Debt Collectors: Sorry, but the market just isn’t where it used to be…

The dynamic nature of the American economy means that things are rarely all bad. When the economy tanks, luxury goods retailers may suffer; however, discount stores may see a rise in profits with an influx of higher income customers and cheaper goods from overstocked inventories.

Today, as people are laid off and businesses close, business is booming in the realm of debt collection. Unfortunately, the debt collection gold rush means that collection agencies, frantic to hit pay dirt, have either forgotten or simply don’t care that the condition of the economy has made some debts simply unpayable. It’s okay to admit it! ┬áCalling 10 to 15 time a day is not going to force the builder to sell the house he can’t sell, it is not going to help sell the inventories for which the merchant has no buyers, and it is not going to speed along the accounts payable to the manufacturer who can’t collect from the merchants to whom they sold.

Put simply, the economy is more complicated than simply paying your debts. In reality, that risk was calculated long before you were ever loaned money. When the money was borrowed, you were valued based on economic conditions, potential collateral, and credit history. The potential profit made on you was weighed against the risk of loss, and a corresponding credit limit was assigned. How nice you were or how much you needed the loan was never part of the calculation.

Curiously, however, when it becomes impossible for you to pay your character is often suddenly assigned value. Character value and need which before was of no concern to a lender is suddenly at issue, either in your mind or explicitly mentioned by collectors.
Attempts to collect will be accompanied by questions about your desire to take care of your obligations. Sadly, as much as collection agencies claim it was irresponsible financial decisions that brought on consumer debt, the consumer’s inattention and lack of understanding of potential and economic value will ultimately bring the collection agencies success in collection.

In the past debt collection may have been more individualized and subjective. Collections agents may have listened to your story. However, today the collection process, as well as most of the economy, has become strictly analytical. Collection workers will listen to your story if it increases the percentage probability you will pay, adjusted of course by the time and pay rate of the associate to whom you tell your story. Moreover, collection agencies will violate your rights if the weighted cost of payment is more than the chance you will litigate weighted by the amount they will have to pay.

Simply put, it’s all about the numbers. Collections agencies typically buy debt from the originating company. The price your debt is sold at is determined by a complex formula including such things as your zip code, type of loan, last payment date, average income, etc. They will continue collections efforts until the cost of continuing collections efforts on your debt exceeds the probable collection value.

Recently, debt collection agencies have tried a “nicer” approach after analysts calculated higher payment yields from debtors. As sure as they changed for kindness you can bet they will change right back to threats and harassment if they find that approach increases yield. This is not to say that you should not explain your situation, but make no mistake: Explanations will make little difference beyond a therapeutic release.

In reality, the calls and letters will not stop until you change your probable value to the collection agency. One method of changing this calculation is lawyering up and protecting your rights. In this instance, that is the dynamic nature of the economy at work: protecting your rights makes your debt worth less, thus reducing your stress and making you more productive in the economy. Furthermore, it can be argued that a clear answer on payment will allow better calculation of our current economic situation, thus removing uncertainty and moving the economy forward.

Is this an excuse for unwise financial management? Not from my perspective. It is, however, wisely rational: Creditors based their lending decisions on analytical calculations of your ability to pay, not your character. We should, in turn, show them the same analytical respect. If you have the money to pay, take care of your debts. If not, accept that fact, protect your rights, and move forward with your head up.

Dave represents clients in Minnesota on a range of legal issues, including civil litigation, business ventures, and creditor relations. He also has expertise raising capital to finance David v. Goliath cases. (Yes, pun intended!) Dave can be reached via email at

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