In Christianity, Judaism and Islam, a “jubilee” is an event when all debts are forgiven. At least according to the founders of the Rolling Jubilee, a brand new not-for-profit project designed to empower regular Americans to eliminate the outstanding debt of other Americans. The Rolling Jubliee’s goal? To buy up outstanding debt from banks and simply forgive it.
How Does the Rolling Jubliee Work?
In America, it is legal for banks to sell bundled debt, which is typically sold in large portfolios. This practice began as a result of the savings and loan crisis in the 1980s. With many banks closing at that time, the United States was in need of new systems to buy and sell the assets of these banks in an effort to recoup losses due to the American people. The selling off of consumer debt to ”debt buyers,” was one solution. Since that time, debt buyers have been able to purchase outstanding, delinquent and charged-off debts in an effort to collect on them.
The Rolling Jubilee, created by an organization looking for new ways to eliminate consumer debt called Strike Debt, is now raising money to act as a debt buyer. Only instead of collecting on the debt they’re planning to purchase, the Rolling Jubilee plans simply to forgive it. This means those whose debt was purchased by the Rolling Jubilee will no longer be hounded by debt collectors.
It’s a pretty simple idea, but the Rolling Jubilee has raised a lot of eyebrows since kicking off — and the non-profit associated with the Rolling Jubilee name has raised almost a half-million dollars.
The Marvelous Efficiency of Debt Buying
Debt buying is a fairly unsavory business by many accounts, and has been associated with phone- and mail-based harassment in recent years. Unfortunately, since bundled debt can be purchased so cheaply, it’s also been an incredibly lucrative business. Put simply, cheaply purchased debt combined with aggressive collection efforts can result in big profits due to the low prices this debt can sell for.
Since many of the debts purchased by debt buyers have been delinquent for some time, and since the sellers have almost undoubtedly tried to collect on the debt themselves before selling, the portfolios of debt bought and sold are often exchanged at pennies on the dollar.
The Rolling Jubilee believes it can buy debt at about 5 cents on the dollar. The discounted costs of this debt means lots of leverage for the Rolling Jubliee. All of a sudden, debt buying looks like a marvelously efficient way to eliminate millions of dollars in outstanding debt.
As of this writing, the ~$450,000 raised by the Rolling Jubliee will be able to eliminate an estimated $9 million. Pretty cool, right?
The Trouble with the Rolling Jubliee’s Idea
There are downsides to this idea, and of course, points of criticism. For example, home mortgages, car loans and other debts that are backed by physical things are typically not bought and sold at auctions or in markets where debt sales occur. That’s because banks can typically take the assets back when the debts aren’t paid. Student loans are not exchanged in these markets either, because they are so well secured by the U.S. Government. Student loan debt is incredibly hard for individuals to escape — wages and social security can be garnished to pay them, and bankruptcy does little to stem student loan debt bills in most cases. This means most of the debt the Rolling Jubliee will be able to buy is credit card debt. In short, this concept isn’t a magic salve, able to cure all our consumer debt problems.
There are also concerns being raised in the blogosphere about what will happen to the price of debt if the Rolling Jubliee is really successful. If the Rolling Jubliee is able to raise millions of dollars, it could begin purchasing billions of dollars in outstanding debt. But due to the simple law of supply and demand, the price of this outstanding debt will likely go up if that happens, resulting in a less impressive ratio of money spent to debt forgiven. Depending on your perspective, this could be a good problem to have, however, because for that scenario to unfold, the Rolling Jubliee would have to become an incredibly successful non-profit — one raising millions of dollars in funds to purchase debt.
How to Support the Rolling Jubliee
If you like the idea of contributing $1 to eliminate $20 worth of an anonymous neighbor’s debt, you might want to consider donating a little money to the Rolling Jubliee. You can do that at RollingJubilee.org. You can also help the cause by simply promoting it. Sharing this blog post with a friend, for example, could be enough to help someone out there trying to escape the maddening practices of debt collectors.
PerkStreet Financial has no affiliation with Strike Debt, the Rolling Jubliee, nor the Occupy movement. However, we are fans of efforts to breathe new life into the current financial system here in America. PerkStreet is proud to help our customers avoid debt by offering America a debit card that earns credit-card-like rewards — cash back for spending what you have already earned.
What do you think of the Rolling Jubliee? Will you help support the movement? Do you see any strengths or weaknesses to the idea that were not pointed out above? Share your thoughts above.