Americans currently owe more than $14 trillion in consumer debt. Of that, $372 billion is at least 90 days late and considered seriously delinquent. Those numbers are likely to increase as the COVID-19 pandemic persists, and debt collectors are overjoyed.
At Padgett & Robertson, we are concerned what this will mean for people here in the Mobile area if the coming economic recovery is not as quick or broad as everyone hopes it will be. Aggressive debt collection tactics push many people over the financial cliff and into bankruptcy.
Debt Collectors Rake In The Dollars
While most of us have tightened our belts during the pandemic, debt collectors are living large:
“In August, Encore Capital, the largest debt buyer in the country, announced that it had doubled its previous record for earnings in a quarter. It primarily had the CARES Act to thank: The bill delivered hundreds of billions of dollars worth of stimulus checks and bulked-up unemployment benefits to Americans, while easing pressures on them by halting foreclosures, evictions and student loan payments. There was no ban on collections of old credit card bills, Encore’s specialty.
At the same time, the pandemic compelled households to cut spending. Finding themselves with enough money to settle old debts, people responded to collectors’ calls and letters. Debt-buying executives couldn’t help marveling at their good fortune. All this created ‘a perfect storm from a cash perspective,’ the CEO of Portfolio Recovery Associates, Encore’s main competitor, told Wall Street analysts.”
Research from the federal Bureau of Labor Statistics backs up this report. It found that while most people used CARES Act payments to buy food and other essentials, about 25% used at least some of the money to pay down debts.
This is concerning for two reasons.
First, debt that has been sold off to third party collectors like Encore is often old debt that the original creditor has given up on collecting. Sometimes this debt is so old the creditor is time-barred from collecting it, and the debtor should not be worried about ever paying it back.
A lot of times, this older debt is no longer accruing interest or fees, it is just sitting there. Paying off older debt just because a collector got aggressive during a pandemic can put a debtor in a much worse financial position than they would have been in if they had prioritized other expenses or other debts.
Second, debtors that prioritized paying off older debts may end up defaulting on newer debts if the economy does not recover as quickly as everyone hopes. Debt collectors will then swoop in and buy up as much debt as they can while the economy is crummy so that they can collect another windfall if the government passes another stimulus bill or the economy improves enough that families have money they can once again go after.
Working With Mobile Area Families In Financial Distress
At Padgett & Robertson, we are working to assist as many Mobile area families in financial distress as we possibly can during this unprecedented time. If you and your family are being harassed by debt collectors, we can help you make the calls stop and put together a plan to help you move forward. Contact us today to schedule a free consultation.