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In Defense of Debt Collection

July 5, 2006

Tags Financial MarketsTaxes and SpendingMoney and Banking

You know hypocrisy, as when the pot calls the kettle black? Well, this news report gives new meaning to the idea:

The rise in American consumer debt has been accompanied by a sharp increase in complaints about aggressive and sometimes unscrupulous tactics by debt collection agencies, a phenomenon that has government regulators increasingly concerned.

So the government is concerned about rough tactics, huh? Try skipping out on your taxes this year and see how rough the tactics can become. Try hiring an employee at less than the official wage floor and see what becomes of your business. Try to put a tool shed on the "wetland" in your backyard and see what the regulators do.

If foreign producers try selling too many peanuts or t-shirts, or attempt to charge a genuine market price, the whole weight of leviathan comes down on their heads. If their government leaders say something nasty about the US president, they risk being overthrown or having their cities blown up.

In other words, the US government is in no position to complain about rough tactics in the seizure of property.

What's more, the government acts without prior contract. No one is ever asked if he would or would not like to pay taxes, obey regulations, or adhere to US dictates on trade or foreign policy. The government presumes that you are under its control just because you happen to be born within territory that it controls. In short, the government always and everywhere acts aggressively, which means to use force against someone without any basis in contract.

In contrast, the surest way to avoid being bugged by private debt collectors is not to go into debt. They will not and cannot take money from you that you otherwise have not promised to give them. If, however, you have promised to pay in the future, but received goods or services in the present, you owe and you must pay.

Sometimes people agree to pay, receive goods and services, and then refuse to pay. This is called stealing. The market economy discourages this through the critical institution called the credit rating. The credit rating is a measure of trust and character. It tells future lenders what kind of person you are, and whether you can be relied upon to live up to your obligations. These things do tend to follow patterns, after all.

In any case, the institution of the credit rating rewards people for keeping their commitments and punishes those who do not. It is a way in which the free market helps form good character and improve the culture – all without government design.

So what happens to those who don't pay, i.e. steal? They have to give the property or its equivalent back. That is where the debt collectors come in. They are unpopular figures, to be sure. But they are essential. And yes, they use coercive tactics, but let's be clear about the distinction between the aggression the government uses on an ongoing basis, which cannot be squared with morality, and the general use of force, which can be squared with morality provided it is used in defense of property and person.

Debt collection, then, is nothing but the use of retributive force in the defense of property – a wholly legitimate function of some agencies in a free society.

But leave it to the government – which claims the monopoly on the use of force – to make life hard for those who are using force for legitimate reasons.

The Federal Trade Commission is all ears when it comes to complaints about debt-collection agencies. They receive complaints all the time and then use muscle against people who are merely trying to recover stolen property.

Apparently, attempts to collect are intensifying since bankruptcy laws have been tightened. But if you care about the security of property, this is a positive trend.

Now, the story in question cites a number of cases when the credit collection agency apparently went after the wrong person and behaved imperviously to protests. This can happen, as in the case of identity theft or technical error. What happens in this case? Most such situations are eventually resolved through agreement. A collection agency that targets the wrong guy too often gets weeded out of the market. This is because no business has any long-term interest in trying to collect money that is not theirs.

You don't need government to step in as a police force to determine which agencies are good and accurate or bad and inaccurate. These systems can be internally self-policing. And contrary to the legend, no company wants to have to collect bad debts; indeed, it is very costly to do so. A credit-card company or car lot would far rather work out a deal than have to search and seize. There are no vast profits to be had in making people live up to their commitments.

Compare, too, what happens when a private agency makes a mistake as when the government makes a mistake. In private markets, the case can be frustrating and, yes, even humiliating. But there are open avenues to set the record straight. But when government has a case of mistaken identity, you can find yourself languishing in jail or even go to the electric chair. Government doesn't easily admit error, whereas private markets have the incentive to discover errors and fix them.

The repo man is one of the most unpopular people in society. But he serves an essential function of insuring the protection of property, which is the foundation of freedom. When the government makes it difficult to collect debts, we need not be naïve about the real nature of what is going on. The government is only seeking to shore up its monopoly on the use of force, and make life difficult for those who want to use peaceful methods of drawing sharp distinctions between what is mine and what is thine.


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