Business and Economics
American household debt is at $12.7 trillion (Q1 2017). Five percent of the total or $615 billion is in some stage of delinquency. Debt collectors from 6,000 different firms contact debtors more than one billion times per year. One in eight Americans has at least one account in collection with an average outstanding balance of $1,300.
Debt collectors either operate on a contingency fee basis in that they keep a percentage of whatever they collect and turn the rest over to the original creditor. Or they buy the debt outright and keep everything they collect. Both practices lead to over-persistent, over-zealous collection practices.
A new paper from Fonseca, Strair and Zahar shows that putting restrictions on debt collectors has a negative impact on the availability of credit. Borrowers in states where debt-collection practices are less intense (owing to stricter rules) received on average $213 less in car loans and $136 less in retail and other personal loans than borrowers in states where debt collectors had a freer hand.