Sunday, September 09, 2012

Debt collections particularly aggressive against student loan defaults; purchasers of debt automate the lawsuit process

The front page of the New York Times on Sunday, in an article by Andrew Martin, “Debt collectors cashing in on student loan roundup: Those in default find it difficult to hide”, September 9, 2012, link (website url) here

The government has many means of direct collection, such as IRS refund seizure, social security benefit or wage garnishment, not so easily used for ordinary credit card debts.

And some debt collection companies specialize in student loan problems.

And some consumers are not told of forbearance options like “income-based repayment” which bases payments on discretionary income (at 15%), which could be difficult to assess.

A previous article in the NYT by Martin, July 12, had reported on the mechanics of automated debt collection lawsuits filed by companies that buy debts.  Ordinarily, it is not lawful, under the FDPCA, for a collector to tell a debtor he or she will be sued; but suits are legal when debts have been purchased, and there is plenty of software around to automate the generation of the legal paperwork and summonses to file the lawsuits.  There is criticism that they are often based on inaccurate information. 

Back in the early 1990s, after the first Savings and Loan crisis (before the subprime crisis of a few years ago), it was common for aggressive litigation tactics (including "letter lawsuits") to be used against borrowers with deficiency judgments, even in the cases of assumed mortgages (see James Widener, "A Homeowner's Guide to Foreclosure", Dearborn Financial Press, 1992). 

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