Can't tell if serious...in all reality though, why not? It's not like I get a big break by defaulting on my loans (or rather, being sold to a different collection agency). If Company A is going to sell $10,000 of debt to Company B for $1000, and I'm going to have my credit dragged through the mud, make my life miserable and still owe $10,000 that I might be able to settle down to $5000, why not just pay Company A $1000, have my credit dragged through the mud, and get on with my life? Company A doesn't lose anything they haven't already lost, my situation is greatly improved, and I don't think anyone is crying for the piranha Company Bs out there. And it's not like my credit going to crap is a win-win scenario.
I'd assume this maneuver would trash the debtor's credit, reducing their future access to credit - thus, limited moral hazard. The presumption, more likely, is that any price a debt collector is willing to pay for a debt is more than what a penniless debtor is able to. $20k of debt wouldn't sell for $1k unless the debtor were making so little that $1k would be a substantial amount of their time (else the cc company wouldn't sell for $1k).
CC companies have no idea what you can or cannot pay, nor do they care. What they care about is that you haven't made a payment in a while, despite letters and phone calls urging you to pay. After a fairly short time they want (and perhaps must) clear the debt off their books, so they sell it to a collection agency. They appear (based on the article) to sell at a fixed 5% rate rather than auctioning the debt to the highest bidder.
So, if the debtor can afford 5% but no more, the CC company achieves their goal of clearing the bad debt for the same price they would by selling to an agency.
Why not hold out for more? The debtor has already shown an unwillingness to pay under the current terms, and time has run out for holding the bad debt.
Why would the debtor be willing/able to pay 5% but not the current terms? For a CC, it's probably the interest rate and interest balance. In this situation the CC company is usually charging 19% - 25% interest and including accumulated unpaid interest in the balance. If the debtor makes a payment, the terms say that the payment is applied to interest first, so the debtor's principal is not reduced at all until ALL of the interest is paid. That can be lifetime indenture to the CC company. A 5% payoff is a renegotiation of the terms which will terminate the account and prevent any further interest charges. That's worth scraping together the money needed for the payoff.
What if I told you that medical/accident/disaster expenses (even just counting deductables and co-pays when insured), are not "borrowed to live a comfortable life" but are treated by the credit system the same as unbridled credit spending?
Even the better - someone who has decided that he really doesn't need to ever borrow money has no worries about any credit ratings, so borrowing $20 000, 'defaulting' and paying $10 000 to cover the loan would be completely free legal money with no practical consequences.
