Occupy Wall Street activists have canceled nearly $15 million in consumer debt in the first year of a program called Rolling Jubilee that uses crowd funding to buy up and then void consumers’ debt. The program spent just $400,000 of the roughly $620,000 it has raised to date to buy up medical debts that were far enough past due that they were being resold for pennies on the dollar, marking a first-ever incursion by populist activists into an industry dominated by unscrupulous private debt collectors.
The program works by taking advantage of the same business dynamics that fuel debt collection companies. When the firm that originally sought to collect a debt — a hospital, a bank, or a private education lending firm, for example — decides to cut its losses by selling debt on which the borrower has defaulted to a collector, it usually does so at alarmingly low rates. A Federal Trade Commission (FTC) study published in January found that consumer debt sells for about four cents on the dollar in this secondary market. While debt collectors pay that price and then try to force at least partial repayment by the borrower in order to turn a profit, Rolling Jubilee simply cancels the debt and hopes the beneficiaries might pay the kindness forward by helping to fund the program — that’s the “rolling” part of Rolling Jubilee.
The Occupy program, which kicked off in November of 2012, is paying an even lower rate than what the FTC report found to be typical. A spokesman told Reuters it was paying about two cents on the dollar for debt.
The group defines its success not in terms of the topline dollar figure of debt it has eliminated — $15 million is a very small amount compared to the total secondary debt market, which measures in the tens of billions of dollars each year — but in terms of public awareness of how debt works in the modern economy. “Our purpose in doing this, aside from helping some people along the way…was to spread information about the workings of this secondary debt market,” spokesman Andrew Ross told the Guardian. “Very few people know how cheaply their debts have been bought by collectors. It changes the psychology of the debtor,” he added. “And that gives you moral ammunition to have a different conversation with the debt collector.”
On top of that moral ammunition, distressed borrowers may finally see regulators come to their aid. The Consumer Financial Protection Bureau (CFPB) announced last week that it is writing rules for how private debt collectors can pursue repayment from individuals. The move continues a push the agency began late last winter to give borrowers tools for dealing with aggressive debt collection efforts. The agency fields consumer complaints and provides template letters to help borrowers assert their legal rights in debt disputes. Complaints against collection agencies tripled from 2002 to 2010, and one out of every seven Americans now faces third-party debt collection efforts.