How do debt collectors work? I had [a post about debt](https://www.reddit.com/r/YouShouldKnow/comments/fgfal5/ysk_you_have_rights_when_it_comes_to_debt/?utm_source=share&utm_medium=ios_app&utm_name=iossmf) in another sub that went viral so I’ve been getting a lot of comments on it. There’s so many people saying that they didn’t acknowledge their debt and eventually the debt collectors stop trying.
How tf is this a viable business? From what I understand, they buy debt at a discount and charge the full debt or even more than 100% to profit. Do most people pay the debt collectors? It seems like if a lot of people don’t pay that this would not be a feasible business to ever start.. so they obviously make money some how. Am I on the right track or am I missing something?
In: Economics
Lots of companies will “sell” their rights to a debt for a very small fee.
A defaulted small bank loan is a loss for the bank. It can’t be realistically collected because the cost of pursuing the payments is too high. The banks know it and account for it as part of their business.
But, very importantly, banks cannot allow people to simply not pay their loans without consequences. That would only encourage others to do the same and ruin the bank. So they transfer the debt to a specialized company, for only a token fee, not really because they want to regain their loss but more importantly to harass the debtor and make sure others know that defaulting on that bank is a bad idea.
Also, lots of debt collectors don’t really do anything and they run their business at very low costs. In my example (some shop claimed I had a £300 debt with them, which I did not. Somebody of the same name must have done it), they were simply sending me letters for a few years with stern warnings and legal threats. I contacted them back, only once, and tod them in on uncertain terms that it isn’t my debt and I won’t pay it. They didn’t do anything else – just computer-generated letters every few months, so it didn’t cost them much to annoy me.
After a few years (when the debt was about to legally expire) they went to small claims court, paid £70 fee and quickly resigned after I sent a letter to the court and demanded proof that I was responsible for the debt. I’m happy to report that they lost money in my case.
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