupy (or others like them) come in. The trick is that the debtor needs to know that the debt has been purchased and forgiven (this would be an added expense for those involved in the effort). With this knowledge, the debtor disputes the collection activity (this is legitimate, because the debt is no longer owed). The CRA will contact the owner of the debt to find out if the debt has been paid or settled or if they even own it. If the owner does not respond (nothing requires them to), the CRA is required by law to remove the collection account–like it never happened. If this starts happening on a large scale, the value of the CRAs data is reduced as their expenses are increased.
So there is a chance to disrupt the credit reporting complex, but it would take a lot of money to even make a small dent. As for helping those whose debt is being purchased and making a statement about the function of debt in our financial system, those are worthwhile goals too.
Photo by Elizabeth Brossa of the Chupacabras Affinity Group, used with permission.