by Jake Halpern
The takeaway from all of this, explained Benny, was that it simply no longer made sense for guys on the street to sell drugs anymore. He added: “I think that there’s so much more money on the other side.” By the “other side,” he meant the lawful side—the world of legitimate business, such as collections. When he was released from prison in 2009, Benny says that he scrounged together $2,500—from friends, family, and savings—and invested it with some guys he knew who had opened up a collection agency. These guys were former criminals who had “changed their lives over.”
Collections simply offered a better life, he concluded—much as it had for Brandon, Jimmy, and Larry. During his brief spell of freedom, he claimed that he and his collections industry friends traveled to Miami and “partied out” just “like you see in the rap videos,” spending ten thousand dollars on liquor at a single nightclub, enjoying “big hotels, penthouses, big fucking rooms, chicks everywhere on Ocean Drive, you know, the whole South Beach thing.” They were living like gangsters, he explained, but they were “legitimate” and could have bank accounts, credit cards, automobiles—all registered in their own names. And this all happened in 2009, he pointed out, when the economy had already tanked.
Benny was reluctant to explain why, just two years later, he went back to jail on an armed-robbery charge. According to his records, he “forcibly stole money at gunpoint inside a residence.” He told me, rather cryptically, that he was only helping a friend. In any case, the money that he had made from his collection agency paid for his criminal defense lawyer. The agency didn’t stay up and running for long, however. “They actually shut us down—something happened over there,” he told me. Of course, even if a shop got shut down, he explained, the problem wasn’t insurmountable. “You know, shut down today and you can get back up tomorrow in another spot somewhere.” In comparison with drugs, he explained, the risk was so much lower: “You ain’t going to jail—no one’s going to jail for that.” Even the fines were bearable. “You’re making millions of dollars, and they come fine you a hundred twenty thousand dollars—what the fuck is that?”
“Debt’s always there,” Benny told me with a philosophical air. “You can’t get out of debt. Credit is the day’s currency. You know what I’m saying? Credit. Without credit you can’t get shit.” This would never change, he assured me, and there would always be money that needed to be collected from those people who couldn’t pay. “Just like hair shops,” he explained. “People’s hair is going to grow. They always going to want to cut their hair. It’s like real estate. People need a place to live. You know what I’m saying?” Americans would continue to live on credit, Benny concluded—the only question was how entrepreneurs like him could create new ways to capitalize on this phenomenon. And Benny had a plan.
“I think the game is evolving,” he told me. There was a “transition” occurring, from collections to “refinancing.” The future, he told me confidently, belonged to companies that advertised on the radio, Internet, and television, promising to help debtors pay creditors. The beauty of these operations—known as debt-settlement companies—is that the debtors called you, he explained. He then gave me his radio pitch: “If you got a problem with your debt, I don’t care how many sources it’s coming from, give us a call, we’ll help you. We can probably get you down to one low loan payment and work out an affordable rate for you.” He paused. “This is no different. It’s the same shit. It’s just a different angle.”
I mentioned this idea to Professor Peter Holland, a debt-collections expert at the University of Maryland Law School, to see whether he thought this really was a good “angle.” He said that most debt-settlement companies were “total scams.” “You basically tell debtors, ‘Stop paying all debt and send your money to me and I will work it out for you.’” The catch, says Holland, is that the company often charges exorbitant fees. “I have seen situations where eighty-five percent of the money is going to fees and just fifteen percent is going to escrow,” Holland said. The FTC has since banned “up-front fees” like this, he says, but there is still “a lot of room for shady dealings.” He concluded that Benny was prescient to target this niche of the collections industry. After all, even if banks stopped selling credit-card accounts to hedge funds and independent collection agencies—and even if the banks cleaned up their practices significantly—debtors would still be looking for “help” paying their bills. “He is ahead of the curve,” concluded Holland. “That is where it is going.”
Back at Attica, I continued to chat with Benny until—rather suddenly—he seemed to tire of me and said, as if to sum it all up: “In collection, we made pretty good money, man. And that’s all I can say. I think we make more money than you would actually [make] selling drugs. It’s beautiful.”
“And you know”—he paused for a moment and looked at me knowingly—“everything is like a game.”
* * *
Most of the people whom I met in the course of reporting this book are, in one fashion or another, still in the game. When I last spoke to Jimmy, he had moved his collection agency over to the West Side of Buffalo, so he could distance himself from the crime—and his own past—on the poorer East Side of the city. He was still mainly working payday loans, but he had found a new supplier, who furnished him with good paper—none of which was double-sold. He was also working other people’s paper on a contingency basis, keeping 35 percent of what he collected. Profits were up. Even so, he has had problems. Not long ago, he was passing through the East Side, en route to his mother’s house, and someone tried to rob him. The incident shook him, in part because he had no real recourse: “I can’t act out like I used to—I am a sitting duck out here being legal.” This understanding prompted him to purchase a home down in Georgia, where he lives for one week a month, with his girlfriend and their six-month-old son. He passes his days in Georgia barbecuing, gardening, and playing with his baby. “It’s peaceful down there,” he told me. “So peaceful.”
Shafeeq, the Muslim collector whom Aaron hired to help work his paper, ultimately shut down his debt-collection agency and got out of the business altogether. He opted not to take a fourth wife and he ended his relationship with his second wife, his former administrative assistant. He now has just two wives, and two separate families with whom he lives on an alternating basis for two days at a time. When I met up with him, at his mosque, he told me that he wanted to invest in “green energy” and that he was spending much of his time praying. “God loves it when you wake up and pray to him. You know what I mean? Because they say he comes out to the lowest level of the heavens and he asks his angels, ‘Which one of my servants is up—and what does he want?’ And the angel says, ‘Oh, this person is.’ And he says, ‘Give it to him—whatever he wants.’ So I just started praying more.”
Perhaps not surprisingly, Bill—the agency owner who, somehow or another, managed to get his hands on Aaron’s accounts—is still in the business. He shut down the agency where he was working those accounts, but opened a new one in the summer of 2013. When we spoke, later that fall, he lamented the current state of debt collections: “There’s no integrity left in this industry, and there was very little to begin with, but now there’s none.”
A growing problem, said Bill, was that the paper available to small operators like him—mainly payday loans—was increasingly “contaminated.” The contamination stemmed from the use by so many collectors of a very aggressive talk-off known as “the shakedown” or “the shake.” In this scenario, a collector called up a debtor, introduced himself as a process server, and announced that he was en route to the debtor’s house to deliver a summons. The debtor would then, more often than not, become very agitated and ask what this summons was for. The “process server” would then offer a telephone number for the debtor to call and, minutes later, the frantic debtor would be paying his debt. Bill insisted that his agency did not use “the shake,” but said that many other agencies in Buffalo did and that this aggressive style of collecting was spreading
to Virginia, North Carolina, and Georgia. He mentioned a collector who was banned from New York State and had recently reopened his business in Atlanta. The bottom line for Bill was that it was almost impossible for him to avoid buying contaminated paper—and such paper was worthless. After all, if a debtor didn’t pay after the shake, he would never pay.
Eventually, I asked Bill again about the stolen accounts from the Package. “I can still access the whole file if I want,” he told me nonchalantly. “I still have it on my database, we’re just not collecting [on it]. I don’t touch it. It’s just been sitting [there] since I don’t know when.” I asked Bill if he thought it was possible that someone else might have the accounts as well—someone who might resell them. “It could be compromised someway, but I don’t think it’s been in any of those type of hands,” he said. “Like, I’m not a dirty dude, I don’t think Brandon is, or anybody else who it really came in contact with. So it should be safe.”
Only it wasn’t.
In July 2013, debtor #3,159 from the Package—Theresa—received a phone call from a company called McKellar & Associates Group, Inc., trying to collect on the very Washington Mutual debt that she had already paid and that Aaron had definitely retired. The agency was based in Corona, California, and one of its collectors told Theresa that it was collecting the debt on behalf of Chase Bank, which had purchased Washington Mutual in 2008. This was not true. Washington Mutual sold the debt in 2007 and Chase never even owned it. In one call, a collector from McKellar & Associates told Theresa that she was about to be served with legal papers.
It was both galling and astonishing to learn that someone was trying to convince Theresa to pay a debt that she had already paid. In the end, she didn’t pay. The question remained: How did her debt end up in their hands? Since Aaron’s company had chain of title for her debt—and had retired it—I was totally perplexed as to how McKellar & Associates had any claim to it.
I eventually spoke with Adam Owens, the co-owner of McKellar & Associates. Adam runs a number of different businesses, including his collection agency, which has roughly forty collectors under contract. His main offices are in Beverly Hills. I recounted how one of the agency’s collectors had told Theresa that a process server had been hired to deliver legal documents to her door. I asked Adam if this was true. Adam explained that his company did sometimes sue debtors, but not Theresa. He conceded that, if what Theresa said was true, “this was a manipulative tactic the collector used to close the deal.” He added, “We have a bonus structure, and you will have people who say things that are not appropriate.” This collector, he explained, had since been fired for another matter. Adam added that he always strove for compliance and that his partner had even attended a workshop sponsored by the CFPB.
Eventually, I asked Adam how exactly he had obtained Theresa’s debt. As it turns out, he had purchased it from a debt broker in Florida. It was part of a much larger package of roughly $50 million worth of debt, which he bought for just twelve basis points—or one-twelfth of a penny on the dollar. It had been bad paper, said Adam, who claims to have gotten burned on the deal. After the purchase, Adam discovered that another agency was collecting on the same paper and, what’s more, that some of the charge-off dates had been manipulated so that the debt appeared fresher than it actually was. These problems shouldn’t have come entirely as a surprise, however, because he never obtained chain of title for this paper. As Adam saw it, when buying from debt brokers, this was all part of the risk one faced. “It is just data you are purchasing,” he told me. “You never know what you are buying.” It was rather surreal to see this scenario—similar to the ones I’d seen on the streets of Buffalo—play out in Beverly Hills.
I also checked in with Joanna, the single mom who was raising her daughter in the Midwest. After the incident with Bill and the stolen accounts, Aaron opted to close her account. Perhaps her debt has truly been put to rest, though it might just be a matter of time before she receives a call from an agency like M&A. When I spoke with Joanna, one January evening, she told me that she was still struggling to pay her bills. Her job as a nanny wasn’t working out. The money wasn’t enough to live on, and to make matters worse, one of her employers’ sons had begun to bully her daughter whenever they played together. Joanna needed a new job, but couldn’t find one. She told me that the pressure mounted during the holidays: “The night before Christmas Eve, I was off, and we were laying there and watching Christmas movies and making cookies, just trying to have some kind of fun. And [my daughter] was like, ‘What’s wrong?’ And I told her, ‘There’s a lot going on in our lives, and I’m trying to make it better for us. I’m trying to make sure you have a good life, and it’s hard—and sometimes Mommy can’t take it anymore.’ I was just crying. And you know what she said? She said, ‘Let’s go for a drive.’ So we did. We went for a drive and I showed her where I had applied for a new job, and she was like, ‘Okay, I know what it looks like. I’m gonna say a prayer now.’”
Roughly a week later, Joanna got the job, which gave her some cause for optimism. If all went according to plan, she told me, she might be able to pay her utility bill. “My electric I’m hoping to pay next week,” she told me. “But maybe not, you know. It might have to wait.”
A NOTE ON METHODOLOGY
Perhaps the greatest challenge that I faced in reporting this book was simply getting people to talk to me. Debt collectors are some of the nation’s most reviled professionals, and many of them, quite understandably, were reluctant to speak with a journalist and author who might heap more scorn upon their profession. Likewise, many debtors have been so pursued, hounded, and harassed that they were leery of speaking with a stranger who wanted to chronicle, examine, and dissect their financial woes. What’s more, some of the people in this book had engaged in activity that was—at the very least—on the edge of legality. For all of these reasons, it was often difficult to encourage subjects to talk about their professional and personal lives with candor.
A few characters were eager to talk from the outset. For them, this book offered a chance to describe the challenges that they faced—professionally, personally, and financially. Aaron Siegel, for instance, was frustrated with his experiences as a debt buyer and was keen to discuss how the system could be improved. Some collectors, like Jimmy, were so tired of being loathed by the public at large that they were desperate to share their stories in the hopes of debunking the stereotype of the debt collector as coldhearted villain. “If you can show people just how hard my life is and my job is,” he told me, “I will be happy.”
Whenever possible, I tried to use people’s real full names. Many of the characters, including the book’s two protagonists—Aaron Siegel and Brandon Wilson—agreed to this. In other cases, I used first names or nicknames because subjects worried that they might lose business, suffer professionally, be harassed, or draw unwanted attention from the authorities if they were fully identified. There were several instances where this proved to be impossible, and for these characters (for example, Kenny, Madison, and Lilly), I was forced to use fake names. All of the other details about the people in this book—including their appearances, ages, occupations, personal lives, and places of residence—are entirely true.
There are no composite characters in Bad Paper. Each character appearing in these pages is a real, singular person whose comments and credibility I assessed carefully before quoting. There is always a danger in quoting people who are not identified or are only partially identified; such participants know that they can speak candidly—which is a good thing—but they also know that if they embellish, or describe another person unfairly, they will likely not be held accountable. When quoting such characters, I was especially careful to corroborate their stories or frame them with an appropriate degree of skepticism.
In writing this book, I was occasionally required to describe events—from the past—at which I was not present. The most notable example of this is the showdown at Bill’s corner store. In this instance,
I spoke with virtually everyone who was present at that store. In a situation such as this, there is inevitably a “Rashomon effect” as disagreements emerge about the details of what exactly transpired. In writing about this event, and others like it, I have tried to attribute quotes specifically and exactly so that it will be clear whose recollection I am relying upon. (For example, in the shouting match between Bill and Brandon, I write: “Bill says that he refused to be strong-armed and that he told Brandon: ‘It’s not gonna happen here—you’re talking to the wrong guy.’”) In those instances where I was ultimately unable to discover the truth—for example, how the Package was stolen from Aaron’s office—I tried to lay out all of the theories that I deemed credible. In each instance, I have weighed each person’s credibility and never assumed that anyone—even one of my main characters—was necessarily telling the truth or recollecting correctly.
Almost all of the financial numbers that I cite relating to what debtors owed and paid are numbers I obtained in paperwork from the banks, or from the courts, or from letters or other communications sent to debtors from creditors. I also consulted the actual Excel spreadsheet connected to the Package. There were just a few exceptions, most notably, the amount of money that Joanna and Theresa claimed to have paid the rogue agency that harassed them. Whenever possible, I have noted where my numbers came from. Both Chase Bank and Bank of America employees, it must be said, were very helpful. The court clerks in Georgia enabled me to track down whatever paperwork existed in each of the cases that I wrote about. In writing this book, I also spoke extensively with federal regulators to ensure that I understood and wrote about their policies as accurately as possible.
NOTES
INTRODUCTION
Some 30 million consumers: Figures for how much Americans owe come from Federal Reserve Bank of New York, Quarterly Household Debt and Credit Report, November 2013. The information about 30 million Americans owing debts, however, comes from remarks made by Richard Cordray, director of the Consumer Financial Protection Bureau, at the Debt Collection Advanced Notice of Proposed Rule Making Press Call on November 6, 2013.