In my contracts class, we have been discussing reasons for non-enforcement of contracts, focusing these past weeks on undue influence, duress, and unconscionability. In keeping with these themes, one of my students sent me a New York Times article about debt collection of the deceased, pursuant to which companies seek to collect debt from a deceased person’s relatives who for the most part have no legal obligation to pay the debt. That is apparently it is often the case that the deceased person’s estate did not have sufficient assets to cover the debt, and hence collectors reached out to their next of kin. According to the article, “dead people are the newest frontier in debt collection, and one of the healthiest parts of the industry.” The article pinpoints ways in which one company trains people in “emphatic active listening,” and the “five stages of grief.” Thus, when distraught relatives are too upset to bargain with debt collectors, some are transferred to another company that employs grief counselors—then the debt collectors follow up after a week. What should we think about these companies and their practices?
One company featured in the article insists it is providing a service to the economy. Indeed, the company employs some 180 people—though the New York Times notes that about half of the company’s new hires don’t have the “temperament to make such calls,” and thus do not make it past training. But for those employees who do have the wherewithal, the debt collection company maintains that the debt it collects improves the profitability of the industries it services, thereby presumably improving their financial health and the overall health of the economy.
But nevertheless, this kind of collection seems deeply disturbing. As an initial matter, it encourages people to pay debts despite the fact that they are otherwise not obligated to do so. One representative from a debt collection company noted that while its employees “definitely” tell family members that they have no legal obligation to pay “if family members ask,” it is not disclosed upfront. In other words, it’s likely that many people are never told. Second, apparently some, if not many, of the relatives may not be in a financial position to pay the debt, but do so basically in order to honor their loved ones. This seems to undermine the notion that such debt collection enhances the economy. Instead, by squeezing money out of financially vulnerable people, such collection efforts may increase the risk that relatives of the deceased will default or otherwise struggle to pay their own bills—an outcome that is not a net positive for the economy. Third, these collection practices prey upon people’s grief and loyalty to their loved ones, as well as their sense of good will. Hence, the New York Times article notes that most people pay these bills based upon the belief that they are “honoring the wishes of their loved ones.”
To be sure, it may not be inherently problematic to encourage relatives to pay the debts of their loved ones. Moreover, these debt collection practices may only flirt at the edges of duress, undue influence, unconscionability, and similar contract doctrines, but fail to violate them. Yet such practices strike me as troubling, especially if it is true that debt collection with respect to the deceased reflects one of the healthiest segments of this industry.
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1. Posted by fedgovernor on March 5, 2009 @ 14:22 | Permalink
An idiot and his money should have never gotten together in the first place.
Every con knows this.
2. Posted by TaxRascal on March 5, 2009 @ 15:24 | Permalink
Sounds pretty bad. Presumably creditors know that sometimes debtors die, and they lose the legal right to collect. The fact that these collection companies have persuasive, emotionally resilient people doing something that produces only dead-weight loss is a problem.
It is probably problematic to make relatives liable for debts, because that means that people who abuse this reliability are at an advantage. Basically, every family would be bound by the decisions made by its most gullible member, but backed by the assets of the richest member. This is just about the opposite of what you'd actually want.
3. Posted by Mark S. Devenow on March 6, 2009 @ 12:29 | Permalink
I like fedgovernor's grim sense of humor.
4. Posted by Jake on March 6, 2009 @ 19:02 | Permalink
Any creditor who would prey upon the family of a deceased debtor in this manner should be prosecuted to the full extent of the law. Too bad horsewhipping scoundrels is long out of fashion.
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