Illegality in Consumer Debt Contracts and What to Do About it

Abstract

More than 77 million Americans have a debt in collections. Many of these debts will be sold to debt buyers for pennies, or fractions of pennies, on the dollar. This Article details the perilous path that debts travel as they move through the collection ecosystem. Using a unique dataset of 84 consumer debt purchase and sale agreement, it examines the manner in which debts are sold, oftentimes as simple data on a spreadsheet, devoid of any documentary evidence. It finds that in many contracts, sellers disclaim all warranties about the underlying debts sold or the information transferred. Sellers also sometimes refuse to stand by “the accuracy or completeness of any information provided.” After discussing potential explanations for these issues, the Article suggests that lax regulation and a collective action problem prevents the market from self-correcting. It concludes by recommending that the Consumer Financial Protection Bureau declare the collection of consumer debts sold in this way as an unfair or deceptive act or practice.