Viewpoint

Here, a monthly perspective from Consumers Union on the latest challenges—and possible solutions—facing U.S. consumers today. See archived letters.

Zombie debt never dies

When the company that he worked for went out of business, Harold Wood fell behind on his credit-card payments. He hoped to get back in the black quickly, but his financial troubles would haunt him for years. The bank bundled his debt with others and sold to it to a collection agency. Then things got murky.

Wood, an information-technology professional from Kent, Wash., was called by a debt collector who said that he had bought Wood's credit-card debt. Wood started making payments to the collector, but soon he was contacted by a second one. When yet another called, Wood hired an attorney. "I realized that my credit-card account had been sold to multiple collectors, none of whom could prove they really owned it and had the right to receive my payments."

By the time Wood filed two lawsuits, which were settled in his favor, 13 collectors were laying claim to his debt.

One debt, many collectors

The debt-buying industry is made up of large and small companies, law firms, and private investors who buy and sell hundreds of millions of dollars of defaulted debt each year.

Although the law protects consumers from certain egregious debt-collection practices, buying and selling debt is essentially unregulated. Spreadsheets of debt with inadequate or no records of payments, disputes, or prior exchanges with the consumer can be sold and resold. Debt that's invalid, paid off, or disputed can reappear for years.

Statutes of limitations exist on the length of time a collector has to sue a debtor, as do restrictions on reporting the debt to a credit agency. But there's no time limit on the sale of debt. And many states let debt collectors revive a debt that's past the statute of limitations if they persuade the consumer to make a payment.

Consumers Union believes that any debt that's sold must include all information about the account. In addition, debt that's past the statute of limitations should not be revived just because the consumer makes a payment. And there should be a ban on selling or collecting any debt more than seven years after the default.