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American consumers and the terrible, horrible, no good, very bad debt

John Oliver pays off old medical debt.
John Oliver pays off old medical debt.
Screen grab from Last Week Tonight

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John Oliver, the host of HBO's Last Week Tonight, created a buzz on social media Sunday after a stunt involving the purchase of outstanding medical debt. 

Oliver spent the bulk of his show railing against debt collection in America — specifically, medical debt. 

Then, just for the show, he created a fake debt collection company, bought $15 million worth of debt for pennies-on-the-dollar and forgave it on television.

It's estimated that 20 percent or over 42 million Americans are living with medical debt. Many don't know they're past due until they get a call from a collector.

So what rights do patients have when dealing with collections agencies?

Take Two put that question to consumer protection attorney Bob Brennan. 

(Answers have been edited for clarity.)

You heard those numbers I just mentioned about medical debt in America. Those were from a 2014 report by the Consumer Financial Protection Bureau. Who are the people facing medical debt and how big of a problem is this?

It’s largely the people who are uninsured or underinsured. Even with Obamacare, there is a lot of procedures which are not covered or only partially covered. That’s one scenario. The second one that people run into is just confusion in the billing and sometimes stuff is not properly covered or submitted to insurance. Let’s say you go to a doctor’s visit, or you go to the emergency room, or you go to urgent care; most consumers do not know that you are being billed potentially by three, four, or five separate entities when you visit. It’s very much a la carte these days in terms of charging. Suddenly, people have a debt that they did not realize that they thought was covered — that happens all the time. 

What is a collections company and who are people buying the debt? 

What you’ve got is investors, and you’ve got investors at all levels. You have billion dollar hedge funds, and you have people who are literally investing out of their garage. It’s not hard to buy a debt portfolio. John Oliver demonstrated it. Let’s say you have $25,000; you could buy as much as $2.5 million to $5 million dollars worth of debt. Any one of your listeners within the next 90 minutes could own a debt portfolio. After it gets passed three or four times down the chain, then you’re dealing with a bunch of people who are literally operating out of the garage and buying debt portfolios. 

How far do collection companies go to get the money? 

I have personal friends who own collection agencies, and they're ethical, and they care about abiding by the law. But beyond that, I could tell you about one case we handled a couple of years ago: 

The debt collector called a family’s home. It was the father’s debt, and the only person that was home at the time was the nine or ten-year-old son. So the debt collector told the son that he had to find his dad’s wallet and give the debt collector the credit card information or the father was going to go to jail. And so this kid was freaked out and — of course — gave the credit card information to the debt collector. 

The best way to answer that collection is what they’re allowed to do and what they’re not allowed to do:

Press the blue play button above to hear more about your rights as a consumer, and to hear what the California statute of limitations says about debt.