The principle behind this business deal is simple. All debts at some point of time become uncollectable as they have passed the time period laid down in the statute of limitations. This time period could range from 3 to 7 years. This period varies from state to state. At this point collection companies who wish to make some money from this deal will buy the debt at a fraction of its value. It can be understood that older the debt the less its market value. Thus a debt over 8 years will cost a fraction of the money that would be paid for a debt that is 3 years old.
In earlier times the collection agents had a free field and could use any method to recover the outstanding debt. This could include threats and intimidation. However The Fair Debt Collection Practices Act passed in 1996 has put a premium on all forms of coercion. This act lays down the limits under which a collection agency can run and any infringement of this can be reported to the authorities. However there have been cases where the collection agents subvert this act to collect something out of the