‘The debt that never dies’

Bill Daly knows how it feels to be haunted by debt collectors.

“I got married, got divorced, we practically gave away the house,” he said. “I got the debt, and I finally gave up the ghost.”

But debt collectors didn’t.

Daly, who lives in Denver,  doesn’t remember exactly how much credit card debt he inherited from his ex or when the calls began, but thinks it could have been 15 years ago and as much as $10,000.

When he fell behind on payments, his debt was sold from one company to another. The collection calls continued after his career as a technical writer abruptly ended, when his employer was swallowed by another company whose accountants “walked in the room and laid off a bunch of us.”

The calls kept coming through the illness of his daughter, who died in 2010 at the age of 34. They continued into his retirement years.

“The debt got picked up by people who screamed at me and people who tried to coddle me. Good cop, bad cop. I think I even got a couple of offers to settle.”

Eventually he stopped answering altogether, hiding in his home from his phone.

Daly is 73 now and retired. He finally sought advice from a consumer lawyer, T.A. Taylor-Hunt, who wrote a letter to the latest collector and made the calls stop.

“God, she was magnificent,” he said.

Daly was hounded by what has become known as “zombie debt” – the debt that never dies.

The buying and selling of uncollected consumer debts fuels a flourishing business that has grown sixfold in 40 years into a multibillion-dollar industry.

Here’s how it works: The original lenders, usually banks, turn bad debts over to collection agencies. In turn, those agencies may sell debts they can’t collect to companies that buy mass debt lists like commodities for pennies on the dollar. The new debt owners try to track down and sue debtors. If they fail, they may resell debtor lists for even less. And so on.

A federal study found that debts less than three years old may sell on this market for about eight cents on the dollar. Debts three to six years old go for about three cents per dollar, and older debts for even less on the chance of hitting an occasional jackpot. Hundreds of companies have jumped into this business. Though few of these companies are based in Colorado, debt collectors have become the number one subject of consumer complaints in this state, as they have elsewhere in the country.

At the Federal Trade Commission, reports against companies trying to collect debts have surpassed reports of identity theft. In Colorado, complaints about debt collectors to the attorney general’s office have topped all others. After declining for three years, total complaints nearly doubled last year to more than 1,400, led by claims that collectors were seeking amounts not owed.

An analysis of Colorado residents’ complaints about debt collectors to a new federal agency, the Consumer Financial Protection Bureau, shows they range from harassment and abusive language to illegal threats.

The debt buyer “threatened to publish my name and parents’ names in the newspaper,” one Colorado resident wrote, even though he hadn’t lived with his parents for 22 years and they were getting harassed about a debt he didn’t recognize.

“I do not have any outstanding debt, my credit is in good standing, and I do not know why they are calling me,” another Colorado resident complained, “but it has gotten to the point of harassment.”

When debt buyers acquire mass debtor lists, they may get names, amounts owed, last known addresses and little or no documentation from the original creditor. The FTC estimated that “debt buyers receive documentation” on as few as six percent of accounts.

That can lead to mistakes. Common names get confused. A court summons can be left at an old address. The debt could have been disputed, settled in a bankruptcy or may be acquiring interest without the debtor’s knowledge. A state statute of limitations may have passed.

“It’s often the case that they have the wrong information. They may even have the wrong person,” said Ellen Harnick, Western regional office director of the Center for Responsible Lending, a North Carolina-based nonprofit working to promote fair lending practices.  “It’s like a game of telephone. Things get lost sometimes.”

The Center recently chose Colorado as a test state to study the industry closely, partly because of frequent consumer complaints and partly because the state is soon scheduled to review its debt collection practices law.

Its report, released in October, found that just four out-of-state debt collector companies  – Encore Capital Group, Portfolio Recovery Services, Sherman Financial Group and Square Two Financial — filed claims amounting to 8 percent of all civil cases in county courts statewide. In attempts to collect on debts, those companies had filed nearly 40,000 claims in three years.

A closer look at 375 cases in Front Range counties found that 71 percent resulted in default judgments against defendants who did not appear and 38 percent produced orders to garnish the defendant’s wages.

The cases had one common feature. While law firms represented the debt collectors, the Center reported that its review of the 375 cases turned up “exactly none in which the consumer had a lawyer.”

What surprised Harnick most was the high number of orders to garnish defendants’ wages.

“That’s outrageous,” she said. “That’s a huge consequence. It’s not just a loss of income. Now your boss is aware of your problems.”

Among the cases was the claim against Alia B., whom the debt collector said had an outstanding debt of $933.67.

The claim did not name the original creditor. It didn’t say how old the debt was. It didn’t disclose how much the plaintiff, Asset Acceptance LLC, an Encore subsidiary, had paid to buy her debt.

Yet that was enough for a Jefferson County court order to garnish her income at a bank for principal, attorney fees and court costs totaling more than $2,000.

The case against Trevis B.  looked similarly short on details. Again, the lawsuit did not mention the original creditor, any payment history or the age of the debt. Portfolio Recovery Associates simply sought $2,549.10, plus court costs. That debt was listed as pending.

Midland Funding, another Encore subsidiary, named Washington Mutual Bank as the original creditor but provided few other details when it sought $2,067.42 plus interest, attorney fees, costs and anything else allowed by law from Tina C. That debt also was listed as unsatisfied.

Harnick characterized that lack of specificity as typical of debt collector cases. Encore Capital did not provide anyone to interview and Portfolio Recovery Associates declined to comment about its business. The Colorado Independent was unable to locate the defendants and chose not to disclose their full names.

Nationally, credit card debts top the list of the assets of big-time debt buyers, followed by medical debt and things such as utility bills.

Overall, more than one in seven U.S. adults is being pursued by collectors for debts that average about $1,500, according to the Federal Reserve Bank of New York. 

Ken Goodgames, the chief of Transformance, a credit counseling nonprofit, said consumers contacted about a zombie debt should demand proof of its accuracy and a formal written offer, as required by federal law.

Most importantly, he advised, “Don’t fall for claims that a debt collection agency can settle the debt for less than you owe.” Without a formal written offer, “paying any amount on the debt can make you liable for the debt all over again. Specifically, any amount you pay restarts the statute of limitations.”

Debt collectors are drawing special attention in Colorado because its Fair Debt Collection Practices Act is set to be reviewed by state legislators before it expires next year. The law, passed in 1985, licenses debt collectors and is intended to stop offensive tactics and protect consumers from being mistreated.

The current law is enforced by the state attorney general’s office. A recent review by the Department of Regulatory Agencies recommends extending the law through 2028 with added consumer protections.

Its report noted that “amount not due” accounted for half of the 1,421 complaints about debt collectors filed in the last fiscal year with the attorney general’s office.

The dramatic increase last year “may be due to the proliferation of debt buyers, people that purchase debts as a commodity,” DORA reported. “If a debtor does not recognize the name of the creditor, because it is a purchaser of the debt and not the original creditor, it may be reported as an amount not due.”

DORA also noted that when debts are deemed uncollectable, bundled with other debts, then sold and resold, “with each subsequent sale, less documentation concerning the original transaction and creditor survives.”

Ultimately, “the debt collector may not be aware of any of the debt’s history, when or where the debt originated or whether the debt has been paid,” DORA found. “This cycle can go on for years. The term of art in the industry for this is ‘Zombie Debt’ because it never dies.”

The agency recommended a four-year statute of limitations in Colorado on the time a collection agency could take a debtor to court after the last payment, and better debt documentation in court.

The state legislature convenes Jan. 11 and no hearing dates have yet been set. But a 21-group coalition of consumer advocates is preparing to bring an array of lending issues to the legislative table, from zombie debt to payday loans.

Chris Holbert, the incoming Senate majority leader, said he expects its Business, Labor and Technology Committee to review the law in the upcoming session. Holbert, a Republican, said he is not opposed extending it to 2028, but questions whether debt collectors should be required to bring an original note to court.

While Colorado considers whether to strengthen protections against predatory debt collection practices, the future of the Federal Consumer Protection Bureau looks uncertain.

The federal agency was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and president-elect Donald Trump has promised to dismantle that law as a case of excessive regulation.


T.A. Taylor-Hunt, the Denver lawyer who finally halted the collector calls to Bill Daly, worries that “consumer protection issues are not at the top of the legislative agenda in this state,” either.

And consumers, she said, often don’t know their rights when a debt buyer calls.

For instance, “many receive only Social Security,” which debt collectors cannot seize, “but people don’t know that.”

As a result, some people on fixed incomes agree to make payments just to stop the phone calls.

Bill Daly is a well-educated man, and he didn’t know his rights. Debt collectors called him for eight years after he started living on Social Security payments.

“One name after another. After a while it just became white noise,” he said, “The phone calls, the continued threats of lawsuits, things like that.”

He has reasons to give thanks these days. His mind is more at ease without the endless threats. His body, after two back surgeries, no longer stoops like an inverted L.

“I can walk again,” he said. “I’m not dancing. Oh, I probably could do a slow dance. No jigs.”         


Photo credit: OmarRiva, via Creative Commons License, Flickr. Lower photo: Bill Daly by Allen Tian for The Colorado Independent



  1. Debt buyers should have to prove beyond a doubt that consumers actually owe the debt, otherwise it could be just another scam. How can the court — or consumers! — know if they actually owed the debt to begin with if the debt buyer won’t provide original proof?

  2. If you want to curtail zombie debt collectors look at the default fee awards in county courts. Court’s award about $500 in attorney fees for every default judgment taken in county court. So Midland files 30 lawsuits, all with the same return date, a lawyer goes in and takes default judgment on 25-30 of the suits and is awarded 12,500-15,000 in fees for a couple hours work.

    The complaints don’t identify the original creditor or have any documentation because they are form complaints generated by a computer in seconds.

    The problem is that consumers can’t get lawyers to fight these cases. Default rates are ~95%. If you’re getting sued for a $700 old credit card bill, it doesn’t make sense to pay a lawyer $500 to fight the case. Especially when you don’t know that a county court judge will slap another $700 in fees and costs on you if you don’t fight it.

    If the legislature wants to fight zombie debt collectors, award fees to the prevailing party in a debt collection case. Make attorneys submit a fee petitions, under oath, to justify these attorney fee awards and require the debt collectors to submit proof of the debt, and more importantly, the assignments of the debt to every collector in the chain.

    As the system currently exist, courts benefit from the tens of thousands of dollars in filing fees paid by debt collectors. In turn, the debt collectors are awarded hundreds of thousands in unearned attorney fees by the court. And it’s all paid for by the low income citizens of Colorado.

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