1188: Debt Collection | Skeptical Sunday

1188: Debt Collection | Skeptical Sunday

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Jordan Harbinger: [00:00:00] Welcome to Skeptical Sunday. I'm your host, Jordan Harbinger. Today I'm here with Skeptical Sunday co-host, writer, and researcher Nick Pell on The Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people and turn their wisdom into practical advice that you can use to impact your own life.

And those around you. Our mission is to help you become a better informed, more critical thinker. During the week, we have long form conversations with a variety of amazing folks, from spies to CEOs, athletes, authors, thinkers, and performers. On Sundays, though it's skeptical. Sunday, we're a rotating guest co-host, and I break down a topic you may have never thought about and debunk common misconceptions about it.

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That'll help new listeners get a taste of everything we do here on the show. Just visit Jordan [00:01:00] harbinger.com/start or search for us in your Spotify app to get started. It sucks being behind on your bills. One reason it sucks is that you have to deal with debt collectors. If you've ever been behind on payments, you know all about the sick feeling.

You get in your stomach worrying about these debt collectors. You get letters in the mail, your phone rings at all hours With people who only speak back after you say hello three times. They talk to you about legal action charge offs, maybe even the scariest word of all garnishment. Talking to a debt collector is about as fun as getting a root canal.

The whole process can feel really intimidating, even if you have every intention of paying back the money, but you just can't right now. One of the reasons that it can be so scary is that you just don't know where the process is going. You're positive it's gonna get worse. You're just not sure how. What is the worst case scenario you're looking at?

If you have debt collectors breathing down your neck, what are your rights? Can they really take you to court? More to the point, will they, are they bluffing or is your catastrophic anxiety actually warranted? Here to help me garnish this episode with some actual expertise is writer and researcher [00:02:00] and former deadbeat Nick, Pell.

Nick, how you doing today?

Nick Pell: Emphasis on the former. Yeah. Doing great, man. Uh, really fired up to talk about this topic because it astonishes me how little people know about this and how scared they are over nothing really.

Jordan Harbinger: Just so people know, one of the reasons I ask Nick to help me out is you have some interesting experiences with debt collectors.

Yeah, yeah. I've had them owing me money. You've told me about this in the past, but, and trust me guys, there's more here than just Nick bragging about pulling an UNO reverse card on debt collectors. So let's start at the beginning. What happens when you stop paying your credit card bills for whatever reason?

Nick Pell: At first, nothing after your 30 days late, you're gonna get a warning and your credit score is going to take a significant hit. It might be over a hundred points, depending on where your credit score is. If you keep not paying, you're gonna get more attempts at contact from the credit card company. And where things really begin to change is when they do what's called a charge off.

Jordan Harbinger: So what is a charge off? I've never heard of this.

Nick Pell: Well, I have, 'cause I'm, [00:03:00] I'm kind of a serial credit delinquent. Not anymore guys. I pay my bills like a, like a grown up app, but, uh Okay. Charge off is what they call it. When the credit card company gets tired of trying to collect their debt, they assume you are not going to pay it.

So for them, it's better off to use it on their financials as bad debt. They sell it to these third party debt collectors, and that really is the thing that most people are talking about when they talk about debt collectors. They mean third party debt collectors, not, you know, chase or Citibank calling you trying to get their money.

Your credit card company is not covered. By the Fair Debt Collection Practices Act, which is the main law that governs debt collection.

Jordan Harbinger: Okay. We'll talk a little bit more about that in a bit. 'cause I have questions, but why would anybody want to buy your bad debt? Doesn't it seem like a bad idea to go and purchase people who can't pay the bill?

You're basically, they're, they're buying your bill of goods that you've already proven that you can't pay that. Why would anybody buy that?

Nick Pell: Yeah, they're buying your delinquency. So the credit card companies sell it [00:04:00] because it's better to get something instead of nothing. They sell it. They don't just give it away.

As for why the debt collectors buy it, they buy it at a pretty steep discount because they think they can collect it. So say you owe the credit card company $5,000, the collection agency might pay 500 bucks for that.

Jordan Harbinger: Wow, okay. That's crazy. They're paying 10% of your debt for the privilege of trying to collect the whole thing.

Maybe.

Nick Pell: Yeah. And 10% is the high end, by the way. They might pay 50 bucks for it. So from their perspective, it makes good business sense because if they get the whole thing, that's a serious return on their money. It also means they have tons of room to negotiate in terms of settling the case. So if they paid 500 bucks for your credit card debt and then you pay them 2,500, they're still up $2,000 uhhuh.

It's slightly more complicated than that because obviously they have overhead that isn't just buying your debt. But in terms of keeping the math simple, I think listeners have gotten the point about why this is a lucrative [00:05:00] business model.

Jordan Harbinger: Sure. So the third party debt collectors are now the legal owners of your debt.

Sometimes

Nick Pell: it could be owned by one company who then hires another company to collect it on their behalf. Their companies whose whole business model is just owning a lot of debt. And there are others whose business model is collecting that debt and some companies do both. I think for the purposes of our discussion, the difference is kind of irrelevant.

First of all, we're only really talking about the collection agencies. Second, you're almost never going to deal with a third party whose only skin in the game is owning your debt. Finally, people who aren't trying to collect your debt are not going to be covered by the Fair Debt Collection Practices Act because they're not trying to collect the

Jordan Harbinger: debt.

Got it. So the main takeaway here is that the credit card company assumes, okay, you're, this guy's never gonna cough up the money. They're tired of dealing with it and getting stonewalled. So they handed off to some maybe sketchy company who calls you six times during dinner.

Nick Pell: They actually can't call you six [00:06:00] times during dinner.

That's one of the provisions of the Fair Debt Collection Practices Act.

Jordan Harbinger: Okay. So th this is where it starts. I assume getting really sexy. So the Fair Debt Collection Practices Act, make sure you're sitting down people, it's gonna get exciting over here. This is a real consumer protection law with some actual teeth.

One of the reasons these companies can bully people and get away with it is because people don't know the law. They don't know their rights. They don't know where they can actually push back on these guys. So let's start by talking about what they can do. Because I think that what they cannot do is really where it starts getting interesting, and of course, where people can take action if they're being harassed by these guys.

Nick Pell: So what they can do is actually not a lot. They can call you between 8:00 AM and 9:00 PM local time. They can contact third parties once and only to find out where you live. They can send written notices telling you that you owe them money, but those written notices have to let you know that you have 30 days to dispute the debt.

Jordan Harbinger: So read the fine print people. Yeah. So it's [00:07:00] important for people to know that you can indeed dispute a debt, and just because someone calls you and says you owe them money, doesn't actually mean that you owe them money. If I came up to you in the street, you're getting your cinon on or whatever. I say, Hey man, remember that 50 bucks you owe your brother.

Well you owe that to me. Now you gotta pay me. You'd probably do something to verify whether or not that was even true. And so the same principle applies here,

Nick Pell: right? Finally, they can do the thing everyone is worried about when it comes to debt. They can sue you. They have to sue you in the correct venue, which is either where you live or where you sign the contract.

Jordan Harbinger: So what about the stuff that they cannot do? Because I'm gonna guess that at least one person is gonna listen to this and think, wait, wait. Somebody trying to collect money is definitely doing that to me or did do that to me. I might have a case against them.

Nick Pell: And you know, there probably is someone out there that's going to start a case after they listen to this episode.

Jordan Harbinger: Good. Okay. Because

Nick Pell: there are so few things they cannot do. And all of these are totally reasonable restrictions. Completely unobjectionable, and yet there are over a hundred thousand [00:08:00] complaints about fair debt collection practices, acts violations every year.

Jordan Harbinger: Honestly, it doesn't surprise me mostly because I've known guys who have worked for debt collectors to earn money over summer break in college or something, for example.

But a lot of guys that those guys worked with, not exactly elite human capital, let's put it that way. A lot of these companies, they pay on commission. For the most part, it seems like you get briefed on the Fair Debt Collection Practices Act one time during your orientation at the YMCA or whatever, and then you're just turned loose with a headset that you bring home.

And it's a great little gig if you're smart and you know how to negotiate. But I think for a lot of people it's just a disaster waiting to happen.

Nick Pell: It's not just how educated they are on on the ACT itself. It comes down to temperament. Can the agents keep their cool when you are being a jerk or just refusing to pay?

Can they do that on 20 or 200 calls a day?

Jordan Harbinger: Yeah. Some of the guys doing this are total pros. In fairness, I mean, I've definitely had experience talking with people for debt stuff back in the day, or on behalf of [00:09:00] clients when I was a lawyer, and I was like, okay, these people are legit, but you can turn the tables on them and have them owing you money, which is kind of awesome.

And I'd never really thought about that.

Nick Pell: Yeah, so the name, the Fair Debt Collection Practices Act on super boring, but it's the main law governing what debt collectors are allowed to do and say in pursuit of their money. It really limits what they're allowed to do, and if you play your cards right, you can actually turn the tables on your debt collectors and have them owing you money.

Jordan Harbinger: I've heard you talk about this before, just in casual conversation, but how can you have debt collectors actually owing you money? That's, I think a lot of people's ears are perking up when they hear this because, well, first of all, I think if somebody's bugging you all the time, sticking it to them is pretty appealing.

Nick Pell: Yeah. So every complaint, well, every legitimate complaint you make against a debt collector under the Fair Debt Collection Practices Act cost them a thousand bucks if you win in court. If you get a win that's a thousand bucks in your pocket,

Jordan Harbinger: but how hard is it to get a win? I mean, you're talking about a court case.

She, you know,

Nick Pell: I've gotten two. It's actually pretty cut and [00:10:00] dried. The thing that sucks is you can only get a thousand bucks. You know, you can't like take them to court for seven violations at once. You get a thousand bucks in statutory damages unless you, you know, damages are capped at a thousand dollars.

Unless you can prove real damages, not just that they violated the law. The good news though, is you can probably double dip on the federal violation and whatever version of it your state has because there's a really good chance that in violating federal law, they also violated state law.

Jordan Harbinger: I see. So capped at a thousand bucks.

Unless you can prove real damages. And I think just in case people are wondering what that means, this is a hypothetical situation. Let's say they call your employer and tell your employer, Hey, you got this new hire. He's a real deadbeat. He owes this credit card company $10,000, and he didn't pay. And the employer's like, oh.

You're working with the money in my business, I gotta let you go. Now you've lost your job because of these guys. So that's a real damage that wouldn't probably be capped at a thousand bucks. Right. You can say, Hey, I, I was counting on this job to feed my kids. Now I have real damages. Okay. That's [00:11:00] interesting.

And you're saying there's a good chance that if they violated federal law, they've also violated the state law. So have you actually successfully sued a creditor and got them to pay you? Is that what happened? Yeah, I've done it twice. So what did they do to you and how did you get your money?

Nick Pell: They called my half brother and told him how much I owed.

Whoa. The hilarious thing is that in my case, they were kind of extra stupid about it. They left a voicemail. Okay.

Jordan Harbinger: That was my next question.

Nick Pell: Yeah. All he had to do was send me a copy of the voicemail on his phone. Yeah, that's, oh my God. You don't have to hire a lawyer. You can take it to small claims court And they didn't show up.

Yeah. Which they're probably not gonna do for you either. So I got a default judgment for 2000 bucks. 'cause they violated state federal law.

Jordan Harbinger: They're unlikely to retain a law firm to fly out to whatever podunk jurisdiction you're in to fight something in court where you have a voicemail with a violation on it.

Yeah. So did they take the two grand off of the debt that you owed them or how did that work?

Nick Pell: No, because most of the time you haven't even acknowledged that you owe the debt. If it's a third party debt collector I [00:12:00] see. As opposed to the, the original creditor. So they just cut me a check. Huh. And wouldn't you know it, that was also the last I ever heard about the debt.

Yeah. It's, you know, more benefits to winning a case against the debt collector.

Jordan Harbinger: Yeah. It sounds like they basically panicked when they found out that you knew your rights and, and they wiped you off the books, which is pretty smart. Okay, this guy knows his rights. He's already got $2,000 of our money. Can we stop pushing this guy's buttons?

We have a call roster with 80,000 other people on it. Just move on.

Nick Pell: Yeah. And that's the thing, like they have so much more to lose by ducking a court judgment than I do by continuing to not pay a debt that had already been charged off and put into collections. I mean, they have all kinds of regulations that govern them.

Yeah. You know, so they're just gonna pay it.

Jordan Harbinger: So let's get into the nitty gritty of the Fair Debt Collection Practices Act, the F-D-C-P-A. What are they specifically not allowed to do and what can you use against them to turn the tables and get them either leaving you alone or paying you?

Nick Pell: So there are basically four groups of things they can't do first.

There's communication restrictions. They can't call you between 9:00 [00:13:00] PM and 8:00 AM. That's kind of the inverse of the what they can do and when they can call you. Other than that, if you ask them to stop calling you at work, they have to do that. If you tell them in writing to stop contacting you, period, they have to do that.

If you have a lawyer, they have to communicate with your legal counsel and not with you. That

Jordan Harbinger: actually makes total sense. So if you tell them to stop contacting you, period, how are they supposed to collect the debt? Then

Nick Pell: they have to file a lawsuit. That's the only thing they have left in their arsenal.

They're allowed to send you one letter telling you that they won't be contacting you anymore. Other than that, yeah, they can sue you. That's it. Next up, are the restrictions on harassment and abuse. They can't swear at you. I actually had another case where I got a collection agent to curse at me on a recorded line, you know, easy.

A thousand bucks for 2000 bucks or whatever it was.

Jordan Harbinger: That's interesting. Did you just push his buttons until he cursed at you, or was it kind of an accident and you were like, ah, I can turn this into money? He was kind of mean

Nick Pell: from the

Jordan Harbinger: start. Yeah. Yeah, that's, that makes sense. So you're like the Babe Ruth of suing [00:14:00] collection agencies.

That's, this is great.

Nick Pell: That's seriously one of the best things anyone has ever called me.

Jordan Harbinger: Yeah, you're welcome. So, okay, harassment means what in this case, because I'm guessing threats. Is pretty obvious. You already mentioned that they can't just keep calling you over and over or bugging you at work. What else is gonna fall under harassment?

'cause that's always so vague of a definition,

Nick Pell: right? Well, as I just said, like they absolutely cannot curse at you. That counts as harassment. But other than that, it's like calling you over and over again. Beyond that, they have to represent themselves honestly. They can't lie to you about who they are, what you owe, who you originally owed it to.

They can't falsely claim to be cops or lawyers or government officials of any kind. They can't threaten to have you arrested or anything else that they can't actually do. They're not allowed to send you documents that have the appearance of court documents. I don't know specifically what that means because looks like court documents is, seems like it's pretty flexible.

I've gotten stuff in the mail that kind of looked like it was a court document, but I'm sure it was [00:15:00] on the right side of the law. And then the last thing is third party debt disclosures. They're only allowed to tell you your spouse and your attorney how much you owe.

Jordan Harbinger: I see. Or they're gonna owe Nick Pel a thousand bucks.

That that makes sense. Right? 'cause you don't want them call again, calling your boss and saying, hi, we're a debt collection company and this guy that works for you owes us 10 grand. And you're just like, oh, is he gonna start embezzling? 'cause he is in debt. Why is he in debt? Does he have a drug problem?

Maybe we should, while he is on probationary period, we should let this guy go. That could cause real damage or, and also, how unfair would it be for these guys to call everyone in your family and just start telling them, oh yeah, he owes five grand, he owes us five grand, he owes us five grand. You don't need to hear this from your mom, your aunt, your brother, your sister, and your dad.

You already know. Right? And so it sort of stops them from applying pressure in a way that's, it's just needlessly damaging.

Nick Pell: Yeah. And you can get 2000 bucks because you're probably also gonna get them on the state law. Almost every state has a law that's like a carbon copy of the

Jordan Harbinger: F-D-C-P-A. I [00:16:00] see. So basically don't just go after them for the federal violation, go after them for the state violation.

And I think states like California and New York, and especially New York, they've got really good consumer protection laws. So it's often like. Yeah, it's a thousand bucks for the federal violation and in New York it's $1,500, but it's also 25% interest per week. If they don't pay you or like don't show up to, it is always, New York is always like, we will bend this company over and twist them sideways if they do this to you.

Except for landlords. Landlords have all the power in New York City, but that's a different issue. So I remember back in the day, man, debt collectors used to be really nasty. I've got very limited experience with these guys. I think I was a teenager, but I've had some experience again in the distant past where they.

Totally violated pretty much all of these regulations. They would start recording the call without permission. They would threaten me. They would say all kinds of crazy stuff. 2020 hindsight, that makes no sense. Like, I'm gonna tell your parents and you're gonna get in trouble and you're not gonna get into college and stuff like that.

And I'm guessing I'm gonna go ahead and guess that the ship for my [00:17:00] case sailed a long time ago since this is like 30 years we're talking about. But are they comparatively well behaved now? Is that kind of the deal?

Nick Pell: Yeah, they are. And the main reason is the Consumer Financial Protection Bureau, which came around in 2006.

Oh, I see. And so now there's a lot more pressure on these companies to play by the rules. I mean, I had a guy threaten to come and take my television in like 2002. Wow. Like he can't do that. So telling me he's gonna do that is illegal. The other thing is that I think people are just more aware now and it's way easier to monitor your communications.

Like you don't even need an app to record phone calls anymore. If you have an iPhone, it's just baked right into the phone.

Jordan Harbinger: Right. Okay. Yeah. 'cause recording a call in the nineties, you needed some Radio Shack specialized gear. Yeah. And even then it was like illegal. In most, right, because you had to have consent and all that stuff.

I love how my phone now tells people when I'm recording them, I rarely use this, but I can imagine that when Bill collectors hear guys saying they're being recorded, you know, turning the tables on them, it [00:18:00] probably makes 'em really irritated and I, I'm here for it. So that's the law. I'm guessing there are gray areas and that's how the system ends up getting abused.

I mean, that's kind of always the case. It's not the black and white areas where you see the problems. It's somewhere in the middle where bad actors feel like they can get away with abuse because, oh, this is technically not illegal. It's like your brother in the backseat of the car holding his finger in front of your face and telling you, you know, I'm not touching you.

You can't get mad.

Nick Pell: Right? So the gray area is definitely what people need to be aware of because this is where you're gonna get screwed and be completely outta luck because they follow the law.

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So legal scams, places where they might know how to stay just on the right side of the law, but what they're doing is definitely shady, even if they're legally covered. I can think of it like the court documents thing where you're like. That kinda looks like a court document, but it doesn't have a docket number and it's a slightly different font and the header's different.

It's like, well, okay.

Nick Pell: Yeah. Right. I'm sure that everything I've ever gotten that looks like a court document is legally, legally does not look like a court document. Right. And I think it's fair to call these things legal scams. It's certainly deceptive, but. I get why, from a legal point of view, there's always gonna be a gray area.

You can't draft a law for each and every contingency, and at a certain level, the onus is on you to be aware and to take care of yourself. I don't think it's plausible or desirable to [00:22:00] have the state mediating every possible iteration of commerce.

Jordan Harbinger: So what are some of the shady but not totally illegal things that a collection agency might engage in if they're trying to get money outta you?

Nick Pell: I lived off grid for several years, and when I moved back on grid, I started getting all kinds of letters from alleged creditors saying that I owed a five figure debt from 2015, and it's like, dude, that's not enforceable, literally anywhere.

Jordan Harbinger: So that's the statute of limitations you're talking about, like they can only collect this debt for so long.

Until it's not legally enforceable in a court of law, I assume. So how is it legal for them to try and collect that debt? Doesn't that break the law about misrepresenting themselves or not?

Nick Pell: Ah, see, here's the thing. They do legally own the debt, and they absolutely can try to get you to pay it. But if it's past your state's statute of limitations, there's not a federal one.

As far as I know, the statute of limitations varies from state to state because they have to sue you in a state court to collect.

Jordan Harbinger: Right. Okay. This sounds a little weird, but as a lawyer, I get it. [00:23:00] No court will enforce the debt because it's too old. They're still allowed to try to get you to pay it, even though they have no way of actually forcing you to pay in a court of law, which is the most powerful and kind of the only real weapon in their arsenal.

So what they do is they just try and scare you into doing it or trick you into doing it somehow.

Nick Pell: Yeah. And they're not legally obligated to give you advice, legal advice in any way at all.

Jordan Harbinger: They're not gonna say, this is not legally enforceable anywhere, but you come on, be a good guy and pay it. Right.

They're just gonna go, you know, you still owe us money. You mentioned this as a state thing. So it varies from state to state.

Nick Pell: So the statute of limitations on debt, again, is how long creditors can legally get a court to enforce the debt. They can write as many letters as they want. In a lot of cases, they're throwing spaghetti at a wall, and they're hoping that somebody who has no idea what the law is or how credit reports work is gonna cough up money for a 15-year-old debt without question.

Statutes of limitations vary pretty widely. At its lowest, it's three years in North Carolina, Mississippi, South Carolina, and [00:24:00] weirdly Delaware. I say weirdly because Delaware is less a state than it is a place where banks have mailing addresses so they can avoid following laws,

Jordan Harbinger: right? Yeah. Everybody's incorporated in Delaware,

Wayne's World Clip: or imagine being able to be magically whisked away to Delaware.

Hi.

Nick Pell: I mean, Delaware, the longest statutes of limitations are in Rhode Island, Iowa, Kansas, Wyoming, and Ohio. So as you might have noticed, there's not a lot of rhyme or reason to this. You don't see higher statutes of limitations in red states versus blue states. There's not really any kind of pattern to it.

As far as the types of debt the ones we're talking about are usually called open accounts or revolving accounts. So the statute of limitations isn't necessarily the same for a credit card as it is for a contract loan or other types of debt.

Jordan Harbinger: Right. So you'd have to check on that. Well, your lawyer would've to tell you, advise you whether you still owe this or not.

And, and after that clock runs out, I wanna say you don't owe the money anymore, but that's not exactly it, right?

Nick Pell: No. The thing is, and I get the finer points of [00:25:00] this, are maybe a little hard to wrap one's brain around, but. You do legally owe the debt and the courts don't disagree. The issue from the perspective of the debt collectors is that there's no legal way to force you to pay it.

The courts think the debt is too old, so they're not gonna get involved. Your credit rating took all the beating it was gonna take from nonpayment probably around the time of the charge off. Uh, charge off is a huge deal for your credit score, and once you get that, it's not really gonna get any worse.

Maybe a little worse, but after two years it just, it does not make any sense at all to pay these people from the perspective of your credit score.

Jordan Harbinger: Interesting. So when does the clock start for these?

Nick Pell: It usually begins when you make your last payment. So one of the slimy things debt collectors will do is try to get you to make a payment on a debt that isn't legally enforceable.

Even a token payment. So say you owe $5,000 and they're trying to get the whole thing and they can't, so they keep negotiating down. You're just sick of talking to them. So you go, Hey, I'll give you 50 bucks. Shut up and go away. [00:26:00] But you just made a huge mistake. You restarted the clock. Ah, the clock is now at zero again.

So what might not have been a legally enforceable debt is now legally enforceable for the full period all over again.

Jordan Harbinger: So you give them 50 bucks and they're like, great, and now we can sue you. And the clock has started at zero. Yikes. So you're saying it's totally legal for them to try to get you to pay something that as far as the courts are concerned, you don't owe anymore.

And if they can somehow get you to do this, then you owe the original amount plus interest potentially all over again. Then you have to wait another three to 10 years for it to go back to legally unenforceable territory. Wow. So you're just saying stop paying all your bills. That's the takeaway from Nick Powell in this episode.

Nick Pell: I think there's lots of legal and moral reasons to pay off old debts, and hey, let your conscience and your legal counsel be your guide here. But from the perspective of your credit score, paying off a five-year-old debt that's still on your credit report because you think it's instantly gonna give you a seven 50, this is not gonna happen.

It's gonna do little to nothing. [00:27:00] But this is one of the ways they get people to make a payment. So say you live in a state where the statute of limitations is less than three years. The typical timeline for something falling off your credit report seven years like you live in Mississippi, the statute of limitations is three years.

After three years, your credit is as wrecked as it's gonna be. There is just zero upside to paying this off to improve your credit, and there's zero legal means by which the collection agency can force you to pay, so why pay it?

Jordan Harbinger: I'm guessing that the collection agencies don't give you this kind of sound legal and financial advice when they're calling you up trying to get their money.

And again, this is not legal advice from us, but I'm saying these collections agencies, they're not going to give you any kind of legal or financial advice when they're calling you up trying to get money from you.

Nick Pell: Yeah, they're not gonna do that. So again, to kind of like recap, they legally own the debt.

So there's nothing illegal about them trying to collect it unless they're misrepresenting by saying they're gonna take, like if they say they're gonna take you to court, that's a misrepresentation. If they say they're gonna get a [00:28:00] judgment, have your wages garnished. They're not doing anything illegal by telling you that you owe them money and they want you to pay it.

That's not illegal.

Jordan Harbinger: I see. And again, if you pay them anything, you owe the full amount all over again. The clock starts at zero,

Nick Pell: the full amount, plus whatever interest, penalties, and charges are legal in your state.

Jordan Harbinger: What else are they doing that falls into this legal gray area? Where what they're doing is totally legal, but maybe just a little bit shady or deceptive.

Nick Pell: The other main thing is offering to settle and then pretending like they didn't agree to settle. How can that work? So say you get a call from a collection agency, you owe $5,000, but they say, Hey, we'll settle it for 500 bucks if you pay it today. Makes a lot of sense from their perspective, especially if they only paid 50 bucks for the debt.

So you give them your credit card number, and seriously, if you're like half listening to this, listen to this thing. This is the only takeaway that you have. Absolutely, positively, never under any circumstances, give your credit card number to a third party collection agency for reasons that are about to be made [00:29:00] extremely clear.

They might take your $500 payment and next month you get a charge for 4,500 bucks, which is the balance of what you owed them.

Jordan Harbinger: How can they do that?

Nick Pell: Well, they do it. I see. Because you weren't recording the call and you didn't get the agreement in writing, and they're gonna say that you agreed to pay off the rest later.

This is an extreme example. They're more likely to just start taking $500 payments every month. Until the whole thing is paid off. But yeah, they do this. And is it against the law? Is it not against the law? They get away with it.

Jordan Harbinger: Yeah. As an attorney, but not your attorney, I want everyone to understand that you should always get any sort of financial agreement in writing for precisely this reason.

Technically to run a payment you didn't agree to, that is against the law, but you're just not gonna be able to prove that you didn't agree to it. So it's a moot point. Right. And you might even be able to dispute it.

Nick Pell: Yeah. They're gonna say that the first payment was agreement to subsequent payment.

Exactly. And there's, the thing is, they may even say that on the [00:30:00] phone in this like, oh, by the way, we're gonna, you know, like. Talking like the micro machine man. Nice to shoehorn it into the call on their recorded line. They may even say that, but you're definitely not agreeing to that, you know?

Jordan Harbinger: Yeah, that makes sense, right?

They're gonna do, I just need to read you this disclosure, and it's like super, super fast. You're not listening, right? And it's like, we're gonna charge you every month. But what happens if you go, Hey, I want this in writing. Are they gonna actually do that or what?

Nick Pell: They generally don't want to give you any kind of agreement in writing.

So if you start asking for one, expect them to change the subject. Stonewall you. And do basically anything but agree to the terms in writing.

Jordan Harbinger: So there are many things you can do to debt collectors that they do every day,

Nick Pell: but they get really upset when you turn the tables. They're actually pretty thin skinned.

Yeah.

Jordan Harbinger: Well, I'm assuming there are some people like you who just enjoy getting a rise outta collection agents and then goading them into violating the law. But I think. There are probably way more people who are legitimately behind on their bills and they wanna know what they should do.

Nick Pell: So not legal advice, but Right.

If something has gone to [00:31:00] charge off and it's below a certain amount, I would do absolutely nothing.

Jordan Harbinger: So you've done this a few times then?

Nick Pell: I have. And like, this is the thing is like I pay my bills on time. Now the degenerate days are behind me, but like, we'll get into the details in a minute. Something with a charge off for 600 bucks.

Like paid if you feel morally obligated to, but they're not taking you to court over 500 bucks. So I'm not saying like charge up your credit cards and walk away from them. There's a difference between ruining your credit on purpose by not paying your debts and just walking away from a charged off debt that's so small.

You are not gonna get sued for it. You are not gonna get garnished for it. I was somebody who got like a charge off for like 30 bucks. They're not taking you

Jordan Harbinger: to court for that. What about the upside of not getting dragged into court and having your wages garnished?

Nick Pell: That's the thing. They're probably not gonna sue you.

I mean, I've owed a lot of money to creditors. Can I ask, what do you mean by a lot? I think the most I ever owed a single creditor was like $8,000. Which, okay. That I was convinced I was gonna get dragged into court over. I [00:32:00] didn't.

Jordan Harbinger: Wow. Okay. That is, you know, objectively a lot of money. Why would they not come after you for that?

Nick Pell: Well, you're a lawyer. You know the cost of initiating legal proceedings. There's all kinds of Sure. Ducks they're gonna have to have in a row before they even think about taking you to court. That costs money. Then they have to hire a lawyer to at least have a, a name to put to the case. They need to hire a paralegal to get all the paperwork for court together.

They have to serve you with papers. That's all gonna cost them between 200 and 600 bucks, which isn't a lot. But remember, maybe they paid 80 bucks for my $8,000 debt,

Jordan Harbinger: but they're gonna get it all back if they sue you because you owe them money and they're gonna win unless you're, you know, dead broke.

Nick Pell: Maybe they're gonna win, but they actually have to prove that the debt is legitimate and that they own it. And that's actually not as easy as you think.

Jordan Harbinger: Folks, be responsible. Don't go into debt. Manage your money carefully and uh, here's some stuff for you to buy. We'll be right back. This episode is sponsored in part by SimpliSafe.

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Now, for the rest of skeptical Sunday, it seems like a slam dunk. I mean, you spent the money, it's all in your credit card bills. They bought the debt. Isn't that a pretty clear chain of evidence here? I mean, you're

Nick Pell: assuming that they're actually good at record keeping, which is in a lot of cases they're not.

I see. You may. Not even be dealing with the initial third party collection agency because the first one that bought it from the credit card company tries to collect it for a few months, decides it's not worth their time, money, and effort, and they sell it to somebody else. That company. Does the same thing after a few months, they're just like, ah, this isn't worth it.

They sell it to a third company, and the third company is the one who decides they're gonna take you to court. So now you're talking [00:36:00] about validating a whole chain of ownership of your debt that passes through four different companies.

Jordan Harbinger: But again, in the age of computers, is that not super easy to do? I mean, I can imagine back in 1978 or something, that paperwork got lost all the freaking time.

But how often does that even happen Now, come on. It's a database.

Nick Pell: So literally the first thing you should do if you're dealing with one of these companies breathing down your neck, threatening to take you to court or whatever, is tell them you wanna validate the debt. Because up to a third of the time, depending on how many places have owned the debt.

They cannot validate the debt.

Jordan Harbinger: I'm guessing that you have to file paperwork somehow to get the debt validated. Like you can't just ask the kid who's working a summer job who's calling you to pay the money, and he goes, oh, I'll do that right now.

Nick Pell: You have to write them, you know, in pen and paper or print or paper or whatever.

You have to submit a written request for debt validation. You need to send that letter registered mailed with return receipt requested because there's a good chance they're gonna claim they never got it.

Jordan Harbinger: Okay.

Nick Pell: Now the cool thing is that once you ask them to validate the debt, they [00:37:00] have to cease all contact with you until they can validate the debt.

So if they can't. You're never gonna hear from them again.

Jordan Harbinger: And if they do validate the debt,

Nick Pell: well then you've just done most of the work involved in them winning a lawsuit against you.

Jordan Harbinger: Oh, okay. So this is a bit of a risky gambit from the sound of it. And yet you're saying their whole business model is built on the assumption that most people won't push back at all.

And it's a volume game. So if you become one of the few people who actually assert their rights and says, Hey, validate this, suddenly you might not even be worth their time. 'cause if they paid 25 bucks for your $2,500 debt, they might say, I going to request the records for this. Isn't worth your time.

Just move it. Scratch it off. Is that kind of what we're to understand here?

Nick Pell: Yeah. So according to statistics from the Consumer Financial Protection Bureau, third party debt collection agencies are unable or unwilling to validate the debt in 43% of cases. So a lot of times, yeah, they just, they don't even bother trying because it's a pain.

There's no shortage of people coughing up money on the basis of a phone call because they don't know their rights. [00:38:00] Their business model is not built around collecting every last penny they're entitled to. Their business model is built around getting people to pay quickly and without issue, and they know that if you're asking for debt validation, you are already more trouble than 90% of the people they're dealing with.

Jordan Harbinger: So the point here isn't necessarily to win your case in court. The point here is just be enough of a thorn in their side that they think. Hey, this guy's a pain. Let's go collect money from somebody else.

Nick Pell: Correct? And there are a lot of ways to do that without requesting debt validation and specifically giving them the ammunition they need to win against you in court.

Jordan Harbinger: Okay? So if you don't think you really owe the money, ask 'em to validate the debt and they won't be able to. However, if you do owe the debt and ask them to validate it, they still won't be able to or willing to do it about 43% of the time. But if you do owe them and they can validate it. Then they have just assembled the proof that they need to win in court, and then it's just a matter of whether or not the cost of going to court is justified for them.

Does that about sum it

Nick Pell: up? Yeah, but [00:39:00] anecdotally I've had debt validated by a collection agency and they still didn't sue me.

Jordan Harbinger: Right. It probably just wasn't worth them getting a lawyer to your jurisdiction and dealing with that. So what are some of the pro tips from your experience when dealing with collection agencies?

Nick Pell: The main thing is just don't talk to collection agencies. I mean, it's fun to get clever. Ask them for their name, their full name, the full name and address of the company that they work for, who the original creditor was. They're legally obligated to answer all of these questions. They have to answer how much you owe, how much of it is principal, how much of it is interest in fees, what it was for.

Chances are good. They're gonna try and be vague to you when they answer all this, but once you ask, they have to answer you in writing within five days. Really hate answering questions of any kind. It throws them off, they're following the script, and you're deviating from it. And this is usually when they start getting irritated with you.

And you know, I would record the call if you're gonna do this,

Jordan Harbinger: but your advice is to not speak to them, right?

Nick Pell: There's

Jordan Harbinger: just no upside in it.

Nick Pell: It's the cell phone era. Who's answering weird [00:40:00] phone calls from numbers they don't recognize.

Jordan Harbinger: Yeah, that's true.

Nick Pell: If you're getting hassled by a debt collector, the best thing to do is ignore them until they start threatening to sue.

Then ask them to validate the debt. If they successfully do that, start negotiating with them. They're gonna be far more, um, open to a lump sum payment that pays the whole thing off. And remember, they paid pennies on the dollar for your debt, so you're negotiating from a position of strength. Because they absolutely want to take care of this as quickly, quietly, and easily as possible.

Jordan Harbinger: Okay, so I'm sure a lot of people have seen debt relief services advertised around maybe on TV during the day, right? I mean, they're promising to get you out of debt for a fraction of the cost, but clearly if it were that simple, people could just run up their debt. And then go running to one of these companies and pay it off for 10% of the actual cost, right?

Nick Pell: One thing I should say that's relevant here is that when I walked away, and by the way, this was like a decade ago, I pay my bills on time, like a normal perspective. When I walked away from that debt, I just did not care about my credit score. If you wanna buy a house on a car, [00:41:00] easily live a functional life in modern society.

You need to pay your bills on time. You wanna rent a car, you wanna rent an apartment, your credit score matters

Jordan Harbinger: on that. We can agree. So that's one reason why people wouldn't just wanna run their debt up and go running to a debt relief agency. But are those companies legit? Do they even do the thing.

They claim to do, 'cause people get vulnerable, they're scared, they're in over their head and they're looking for a lifeline. But desperation makes you really easy to exploit, which is why due diligence is non-negotiable.

Nick Pell: There are basically three different kinds of companies that advertise themselves as being able to get you out of debt quickly.

Two of them are very much not legit. One of them is probably legit, but you need to look into it a little deeper. For-profit companies are the first shady option. They run a kind of gambit where you stop paying your bills and start paying their company instead.

Jordan Harbinger: I see. What do they tell people that that's gonna do for them?

Nick Pell: Basically the idea is that you pay them until they have enough saved up in escrow, in big, giant screaming, neon air quotes, and once they have enough [00:42:00] money in your account with them. They reach out on your behalf and start negotiating

Jordan Harbinger: what happens while you're paying them. I mean, do the debt collectors stop calling you?

Nick Pell: Precisely, nothing happens. That wouldn't happen otherwise. In fact, you might get sued while you're building up your negotiation nest egg.

Jordan Harbinger: So this is, wow, that's a complete and total waste of money. And if you get sued, I'm gonna go ahead and guess the credit relief agency doesn't go, oh man, sorry dude, here's all your money back.

I hope everything goes well for you in court.

Nick Pell: Of course they don't. It's not a savings account. The next version of shady companies are those who do absolutely nothing but act as lead magnets. For those of you who aren't in the marketing biz, they're just collecting information to sell to telemarketers or whoever else.

Jordan Harbinger: What about the legitimate version of debt relief companies if that even exists?

Nick Pell: Legitimate companies are almost universally nonprofits. That doesn't mean they don't make any money off of getting you out of debt. They do. Because they're nonprofit, there are stricter rules that mean they have to provide actual services to you.

[00:43:00] So the deal with these companies is the first thing they do is sit down with you and figure out why you got it over your head. They look at your bills, they look at your bank records. They help you come up with a budget that you could live on. That probably includes helping you figure out how you're gonna be able to make monthly payments that don't just keep you treading water with your credit card bills.

They want you to actually start reducing your debt. Then they bundle all your debt together, negotiate with your creditors to reduce the principle or the interest. Then you pay them monthly instead of your creditors. But they're dispersing the money. They're not just holding onto it and hoping they can negotiate something for you later.

Jordan Harbinger: How successful are they at helping people get outta debt though?

Nick Pell: Somewhere between 50 and 70% of the people who work with them get out of debt. It usually takes three to five years. They're actually really good at getting interest rates reduced. I think most importantly, they're not offering quick, magical fixes.

They're offering a way to get your life back on track by playing by the W. If you're committed to getting out of [00:44:00] debt and you have stable income and discipline, that's very important. They can help you get out of debt without declaring bankruptcy.

Jordan Harbinger: Huh. Okay. I would think that's probably the plan for people to follow if they're trying to get outta debt, rather than just putting your head in the sand and rolling the dice.

Nick Pell: I mean, like I said, if you're behind on your bills to the point of charge off, the damage to your credit has basically been done. Most of the debt relief agencies are not going to negotiate lower rates with credit card companies. I think that's probably not impossible. They're gonna do it with the collection agencies where it's a lot easier.

I think it's all down to the individual situation. If you're getting threatened with a lawsuit and getting absolutely nowhere with negotiations, go ahead and reach out to one of these companies. But in my experience, simply being the one in 10 people who don't just pay up is enough to get them off your back.

Jordan Harbinger: Well, as not your attorney or anyone's, I'd advise everyone to play by the rules and pay their bills. If that means going to a nonprofit for help, do that. The main thing I want people to take away from this is that you have rights when it comes to [00:45:00] dealing with third party debt collection agencies. So if one of these companies is violating the law when they talk to you, you should report them whether you hope to get a thousand bucks out of it or not.

And I think Nick is totally right about not talking to these people. It's like trying to argue with a lawyer. Third party collection agencies do this for a living and you don't. So if you get caught on the phone with them, your best bet is to hang up that phone block their number, tell them to validate the debt in writing, and wait until they've actually proven that they own the debt they are trying to collect.

And if it's outside the statute of limitations in your state. You might be off the hook. If they can't validate it, don't pay it. If they validate the debt successfully, then it's probably time to start looking into one of those nonprofits to help you get outta debt the right way. Check out the show notes for links to those if you're interested.

And of course, you need to get your own lawyer if you are in trouble with debt or legal trouble of any kind. I am a lawyer but not your lawyer. Thanks as always to Nick Pell for helping us settle accounts here. Thank you for listening. Topic suggestions for future episodes of Skeptical Sunday to Jordan@jordanharbinger.com.

Advertisers deals, [00:46:00] discounts, and ways to support the show all at Jordan harbinger.com/deals. I'm at Jordan Harbinger on Twitter and Instagram. You can also connect with me on LinkedIn and this show, it's created in association with podcast. My team is Jen Harbinger, Jase Sanderson, Tadas Sidlauskas, Robert Fogarty, Ian Baird, and Gabriel Mizrahi.

Our advice and opinions are our own. I'm a lawyer, but not your lawyer. Do your own research before implementing anything you hear on the show. Remember, we rise by lifting others. Share the show with those you love. If you found the episode useful, please share it with somebody else who could use a good dose of the skepticism and knowledge that we dolled out today.

In the meantime, I hope you apply what you hear on the show so you can live what you learn, and we'll see you next time. Imagine a world where money, religion, and nations are shifting under the rise of ai, capable of making decisions beyond human control.

JHS Clip: Humans are very good in solving problems, but they often focus on the wrong problems.

The idea that information is truth, people will have more knowledge, everything will be okay. This is extremely naive. Most information isn't truth. [00:47:00] It is fictions and fantasies and delusions and errors and lies and so forth. The truth is a very rare and costly kind of information, which is why if you flood the world with information, the truth will not float up.

It'll sink to the bottom. Democracies all over the world are currently in crisis. They are undermined because of manipulations by ai. The one thing everybody should know is that AI is not a tool. It is an agent. AI can make decisions by itself. We already have autonomous weapons systems, it can even invent new weapons.

Social media algorithms are currently the most powerful editors in the world. They increase user engagement by manipulating billions. The easiest way to capture people's attention. Is by spreading outrage. I'm not saying, oh, we should stop all development of ai. No, of course there is enormous [00:48:00] positive potential, otherwise, we wouldn't develop it.

The key question is how do we enable the positive potential of AI to flower while avoiding the really existential risks? This technology poses.

Jordan Harbinger: Join me on episode 10 68 as Yuval Noah Harri explores the risks and responsibilities we face as AI transforms our society.