Spend Matters welcomes this guest article by Mark Parsells, CEO of Global Debt Registry.
An old joke that greeted new immigrants to New York City in the early 20th century was, “Would you like to buy the Brooklyn Bridge?” The underlying notion was that gullible buyers would not know how to confirm whether the seller actually had any right to the bridge at all. By that time, America already had a well-established recording system to make perfectly clear who actually owned the Brooklyn Bridge. We have since developed registry systems to establish title for all sorts of major assets – such as automobiles, stocks, vessels, patents, liens and Internet web addresses. But for the $3.3 billion market for unsecured consumer debt, there has traditionally been no clearinghouse to prevent unscrupulous sellers from selling debt to multiple buyers, or from transferring debt based on flawed data. There are insufficient protections to keep debt buyers and consumers from footing the bill for dubious transfers of ill-defined assets. The result has been a market in which questions persist as to who owns what, how they came to own it, whether a consumer is dealing with the right debt collector, and whether an account has been conclusively resolved.
Unsurprisingly, the market for acquiring consumer debt is being severely constrained by federal and state regulators, who see an opaque market where consumers are largely in the dark about whether or not they are paying the right collector. Without a digital, transparent and efficient marketplace, it is costly to bring closure to an account. A debt can be collected for years after it has been charged-off or sold, including long after the statute of limitations has expired. Many debt market participants do not report to the credit bureaus. As a result, there are instances where the industry does not even know how much debt is in active collection, where the risks lie and who is collecting under the creditor’s name. Regulators view this chaotic market as inherently unfair to consumers, and have acted to limit the circumstances under which debt may be sold or collected at all.
Creditors, collectors and consumers have experienced challenges around this first hand, in terms of costly financial and human resources, errors or fraudulent collection practices. There is a dire need to bring debt ownership transparency for original creditors and legitimate debt collection firms. The industry can learn from other asset classes that operate with more transparency, better electronic record keeping and efficiency. The simple solution is the adoption of a system that makes it clear to all parties at all times who is the proper owner of a debt, how the debt was originated and transferred, who has the right to collect on the debt, and who is the right consumer associated with the debt.
The debt industry is making strides when it comes to adopting new technologies to modernize the collections process. Yet the adoption of digitizing debt transactions – which improves transparency, efficiency and protects consumers from collection schemes and mistakes – is still not widespread. As more banks and consumers discover the value of electronically registering debt, confidence in the market for debt will increase, resulting in a more lucrative and robust market that is also more fair to consumers. When sellers, purchasers and consumers are equipped with better information, there will be no room in the marketplace for bad actors trying to feign ownership of the Brooklyn Bridge.