Since posting the piece on “Debt Farming” I have come across a New York Times article reporting on one person’s effort to take on the debt farmers. Steven Katz, an accountant in suburban Tuscon, Arizona, having been burned himself, advises others on how to deal with debt collectors.

Like the character Howard Beale in the 1976 movie “Network”, Mr. Katz says in effect “I’m as mad as hell, and I’m not going to take this anymore!” Maybe his efforts will spawn a movement that goads Congress into enacting legislation that curtails the abuses of debt farming.

“The bill collectors, when they call, make you feel like the only option you have is to lay down and play dead. That’s not true,” said Mr. Katz said, who does not charge for his advice. “Nothing validates this more than getting a check.”

Call this movement revenge of the (alleged) deadbeats. Even as collectors try to recoup debts from millions of Americans struggling to pay their bills, a small but growing number of lawyers and consumers are fighting back against what they describe as harassment, unscrupulous practices — and, most important to their litigiousness, violations of the Fair Debt Collection Practices Act.

from NYTimes 4/23/2010, by Andrew Martin

The sale of debt obligations to ‘debt farmers’ is a particularly insidious practice of present day business. Portfolios of unpaid and disputed bills from phone, credit card, utility companies or retailers are routinely sold to specialized firms for pennies on the dollar. This may be a very profitable operation for the purchaser if the firm is able to realize even a fraction of the outstanding debt.

If, for example, ABC Farmers, Inc. pays as much as twenty cents on the dollar, the firm will make a gross profit of 20% by collecting on two out five of the outstanding bills. The more ABC collects, the greater its profit. Expenses are quite modest since all that is needed for this debt collection business is a computer for producing and emailing statements, a phone for calling ‘customers’ and a bank account for accepting payments. Also helpful is the tenacity of a pitbull in the collecting process.

This type of ‘farming’ is reminiscent of tax farming in the Roman Empire. An ancient tax farmer made an advance payment to the state in exchange for the privilege of collecting taxes within a given territory. The more the taxes collected, the more the profit. Once the ‘contract’ was let, the state effectively washed its hands of the matter. Much the same conditions hold for debt collection today.

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