A Quick Guide: How to Become a Debt Buyer
Are you considering becoming a debt buyer? Our quick guide can help you navigate the process. Learn about corporate and legal structures, licensing and bonding requirements, IT/digital debt collection software, and more to ensure a successful start to your debt-buying business.
Tips & Pitfalls: How To Buy Debt
To successfully become a debt buyer, it is crucial to understand the process involved in buying delinquent debt. Here are some tips and pitfalls to consider before making any decisions.
Here are some tips to help you start on the right foot:
- Research the debt industry and regulations: Familiarize yourself with the laws and regulations that govern debt buying, including the Fair Debt Collection Practices Act (FDCPA) and state-level regulations.
- Determine your buying criteria: Decide what types of debt you want to purchase, such as credit card debt, medical debt, or student loan debt. Consider factors such as the debt’s age, the portfolio’s size, and the expected return on investment.
- Identify potential sellers: Look for potential sellers of delinquent debt, such as banks, credit card companies, and other financial institutions. You can also consider working with debt brokers who can help you find and evaluate portfolios.
- Evaluate portfolios: Thoroughly evaluate any portfolios you’re considering purchasing. Review the debtor information, payment histories, and other relevant data to assess the risk and potential return on investment.
- Negotiate the purchase: Once you’ve identified a portfolio you’re interested in, negotiate the terms with the seller. Be prepared to negotiate the price, payment terms, and any contingencies or warranties.
By implementing these recommendations, you can improve your chances of success as a debt buyer. Check out The Ultimate Guide to Buying debt for more detailed guidance.
“There is no such thing as bad paper just bad pricing “ — J. Hartman “Don of Debt.”
Determine Which Type of Debt to Work With Debt Buyers Association
Once a debt has been created and backed by a legal contract that states the debt explicitly can be outsourced or sold, it can be purchased directly from the creditor’s debt originators, banks, lenders money other debt buyers or sellers themselves, or an authorized debt broker. Some debt is much easier to liquidate than others, and some debt is easy to purchase — and the two are not necessarily the same.
There are different types of debt, and laws govern each type of zombie debt. You must learn more about the laws affecting each type of debt to determine which type of zombie debt you want to buy and collect or place out for servicing.
You must ensure you know which type of debt collectors, agencies, and “debtors” you would best deal with and familiarize yourself with the laws. One also must bear in mind that laws tend to vary from state to state.
Here’s a randomized list of the types of debt portfolios that are available for purchase or sale in the open market:
- Bad Checks (Markers Check Guarantee/NSF/C2B/B2B)
- Student Loans
- Bail Bonds
- Credit Cards (Retail/Sub-Prime/Standard)
- RTO (Rent to Own)
- Utilities
- Telecom
- Auto Deficiencies
- Personal Loans
- Property Liens/Mortgage
- Payday Loans
- DDA (Checking Account Overdrafts)
- Installment Loans
- BHPH (Buy Here Pay Here)
- Merchant Cash Advance, Bridge, Equipment Financing (MCA)
- Judgments
You must become familiar with the debt-buying industry when pursuing a debt purchase of the real estate. Plenty of online forums and message boards serve the debt-buying community. You can join in on the conversation and ask questions to learn more.
Corporate & Legal Structure — Debt Buying Processes
If you’re considering becoming a debt buyer, it’s crucial to consider your purchasing entity’s corporate and legal structure. This will help shield you from liability and ensure your business operates smoothly.
One popular option is to set up an LLC (Limited Liability Company), which gives investors a good starting point for entering the debt-buying industry. However, if you want to establish a full debt buyer and collection agency with a monthly debt-buying budget, you might consider opting for an S Corp. On the other hand, if you only want to run a fraction of the debt-buying entity involved in making large purchases, a C Corp might be a better option.
It’s a good idea to consult with an accountant or legal counsel in the receivables management industry when choosing a corporate structure. They can guide you in the right direction and provide ongoing support in legal and accounting matters. With the proper corporate and legal structure in place, you’ll be on your way to success as a debt buyer.
Licensing & Bonding “ E&O “
Knowing each state’s licensing and bonding requirements is essential when collecting a delinquent debt. While not every state requires a license or bond, it’s always better to be licensed where you plan to collect a debt, especially if you’re looking to collect multiple delinquent debts in the same state. Operating without a license in some states can be illegal.
They know which states require a license or bond to become a debt buyer. Several states do not require a debt broker license or bond, including California (though strict regulations exist), Vermont, Virginia, New Hampshire, Pennsylvania, South Carolina, Georgia, Ohio, Kentucky, Mississippi, Oklahoma, Missouri, South Dakota, and Montana. However, it’s crucial to note that New York and Texas have specific requirements for licensing the buyers and bonding, depending on the city and state regulations.
Before deciding where to operate, it’s essential to research each state’s licensing and bonding requirements. Failing to obtain the proper licensing or bonding can restrict a bank or broker’s ability to sell the debt to your company, as many will only work with properly licensed businesses. By staying informed and following the necessary regulations, you can ensure that your debt-buying business operates legally and successfully.
IT/ Digital Debt Collection Software & Security
Investing in IT/digital debt collection software and prioritizing security measures to protect sensitive financial information is essential for a severe debt collector or buyer. Since you’ll be dealing with third-party financial data and receiving payments over the phone or through electronic correspondence from debtors, you must ensure that you have secure software applications, physical security, cloud storage, and secure email.
It’s crucial to be mindful of third-party service providers, such as VoIP providers, web hosting servers, data/file storage services, and invoicing services, that could potentially expose sensitive information to unsecured third parties. Therefore, you must ensure that your various third-party collection agency third-party collection agencies, local networks, and computers are secure. When selecting service providers, it’s best to stick with companies prioritizing encryption and security.
In addition to investing in secure software and selecting trustworthy service providers, you must create an emergency response plan in case of a security breach. A solid plan should focus on detecting possible vulnerabilities before a data breach occurs. Reviewing standard security requirements can help ensure that everything is secure.
By prioritizing IT/digital debt collection software and security measures, you can protect sensitive financial information and confidently operate your debt-buying business.
Regulatory Organizations
Several regulatory organizations promote accountability and ethics in the debt industry. To build a reputable business, it’s essential to register with these organizations:
- Consumer Financial Protection Bureau (CFPB)
- Better Business Bureau (BBB)
- Federal Trade Commission (FTC)
The CFPB is a government agency that provides consumer protection and oversees financial services companies. The BBB is a non-profit organization that helps consumers find trustworthy businesses and resolve disputes. Finally, the FTC enforces laws against deceptive business practices.
Self-Regulatory Organizations (SROs)
- Association of Credit Collection Professionals (ACA International)
- Receivables Management Association (RMAi)
Additional Resources and News Sources
- Insidearm is an exclusive publication of The iA Institute — copyright 2023 insideARM LLC.
American Collectors Association is a professional membership organization for credit and collection professionals that offers educational resources and standards. - Professional Bank Services provides updates on legal, regulatory, and compliance changes in the debt collection industry.
- The National Consumer Law Center publishes reports on debt collection laws.
- CBA News updates essential news stories about the banking sector, including debt collection regulations.
- Debt Collection Answers is an online resource that helps consumers understand their rights regarding debt collectors.
By registering with these organizations, you can demonstrate your commitment to upholding ethical standards and protecting consumers. Each organization has its requirements and benefits, so it’s essential to research and consider which ones are most relevant to your financial goals and your business model.
Organizations like the ACA and RMAi promote ethics and professionalism in debt buying, debt collection industries, and agencies. They oversee and authenticate their members and sponsor conferences, networking events, and education programs, including certification courses. Stayou’reas, a severe debt collector or debt buyer, owns yourself; you can contact these organizations to learn about membership plans and benefits. Being registered and certified by these organizations can enhance your credibility with institutions that prefer to purchase debt from certified companies.
However, it’s important that some companies may have received certification without upholding the highest ethical standards. Nonetheless, most members take pride in maintaining the highest ethics and professionalism.
Joining these organizations also allows clients to network and build relationships with experienced professionals.
In contrast, the BBB is a privately owned company that grades businesses based on how they handle consumer complaints, ranking them on a scale of A+ to F. It acts as an intermediary between businesses and consumers.
It makes information readily available to everyone to ensure the best consumer experience. To receive BBB accreditation, you must pay an annual fee, which can also make paid in installments.
To become accredited, you are required to act ethically and professionally. Once you have been BBB accredited, it shows customers they can trust you if they experience any issues.
Finally, there is also the CFPB, an independent regulatory agency the US government runs. It is responsible for ensuring customer protection in the finance sector.
The organization has recently regulated the debt buying and debt collection agency industry.
The agency has also worked with the FTC to ensure that individuals and companies do not exploit innocent customers or practice unethical/ illegal activities while operating in the retail accounts receivable management debt collection industry. It had investigated and prevented businesses from following a pattern of wrongdoing.
“ Judging a debt portfolio by the charge off date is the biggest misconception “- J. Hartman “Don of Debt”
Due Diligence Process
Due diligence is the process taken by an individual to satisfy legal requirements, especially when it comes to buying and selling. In other words, it is doing your homework on a potential purchase — the most critical step.
As debt buyers protect consumers do not have much protection from their investments, they need to know more about who they buy the delinquent debt and credit reports from and what the other debt buyers purchase unpaid debts from. The following will help give you an idea about the debt purchasing and collection process from the perspective of a collection agency or financial advisor that buys charged-off debt and delinquent accounts from third parties.
By leveraging the network of debt sellers, it is possible to have customers get a Sales List, typically provided as a secure spreadsheet. The network takes years of trial and error to build. It also requires referrals and extensive networking. When you launch a new startup, you do not have the capital needed for trial and error.
It would be best to deal with debt collectors or sellers that are ACA or RMAi certified. This would allow you to benefit from the best buying experience. Some sites like debt collection may point you in the right direction.
However, you must carefully review the portfolios and investments for sale. Due diligence will help ensure that you buy the right portfolio.
Research the prospective debt buyer or company from which you might want to buy debt. You may work with the debt buyer collects and have the debt buyer contacts or other debt buyers make unbiased recommendations if possible.
As a debt buyer expert, I advise caution when purchasing or selling debt through online marketplaces or debt brokers. While legitimate opportunities exist to acquire charged-off debt portfolios for sale elsewhere, doing due diligence before entering into any debt brokerage transactions is essential.
As a first-time debt buyer, one must be aware that some people may take advantage of newcomers. Purchasing debt is not the same as using credit card debt to buy or sell a product on Amazon, and there is a high risk that what debts you purchase may be bogus.
One of the challenges of buying debt is that there is no recourse if you acquire a bad portfolio. As a new debt buyer in financial distress, you are disadvantaged compared to debt buyers from established and experienced agencies or significant banks. Debt brokers may try to offload non-performing debt portfolios for sale or onto inexperienced debt buyers first, which can be discouraging.
Therefore, it is important to keep expectations low and avoid falling for lines like “We only have a minimum of $10,000.” Multiple small early purchases can drain most of your startup money and are best avoided.
Additionally, avoiding buying debt from social media or contact with strangers is crucial. Generic names should also be avoided, as they may be a red flag for a potential scam. Instead, visit the seller’s website and try to understand their service. Look out for the type of website the business has; if only one or two pages exist, it may not be worth investing money in.
Keeping up with legitimate brokers to identify the deals and the best opportunities is essential to find good money debt buyers. Once you have selected a source for the debt-buying process, the next step is to evaluate the debt buyers purchase. Even with limited information, it is vital to use the information to evaluate first-time debt buyers before purchasing.
In summary, buying debt portfolios can be a challenging and risky business. It is crucial to be cautious, do your due diligence, and avoid falling for scams. By following these guidelines, you can find legitimate opportunities to acquire charged-off debt portfolios and succeed as a broker and a debt buyer.
Issuer / Original Creditor
When reviewing a lousy debt portfolio, the first step is identifying the original creditor’s namcreditor’sThe lender’s name lenders appears for a credit card or loan debt. If the debt involves terrible checks, the name of the ACH processing or check guarantee company may appear on the credit report. The bank’s name will be listed for a bank account with overdrafts. This name reflects the original owner of the lousy debt before it was charged off or sold for debt collections only.
Types of Debt
As mentioned above, the type of debt will be selected from the lender or list of creditors.
Number of Accounts
The total number of accounts that are included in the portfolio.
Face Value
The total principal and loan balances for sale. No interest or fees should be included in the face value of the sale.
Average Charge-off Date
The date the original creditor charged off debt purchased the account. The average charge-off date for loans is around 2 to 6 months after the partial payment to the original creditor’s private lenders’ accreditors, which depends on whether the other original creditors’ or creditor’s in-creditor section efforts were undertaken.
Average Balance
The median balance is pennies on the dollar amount of each account. It is calculated by dividing the Face Value by the number of accounts.
Post-Charge-Off Agency
It refers to the number of collection agencies already working on the debt or consumer debt portfolio. The lower the post-charge-off attempt collection agency number, the more expensive the debt collector consumer protection portfolio. When only one agency has worked on the debt seller’s consumer debts portfolio, it would be more liquid. However, its value would decrease as more agencies get a hand in automobile auto loans in the portfolio.
Shelf Life of the Debt
Shelf life is the time elapsed since the last attempt to collect debts from a creditor debcreditor’slculateIt’s averaging the date of the last collection attempt. However, it would be best to be cautious considering shelf life claims, even from trusted sources. Some portfolios may have had fewer active debt collection attempts than passive ones, which can affect the accuracy of the calculation.
Chain of Title
The chain of title for the portfolio of the largest debt buyers consists of a comprehensive list of each entity that has purchased the debt portfolio. It usually is not available for viewing before you purchase the portfolio. You should receive the necessary information if you inquire the seller about the history of the portfolio.
Any portfolio debt buyer purchases should come with a complete and verifiable chain of title and be confirmed as much as possible before the purchase. It should be considered illegitimate without a whole chain of titles, portfolios, or the most significant debt buyer purchasers statute of limitations.
Media- Contracts of the borrower’s
Regarding the debt portfolio, media might not always be included, but debt and equity portfolios made with media are much easier to liquidate. And tend to be much more costly. Media includes a variety of documents, including photocopies of driver’s license images, original contracts, and more.
After you better understand how debt liquidates, you should be able to start customizing debt purchasing according to the company’s need company’s the best debt for purchase. You can get pennies on the dollar liquidation rates on portfolios from paying a prospective debt buyer who contacts a third-party agency.
When liquidating, you should know that it all comes down to the bottom line. You can determine if a debt purchase is profitable using simple math and financial planning. Before you make a debit purchase, you must do individual research.
For more information on how to become a debt buyer, check out the following sources, links, and articles:
Council Post: How To Become A Passive Debt Investor
Jeffery “ Don of Debt “ Hartman — Servicing the Recovery Industry
Council Post: Four Keys Of A Successful Debt Collection Strategy
Council Post: Want What You’re Owed? Know When To Hire A Debt Collection Agency
