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The unprofitable business of debt forgiveness

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Wednesday, December 26, 2012

 

A new project called Rolling Jubilee has emerged out of the Occupy movement with the purpose of purchasing people’s debt and then abolishing it. As of this writing, the project has already raised close to half a million dollars since its launch last month, enabling it to forgive nearly $10 million in debt—medical debt to begin with, though the group hopes to expand its operations to retire other types of debt.

“Banks sell debt for pennies on the dollar on a shadowy speculative market of debt buyers who then turn around and try to collect the full amount from debtors,” the project’s website (www.rollingjubilee.org) explains. “The Rolling Jubilee intervenes by buying debt, keeping it out of the hands of collectors, and then abolishing it. We’re going into this market not to make a profit but to help each other out and highlight how the predatory debt system affects our families and communities.”

For those unfamiliar with inner workings of the debt collection industry, these common business practices may be a bit surprising.

“It is legal to trade in people’s misfortune,” the Rolling Jubilee website continues. “As part of the deregulation of the finance industry, the government made it legal to buy and sell charged-off debt.”

Rather than making a profit off the debt of others, however, Rolling Jubilee hopes to bring attention to the debt system by participating in, and therefore highlighting, what it views as predatory business practices.

“When a financial institution decides that a debt can’t be collected, two things happen,” Deanna Zandt writes for Forbes, “they get to charge off the debt, and … they put that debt out into a debt marketplace.”

Rolling Jubilee is “raising money to purchase the debt in that marketplace, also for pennies on the dollar,” Zandt continues. “But instead of chasing debtors down, they’re simply wiping the debt slate clean.”

Due to the number of people in debt across the country, the project could have a far-reaching impact. “The Consumer Financial Protection Bureau estimates that about 30 million Americans have debt under collection,” Susan Johnston writes for US News and World Report.

But Rolling Jubilee is careful to note that they are not abolishing debt on an individual basis. Rather, they are participating in the system of debt consolidation in the hope of affecting it from within. “There is no way to seek out a specific person and buy that person’s defaulted debt,” their website explains. “With 15 percent of Americans currently being pursued by a debt collector, looking for one person’s debt would be like looking for a needle in a haystack. Anonymous accounts are bundled together and sold as a whole.”

Which is part of the practice of the business that they hope to change. “Given that predatory lending of all sorts—from subprime mortgages to payday loans—disproportionately affects low income and people of color communities,” Rolling Jubilee organizers Astra Taylor and Andrew Ross write in “Rolling Jubilee Is a Spark—Not the Solution,” a recent article for The Nation, “debt resistance naturally dovetails with broader struggles for racial equality and economic justice.”

“How many borrowers, hounded by collection agencies, knew how cheaply their harassers had bought out their loans?” Ross and Taylor ask. “How many knew that original lenders get to ‘charge off’ their defaulted accounts and take a tax break—another kind of bailout—before bundling them into portfolios for sale on this shadowy, secondary market?”

Thanks, in part, to the efforts of the Rolling Jubilee, the answer is likely more now than before.•

 

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