The debt collector says you owe $1,000 on an old Bank X credit card. But the collector isn’t with Bank X. He’s from some company called Strong Account Receivable Management.
How do you know Strong-ARM has the right to collect your debt? “Debtors want to know they’re paying the right people,” says Mark Parsells, a longtime banker whose resume lists stops at American Express, First USA, Bank One and Citigroup.
Parsells now heads Global Debt Registry, a kind of warehouse for debt that is trying to solve one of the big problems in the consumer financial world: uncertainty about a debt’s legitimacy. Its consumer website, Debt Lookup, lets consumers check out collectors. If Bank X puts its charged-off accounts on the registry, you can go to the site and see if Strong-ARM has the right to collect for Bank-X, or for the subsequent owner of the account.
How the site works: You create a login and type the account number of your debt. Then type the last four digits of your Social Security Number to verify your identity. You can search credit cards, auto loans, student loans, payday loans, medical bills and other obligations. If the original creditor registered your account, the site should display who’s authorized to collect.
Parsells compares the registry to Carfax, the company that tracks the accident history of used cars. “Consumers really didn’t want to trust car dealers,” he says. But before there was an independent registry for a vehicle’s back story, “they had no other choice.”
Four original creditors currently put their unpaid accounts on the Global Debt Registry, Parsells said, so the odds of your account being listed aren’t huge, for now. The four have millions of accounts, still a relatively small slice of the estimated $52 billion of debt in the hands of collectors.
But a sweeping overhaul of the debt collection system is looming in 2015, and a data warehouse might be part of the fix. As part of its rule-writing process, the U.S. Consumer Financial Protection Bureau invited comments about a “centralized repository” for account records and debt ownership. The agency plans to publish new rules for debt collectors early next year.
Debt collection is the No. 1 source of complaints at the CFPB, and a lot of the griping stems from faulty information about the original debt. After unpaid debts are sold off, they can be resold again and again.
“Each time account information changes hands, risk increases that key information will be lost or corrupted, calling into question the legal validity and ownership of the underlying debt,” the Office of the Comptroller of the Currency warns in its guidance to banks.
So a data warehouse for key information on debt just might cool off a big friction point in the U.S. consumer financial system. How to build the warehouse, however, is far from clear. Is tracking debt a job for a corporation? The government? Some quasi-public entity in between?
It’s easy to buy and sell homes and cars because government offices verify their ownership. Even when using Carfax, you’ll need a Vehicle Identification Number — standardized by the National Highway Traffic Safety Administration — or a state-issued license number to look up the car you want to check out. Other registries do have roots in the corporate world, Parsells pointed out. The nonprofit ICANN controls Internet domain names, making it something like a property title office for cyberspace.
Private-sector registries for debt have a spotty track record. A bank-owned registry of mortgages called MERS came under fire in recent years for obscuring, rather than clarifying, the ownership of loans. In 2012 New York’s attorney general aimed fraud charges at some of the biggest banks involved in MERS, saying the system resulted in false documents being used to foreclose people’s homes.
On the other hand, no public system exists for tracking unsecured debt. Your county records office probably keeps ledger books of mortgages — but if you ask for records on credit cards, medical bills or installment loans, you’ll come up empty.
What do debt buyers think of the debt registry idea? “It’s not the only way to ensure they have solid chain of title,” said Jan Stieger, executive director of the Debt Buyers Association. The industry group’s certification standards require debt sellers to give the buyer proof of ownership.
“There’s nothing wrong with it,” Stieger said of the registry idea. But it will be up to lenders to share their account data for it to work. Even then, it’s no panacea for the complaint-prone collection industry, where the same account might be collected by more than one agency, or a paid-off debt might pop up in new hands.
“There’s no system that’s going to stop criminal activity,” Stieger said. “If people want to engage in criminal activity, create accounts, take basic information and create phantom debt out if it, they can still do that.”
A data warehouse for debt, however, should make it a lot harder for collection scammers to dupe people into paying.