A National Debt Registry?
There's a fascinating long magazine piece in the NYTimes about consumer debt sales and collection. The piece ends by asking why we don't have a national debt registry, as if that were the solution to all debt collection problems. Unfortunately, the author only asked the FTC about this issue (and acknowledges that it isn't in FTC jurisdiction), not the CFPB, and the author doesn't consider any of the problems with creating and implementing a debt registry. (I'm guessing Dalie will have something to say about this...) As the case of MERS shows, it isn't so easy to create a well-functioning registry of property rights of any sort. Let me illustrate a few challenges to creating a debt registry:
Second, what ensures that information is accurately entered into the system? Local land records (excluding the handful of Torrens systems around) do not vouch for the accuracy of mortgage or sale filings. Accuracy is both a matter of correct data entry and of timely data entry. The MERS system has had problems with both--information isn't always entered correctly and often it isn't entered at all (or at least in a timely fashion). A big part of solving this problem is making sure that parties have incentives to register debt, but that goes to a question of what benefit comes with registration, which is discussed below.
Third, who can view the system? This is a huge set of privacy concerns. Right now, if I wanted to find out what debts Bob Lawless owes, I would not have any easy, legal way to do so. I have no right to obtain Bob's credit report or to open his mail or read his emails. My guess is that Bob likes it this way--he'd rather not have me and all of his blog-groupies and students knowing the balance on his credit cards or wondering what procedure he had done for which a certain doctor's office (with a revealing speciality title) says he owes money.
Forth, what benefits would come from registering debt? Presumably these would be legal benefits, but what legal force, if any, would a system have? Is a registry just for convenience and information, or is it meant to merely provide prima facie standing to sue on a debt or is it meant to serve as conclusive evidence of (1) ownership of a debt or (2) accuracy of a debt? I suspect it would never be (2), but I don't know how it could be (1) absent legal rules deeming the registered holder to be the owner.
Thus, if Bad Broker sold a debt portfolio to Colleen Collector and then later sold the same portfolio to Cory Collector, but Cory registered the debt first, Cory would be the owner. This is similar to state law rules about mortgage and security interest priority, but notice that the priority rules are not about validity or ownership, but about priority, which is about distribution rights in a forced sale. A first mortgage is not extinguished by a second mortgage's foreclosure--it stays with the collateral. In contrast, there can be only one satisfaction of a debt--if two parties could collect on the same debt, the second to collect loses everything. There are imperfect ways to mitigate the double-sale problem as a business matter, such as using warranties, but that's not the same as deeming a debt to be valid by force of law.
These are just some of the big picture issues with creating a debt registry. It's an idea that sounds really good at first blush, but has some uniquely difficult challenges, particularly if it is applied to more than a narrow category of debts and is to provide conclusive legal evidence of anything.