Debt buyers, the companies that purchase and collect delinquent debt, pay as little as 1% to 4% of the face value of debts they buy, and then typically attempt to collect the full amount from consumers.
The debt buying industry is built around a simple, if audacious, business model: Buy debts that other companies have given up on collecting, for pennies on the dollar, and then pursue the original amount. In most cases, consumers are unaware that the collection agency on the other end of the phone or letter is seeking a huge return on its investment by pursuing them for the original debt amount.
Understanding how much debt buyers pay for debts can help consumers determine whether debts on their credit report are legitimate, validated and within the statute of limitations.
The FTC Study on Debt Buying Prices
The industry's prices came to light in a 2013 empirical study by the Federal Trade Commission, which reviewed more than 5,000 debt portfolios containing nearly 90 million consumer debts with a face value of $143 billion. The debts were purchased by the nine largest debt buyers at the time, which collectively accounted for more than 76% of all consumer debts sold during the study period.
On average, debt buyers paid 4 cents for each dollar of debt face value. That means for a batch of debts with a face value of $1 million, a debt buyer might have paid around $40,000. The buyers in the study spent $6.5 billion to acquire $143 billion in debts over three years.
The most significant factor affecting the price debt buyers paid was the age of the debts: The older the debt, the less it cost. Debt buyers paid around 7.9 cents per dollar for debts less than 3 years old, 3.1 cents per dollar for debts 3 to 6 years old, 2.2 cents per dollar for debts 6 to 15 years old and next to nothing for debts older than 15 years.
The CFPB Market Snapshot on Online Debt Sales
Even lower prices were evident in a 2017 market snapshot from the Consumer Financial Protection Bureau, which looked at online platforms that facilitate debt sales among smaller buyers. The results were even worse than those found by the FTC.
Of 298 portfolios observed for sale in online marketplaces, totaling nearly $2 billion in face-value debt, the average price was less than a penny on the dollar, according to the CFPB. A total of 117 of those portfolios were offered for sale at less than half a penny on the dollar, while 44 were offered for less than a quarter penny on the dollar.
One portfolio of debt with $156 million in face value was offered for sale at $125,000, or less than a tenth of a penny on the dollar.
How Your Debt Gets from Your Bank to a Stranger
The Charge-Off and First Sale
The process starts with non-payment.
Your original creditor, typically a bank or credit card company, will attempt to collect from you internally for 90 to 180 days. If unsuccessful, it will charge off the account, meaning it writes it off as a loss for accounting purposes, then choose to either contract with a third-party debt collector to work the balance on commission (usually 25% to 50% of the amount recovered) or sell the debt outright to a debt buyer at a negotiated price and give up ownership of the account.
Creditors group these charge-offs into portfolios, which are bundles of accounts that share certain characteristics, such as type of debt, age of debt, geographic location, and history with prior collection efforts. Large creditors may sell these portfolios through competitive bidding, or they may enter into forward flow agreements, which establish the terms for regular monthly sales of debt at a pre-set price.
The Resale Chain That Strips Away Documentation
What happens after the initial sale is where the real problems for consumers begin. The initial debt buyer attempts to collect on as many of the accounts as it can before selling the remaining uncollected debt to a second debt buyer for a still lower price. The second buyer may resell it to a third, and so on. With each transaction, the quality of the information tends to suffer or even vanish.
The FTC found that buyers of debt rarely received the original documentation on the accounts, including copies of the original contract, account statements, or itemizations of how much of the balance represented principal and how much interest and fees. Often, debts were sold “as-is” with “no representations or warranties” about their accuracy.
This is important because the further your debt drifts from the original creditor, the greater the likelihood that the data associated with it is flawed. The person or company calling you demanding money may not have the paperwork needed to verify that you owe the debt, that the balance is accurate, or that it is not past the legal statute of limitations in your state.
The Inaccuracy Problem That Affects Consumers the Most
500,000 Unverified Debts Remain in the Collection Process Each Year
The FTC report also highlighted the inaccuracy problem. The Commission found that 3.2% of the debts in buyers’ portfolios were disputed by consumers. Extrapolating that figure across the industry results in approximately one million consumer disputes each year. Now, here’s the part that’s important.
Debt buyers were only able to verify about half of those disputed accounts. That means approximately 500,000 unverified debts remained in the collection process each year, with debt buyers continuing to demand payment from consumers on balances they could not verify were accurate.
To make matters worse, when creditors sold debt portfolios to buyers, they rarely transferred the dispute history to the new owner. A consumer who had already disputed a debt to an original creditor may find that she or he has to go through the entire dispute process again with a new company that now has even less documentation than the original creditor.
What Missing Documentation Means to Your Credit Report
When a debt buyer purchases your debt, it typically only receives electronic data such as your name, address, social security number, the name of the original creditor, and an outstanding balance. It may not receive your original agreement, statements, payment history, or documentation as to how any fees or interest were computed.
Despite missing documentation, debt buyers often report these debts to the three credit reporting bureaus. A collection account may remain on your credit report for up to seven years from the date you first became delinquent with the original creditor and may affect your ability to obtain housing, employment, or favorable credit terms.
The disconnect between the limited documentation that debt buyers actually have and the serious consequences to your credit report is one of the best reasons to scrutinize any collection account. Errors as to amount, identity, and enforceability of a debt are much more common than consumers are aware of.
How Much Money Debt Buyers Actually Make
Information Available from Publicly Traded Debt Buyers
The two largest debt buyers in the U.S. are publicly traded companies. Their financial data is available for anyone willing to read their SEC reports. During 2025, Encore Capital Group, the parent company of the collection firm Midland Credit Management, reported the following:
Global collections: $2.6 billion
Total revenues: $1.77 billion
Net income: $257 million
The second largest debt buyer, Portfolio Recovery Associates, reported the following during the same period:
Cash collections: $2.1 billion
Legal collections: $483 million (48% of its domestic core collections).
In 2015, PRA made litigation a central part of its business model. Looking at historical data makes the calculation even clearer. Minnesota’s Attorney General reported that Encore spent a total of $1.8 billion on 33 million accounts with a face value of $54.7 billion, about 3 cents on the dollar. Then it sued in Minnesota courts more than 15,000 times and won judgments by default in at least 98 percent of its cases.
A Television Host Proved How Easy It Is to Enter the Market
Perhaps no illustration of the debt buying industry’s economics was more dramatic than what HBO’s John Oliver did in June 2016.
His show formed a debt buying company called Central Asset Recovery Professionals, or CARP, named after the bottom-feeding fish, by registering in Mississippi for about $50. CARP was immediately offered a portfolio of nearly $14.9 million in out-of-statute medical debt for about $60,000, which is less than half a cent on the dollar.
The portfolio came with the names, addresses and Social Security numbers of nearly 9,000 people. Oliver eventually forgave the entire portfolio through the nonprofit RIP Medical Debt, but the exercise proved a disturbing point about how easily anyone can acquire sensitive consumer information and the legal right to collect.
That same nonprofit, now called Undue Medical Debt, has exploited the industry’s pricing structure to do the opposite of what collectors do. The organization has purchased and forgiven over $6.7 billion in medical debt affecting 3.6 million people, at a cost of roughly $1 for every $100 of debt retired.
Regulators Have Penalized the Biggest Debt Buyers Repeatedly
Federal Enforcement Actions Exposed Systemic Abuses
In September 2015, the CFPB took simultaneous action against Encore Capital Group and Portfolio Recovery Associates, finding that both companies collected debts they knew or should have known were inaccurate, filed lawsuits without intent to prove the underlying debts and used robo-signed court documents.
Encore was ordered to pay up to $42 million in consumer refunds and a $10 million penalty. Portfolio Recovery faced $19 million in refunds and an $8 million penalty. Both companies became repeat offenders. The CFPB sued Encore again in 2020 for violating the terms of the original consent order, resulting in an additional $15 million penalty.
In 2023, PRA was hit with $12.18 million in consumer redress and a $12 million penalty for continued violations. The FTC has also pursued aggressive cases.
In 2020, the Commission’s case against Midwest Recovery Systems revealed that the company had placed $98 million in highly questionable debts on consumers’ credit reports without even contacting them first. When investigated, 80 to 97 percent of disputed debts were found to be inaccurate or invalid.
State Attorneys General Have Joined the Fight
A coalition of 42 state attorneys general reached a $6 million settlement with Encore and its subsidiaries in 2018 over robo-signing practices, with tens of thousands of consumers receiving judgment relief.
New York’s Attorney General forced Encore to vacate more than 4,500 court judgments. Massachusetts secured a $12 million settlement in 2022 for practices that targeted low-income, elderly, and disabled consumers.
What’s the Takeaway?
When a debt collector purchases an account for 4 cents or less, the odds are good that they either don’t have the paperwork to prove that you owe the debt or that their paperwork contains errors. This should encourage you to verify any debts that appear on your credit report.
Debt collection is big business and collectors may be willing to take the risk that you won’t notice an error or that you won’t challenge debts. Given the potential financial cost of a bad credit score, it’s worth it to ask for proof if you find a collection account on your report that you don’t recognize or that you don’t believe you owe.
Let FightCollections.com Dispute Inaccurate Collection Accounts on Your Behalf
If you have collection accounts on your credit report, the information behind those entries may be incomplete, outdated, or flat-out wrong.
At FightCollections.com, we specialize in identifying errors in collection reporting and disputing inaccurate items through the processes established under the Fair Credit Reporting Act and Fair Debt Collection Practices Act. We understand how the debt buying industry works, from the initial charge-off to the third or fourth resale, and we know where documentation failures are most likely to occur.
Our team reviews your credit reports, identifies collection entries that may lack proper substantiation, and files disputes on your behalf with the credit bureaus. You do not have to accept what a debt collector puts on your credit report at face value, especially when that collector may have paid less than a penny for the right to report it.
Visit FightCollections.com today to learn how we can help you challenge inaccurate collection accounts and work toward a more accurate credit profile.
