It sounds like the ultimate good deed – paying off the debt of someone you don't know who is in desperate financial straits and keeping bailiffs from their door. Activists from Occupy Wall Street have paid off $15m in mainly medical debts of hundreds of Americans, at a cost of just $400,000. The more charitable among us are wondering if we can follow their example and help some poor victim of Britain's "Wonga economy" in the run-up to Christmas. But how feasible is it?
Well, you can't pitch up at Lloyds and ask to help out its most vulnerable or heart-rending cases. The way this process works in the UK is that the banks (or the utility company, or even the local council) will chase a debt multiple times – endless phone calls, scary letters, threats of legal action and so on. Mostly, they get their money back. But around £8bn a year escapes them, and it is these hardcore cases that are written off by selling the debt on to the highest bidder, who buys it at a reduced price, then puts the debtor through the wringer once again.
Typically, these third-party debt-chasers pay 10p for every £1 of debt bought and expect to claw back about 20% of the debt. It's a profitable business, worth around £800m a year and, largely, the banks only deal with big players who can buy up some of their toxic debt packages in one go.
The darkest corner of the debt market contains the bottom-fishers who buy the debt that the more visible and scrutinised players give up on. So the cycle of hassle begins yet again – from a firm the debtor has never heard of. In theory, a group of well-meaning individuals could at this point set up their own company, buy these debts and cancel them. Which means, finally, the indebted person would have the wolves called off – and the charitable group, such as Occupy Wall Street, could claim it is abolishing millions of pounds of debt for much much less.
