Third-party debt collection agencies harass unwitting consumers into paying debt they believe they’ve already settled.

T

he calls to the debtors went something like this:

Me: “Hello, is this Mr. Debtor?”

D: “Who is calling?”

Me: “May I speak to Mr. Debtor?”

D: “What is this about?”

Me: “Is this Mr. Debtor?”

D: “Yes, that’s me. What is this about?”

Me (clearing my throat): “Well, Mr. Debtor, I’m an associate at Law Firm and Associates calling with regard to your Household Bank Visa account, on which you owe $4,500.33. Please note that this is an attempt to collect a debt and any information obtained will be used for that purpose…”

[Click.]

I would then push a button on the collection software program we used, dialing the next number and repeating the process. I made hundreds of such calls during a nine-hour shift. I still can’t believe it.

What follows is a story of debt, which is the story of my life and the lives of many others.

***

I accepted a job as a debt collector in January 2003. The collection agency, a subsidiary of a much larger group, serviced charged-off accounts purchased from original lenders such as Chase Bank, Household Bank, and American Express. Since one of the principals at the agency possessed a law license, the operation was referred to as “Law Firm and Associates.”

I called and harassed the unemployed, senior citizens, and individuals living beyond their means.

Although I was not yet a lawyer, I was instructed to refer to myself as an “associate” of this lawyer when calling debtors. If pressed by the debtor as to my actual profession, I was to say things like, “I haven’t passed the bar in Montana yet,” or “I’m not practicing law at the moment.” I wasn’t even on my way to becoming a lawyer; I wouldn’t enter law school until Fall 2004. Nevertheless, such statements didn’t seem to run afoul of the Fair Debt Collection Practices Act (FDCPA), so I and my colleagues kept making them. It was unconscionable, but then again, everything I was doing there was unconscionable.

***

During the period in which I collected debt, a 10-month ordeal that concluded in October 2003, I was myself deeply in debt. An unstable relative had racked up thousands of dollars in credit card debt using my name and social security number, and the debts had been defaulted on and then sold to third-party collection agencies. Rather than pressing charges against a relative I still loved, I decided to dodge the debt collectors.

I found myself living a double life, one that revolved around debt. By day, I called and harassed the unemployed, senior citizens, and individuals living beyond their means. I insisted they provide payment in full for their financial mismanagement, lest Law Firm and Associates “possibly consider recommending their file for potential legal action” (another awkward-yet-threatening construction that fit within the letter of the Fair Debt Collection Practices Act). By night, I evaded debt collectors, ignoring their calls or urging them to sue me when I did speak to them—always an empty threat, I knew, given how small my debts were and how infrequently third-party collectors ever sued to collect anything.

I was no stranger to debt. My father had accrued millions upon millions of dollars of it during the last years his Chrysler dealership remained in operation. Debt was how my family financed the phony “good life” that we had once enjoyed, and debt eventually shattered my parents’ loveless marriage. Cited by most economic historians as one of the motive forces behind the rapid economic development of the West, debt was also the motive force behind the depression and anxiety that characterized the first 25 years of my life.

***

“There are no debtors’ prisons in the United States,” the instructor told me and law school classmates on the first day of our bankruptcy class. (He wasn’t quite right, but the point stands.) He was attempting to explain why the United States Bankruptcy Code, even as modified by the draconian Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), was preferable to the old-timey wood and stone structures. Even prominent Americans such as Revolutionary War hero Henry “Light-Horse Harry” Lee and Supreme Court Justice James Wilson spent a few years in debtors’ prisons.

But is it preferable? Wilson and Lee were both back on their feet in a couple of months, their time in the pokey a mere footnote in their otherwise distinguished careers. The average U.S. household, by contrast, has $15,000 in credit card debt that follows them everywhere on an electronic CV summarized in an arbitrary three-digit number that goes a long way toward determining their future well-being.

FICO, a company founded in 1956 by an engineer and his mathematician partner, maintains tight control of the formula by which this number is derived. The “big three” credit bureaus, Equifax, Experian, and TransUnion, use data from FICO to produce their own versions of this score. Although some information has been made available about how this figure is calculated, consumers generally have no idea how things like “hard credit inquiries” and a poor debt utilization rate can impact it. One hundred points of credit score could amount to thousands of dollars in interest savings, yet it wasn’t until 2003 that the Fair and Accurate Credit Transactions Act (FACTA) provided citizens with a free means of checking these scores.

Even this concession came at a cost. The website created as a result of FACTA’s mandate, annualcreditreport.com, was quickly ripped off by sound-alike imitators such as freecreditreport.com and freecreditscore.com. Both operated by Experian, these sites hooked unwary users into expensive subscription services. Both advertised with amusing, stylishly-shot commercials that preyed upon consumer fears of identity theft and penury. Experian’s marketing campaign proved so effective that the Federal Trade Commission was forced to respond by producing advertisements and a detailed FAQ explaining that only annualcreditreport.com was authorized to provide free annual credit reports.

So yes, there are no debtors’ prisons in the United States. There’s just this three-digit number that originates from somewhere in California, where FICO is based, and is hidden behind paywalls and impostor websites seeking to dupe consumers into allowing their debit cards to be subjected to monthly subscription charges. For most of 2003, as I chased after difficult-to-find debtors, I examined thousands of these numbers, one after the other, until I realized our financial lives had long since ceased to be our own.

***

Household credit card indebtedness was slightly higher during my debt-collecting heyday than it is today—closer to $16,000. But this, like the occasional drops in nationwide unemployment, is hardly a salutary trend; it simply means that a good percentage of debtors decided to default on their debts between 2003 and 2014.

How, exactly, do defaults work in practice? Do alarms go off, in the manner of a science-fiction spaceship that has lost engine power and is about to crash into the sun? No, nothing so dramatic as that.

Eventually, through interest, annual fees, and hidden charges, you’ve exceeded the credit limit on the card.

Assume you have the Household Bank Visa I referenced earlier. On it, you’ve charged $800 or $900 worth of merchandise, probably life-preserving groceries and other necessities. The card, because it’s a “starter card” designed to either build or repair your credit, has a near-usurious annual percentage rate (say 20 percent) and an annual fee (say $50-$75). You make a few minimum payments, but the interest continues to grow. Suddenly the balance is $1,300—well above your $1,000 limit. The card is now useless. It’s a $100-$120 minimum monthly payment, a financial albatross.

So you stop paying that Household Bank Visa (likely triggering a 29 percent penalty rate and additional late fees) and repeat the process of charging those life-preserving necessities on another starter card with a low credit limit and a high APR. Eventually, through interest, annual fees, and hidden charges, you’ve exceeded the credit limit on the card. You stop paying it, too.

Soon the collection departments for these credit cards begin calling. Since they’re the original creditors, they’re not bound by most of the provisions of the Fair Debt Collection Practices Act, meaning they can call frequently and without interruption. They can even call when the debtor requests that they stop calling or claims that an attorney represents him. But these collection departments, usually staffed by call center employees from other countries, don’t work on a commission basis. They’re not that skilled at extracting money from people who don’t want to be found. They can be ignored, put out of mind like an aching body part in which the pain is chronic but not agonizing. And eventually these calls stop.

The calls stop when Household Bank and the guarantor of that other card make the only business decision available to them: They opt to sell the right to collect your debts, now perhaps at $3,000 – 4,000 per card, to a third-party debt collection firm that specializes in collecting recently charged-off debts. My employer Law Firm and Associates was one of these, so this is where I entered the picture.

***

There’s no way to understand my tiny role in the debt economy without the proper context. I was part of the mop-up crew of drone workers who took charged-off debts and tried to squeeze as much value out of them as possible. Law Firm and Associates gathered the flotsam and jetsam of the capitalist system’s wreckage. I sifted through it in search of a gold doubloon or two.

Each consumer file came with contact information (phone number, address, etc.), which was almost always out of date, and credit reports from Equifax, Experian, and TransUnion. Within a few weeks, I was reading these forms with an assayer’s eye for detail. As much as we wish to believe we’re unique and amazing individuals, the details of our financial lives are remarkably prosaic and repetitive. All debtors fit one of four profiles:

The Early Failure: a person with a bunch of starter credit cards that have been charged off, a cheap car note that may or may not be current, and perhaps a civil judgment or two that was filed in a small claims court. These debtors usually had no assets of their own, but sometimes had parents or grandparents who could be coerced into settling the account if all involved were sufficiently frightened and deceived about the ramifications of having the debt placed with a “law firm” instead of a “collection agency.” (There was no real difference besides the name, since we never sued anyone.)

The Big Deal: a person with an expensive mortgage, an expensive car note, and vast debts racked up on high-profile cards such as American Express. These debtors were very rare, good at hiding, but sometimes capable of making an enormous settlement payment if they happened to be digging out of whatever business failure or divorce had left them in this predicament.

The Victim: a person whose credit report also contained reference to thousands of dollars in unpaid medical bills. (I never collected these. That’s another story entirely). This person was likely on the way out, a victim of a catastrophic disease, and generally had no desire to pay their debts. Conversations with these debtors were among the most painful I had during my time at Law Firm and Associates.

The Lifelong Debtor: a person who had always been in debt, had perhaps even completed a previous bankruptcy or two, and now had a credit profile that featured a few starter credit cards and other revolving accounts (generally Fingerhut and Rent-A-Center) on which they never made a single payment. These people typically had default judgments from payday lenders and “100% approval” used car dealerships (two shady, parasitical enterprises that also prey on the poor and ill-informed) on their accounts as well. They could quite understandably not be expected to repay debts that no longer mattered to them, given how damaged their credit already was.

As I smiled and dialed, explaining to debtor after debtor how I was an associate even though I hadn’t passed the bar in this state, I grappled with the realization that I was a debtor of the first type. I would return home from a marathon calling session to listen to a half-dozen answering machine messages from people who were themselves chasing down a seemingly difficult-to-pronounce name associated with a charged-off debt profile.

“Mr. Batman,” a message would begin, “I am calling from NPN Factors about a matter of urgency in business…”

“Mr. Bayman, I hope to speak with you regarding an urgent business matter here at Phoenix Solutions…”

“Mr. Beamon, please return my urgent call at 1-800-555-5555 as I and others here at Southpaw and Associates wish to talk about a matter of some urgency now on file with our office…”

I kept hoping one of them would slip up and violate the Fair Debt Collection Practices Act, but they never did. And I almost never spoke to them. On the rare occasions I answered the phone, I told them to never contact me again. In fact, every debtor receiving such calls should do the following:

Write down the name of the collection agency;

Tell the collector to never contact you again;

Visit the Federal Trade Commission’s website and file a formal complaint.

Collection agencies are allowed to call you per the terms of the FDCPA, but you’re under no obligation to speak to them.

***

The FDCPA was passed in 1977 to stop a host of third-party debt collection practices that went beyond mere abuse and harassment. Although it was occasionally violated in a casual or offhand way at Law Firm and Associates, most collectors observed its dictates, viz.:

Don’t call people after 9 p.m. local time or before 8 a.m.;

Don’t call them after they’ve told you to stop calling;

Don’t continue calling them at work after you’ve been told by their employer to stop;

Don’t continue talking to them after they’ve told you they’re represented by an attorney;

Don’t misrepresent yourself or your employer, which includes telling the debtor that you’re an attorney or that you might sue them when you don’t actually intend to.

Although an overzealous collector would sometimes find themselves cursing out a debtor, the FDCPA effectively barred what had once been successful but underhanded methods of getting debtors on the phone. Law Firm and Associates’ manager, a veteran of the industry’s wild pre-1977 era, often bemoaned these changes, noting in particular that sending postcards to debtors informing them they had won a contest and needed to call a special 800 number was once a can’t-miss proposition.

Paying off a collection agency will not raise your credit score one point.

One thing that hadn’t changed about the third-party collection industry was the fly-by-night, ad hoc nature of these operations. Law Firm and Associates, which operated for a total of five years, closed suddenly one day in 2006. The attorney vanished, two other principals went to jail for embezzlement, and the branch manager launched another collection agency with a similarly meaningless name, something along the lines of “Pinnacle Servicing” or “Paramount Recovery Associates.”

***

Third-party debt collection amounts to a negotiation with the consumer in exchange for… well, nothing. When a consumer writes a check to a collection agency, they derive no benefit, no tangible improvement to their credit score. The debt has already been charged off by the original creditor. The damage to the debtor’s hidden FICO number can be repaired only through bankruptcy (far more difficult to obtain since BAPCPA was passed in 2005) or a decade of bad credit purgatory (i.e., waiting until the items disappear from one’s credit report). Bottom line: paying off a collection agency will not raise your credit score one point.

I was instructed to offer the demand as mandated by the FDCPA—“This is an attempt to collect a debt and any information obtained would be used for that purpose,”—and to then make a request for payment in full. By this point, “payment in full” was a laughable notion, given how engorged that figure was by fees, interest, and other penalties. Law Firm and Associates continued to assess penalties as well, so when I eventually got the debtor on the phone and quoted the sum, they were likely to be stunned. Ten times out of ten, the debtor told me there was no way the debt could be paid, whereupon I asked for payment in full spread over three or four installments. After that failed, which was almost always the case barring the intervention of a wealthy relative or other white knight, I halted the conversation and transferred the call to a “supervisor,” a more experienced collector who would also demand payment in full.

The more experienced collector went round and round with the debtor (“r & r” in the shorthand we used in the notes for each file) before offering the same installment plan I had already discussed. The debtor would again demur, and the call would be transferred once more, this time to a “senior supervisory associate” who would repeat the process. If the debtor remained on the phone for 30 minutes, the senior supervisory associate would finally offer settlement at 85 percent of the current balance.

Not all calls went 30 minutes—most were over in seconds—but when Law Firm and Associates had a “live one,” its collectors worked that person for as long as it took. Settlements at 25 percent, small monthly payment programs, and all sorts of other arrangements were eventually presented to the debtor, depending on our assessment of their ability to pay and willingness to put a “post-dated telecheck” from his bank account into our payment system.

But here’s where it got even shadier: Even if consumers were sent a certified letter confirming their debt was settled in full with Law Firm and Associates, the remaining debt was sold immediately to another collection agency, one that specialized in collecting high volumes of extremely difficult-to-collect debt. These agencies are staffed primarily by minimum-wage workers at foreign call centers, and use auto-dialers to harass individuals who believe they have already discharged their debt. This happened with debtors on small payment plans, so an elderly person from whose checking account my employer was direct-debiting $10 or $20 per month towards a $10,000 balance would suddenly find themselves receiving calls from yet another collection agency now attempting to collect the same debt.

***

There are worse debt obligations than credit card debt, I suppose. Student loan debt, which now far exceeds credit card debt, is especially toxic due to the fact that it cannot be discharged through bankruptcy, but at least federally-backed loans come with a variety of generous repayment terms. (Private student loans, while similarly un-dischargeable, offer no such protections to the debtor.) Meanwhile, payday lenders, title loan lenders, and “E-Z credit” car dealers prey upon the least savvy and most vulnerable consumers. But the collection of credit card debt is an insidious affair. Each part of the process is cloaked in shadow, and debtors are misled and exploited at every turn.

Credit card debtors face challenges from creditors who derive their profits, much like payday and title loan lenders, by exploiting the inexperienced and ignorant. The credit cards they make available to consumers are intended to rapidly accumulate fees and interest. Indeed, their sole purpose seems to be to secure a few minimum payments before selling the remaining debt to collection agencies such as Law Firm and Associates.

Today’s debtor turns to payday lenders and title loans, leveraging what little he has left of himself.

Then there’s the credit reporting system itself. The debtor’s FICO score is calculated behind a veil of secrecy, and may as well be tabulated by Santa’s elves or Tolkien’s dwarves. This number is then made available to the three credit reporting agencies, which secure it with paywalls and fraudulent subscription websites that blatantly subvert the terms of a federal statute intended to make this system more transparent and consumer-friendly.

Finally, there’s the act of collection itself, honed over the decades into an efficient method of psychological torture. Original creditors hound consumers relentlessly and then sell their debts to third-party collection agencies that hunt them like wild game. The FDCPA governs the rules of the hunt for those collectors, but it does little to diminish the shabby, lowdown nature of the process.

Where does the debtor fit into all of this? He is forced into a position of total submission, into a prison without walls. James Wilson and “Light-Horse Harry” Lee were released after serving their terms in actual debtors’ prisons. The modern debtor, however, is never totally free of his obligations. His pitiful FICO score keeps him from buying a decent house or a serviceable car. Today’s debtor turns to payday lenders and title loans, leveraging what little he has left of himself. Chances are he couldn’t discharge his debts even if he was able to afford a bankruptcy attorney.

“He,” in this instance, is me. Until 2007 I was excluded from the beau monde of 700+ FICO scores, living paycheck to paycheck and often borrowing heavily against future ones. I subsisted on a diet of hot dogs and junk food, counting pennies and obsessing about luxuries like video rentals and orange juice, while I watched my health and my life go to hell. My third-tier law school cost me nothing, though, and by the conclusion of my studies I was able to avail myself of family privilege, white privilege, and middle-class privilege. My mother hired an experienced attorney to systematically repair my tattered credit before I applied to take the Pennsylvania bar exam. This was achieved not by paying these decade-old debts owed to collection agencies, mind you, but by working with Equifax, TransUnion, and Experian to ensure that my debts were no longer listed on their credit reports.

I still have the nightmares, even if I no longer have any credit card debt. The nightmares of insufficiency, of want, of not knowing where I stand. I took three courses in law school in order to understand the mechanics of the debtor-creditor relationship. I worked in debt collection. I worked in our school’s pro bono bankruptcy clinic. But I’m afraid, and I probably always will be.

These imaginary sums, which once would have been nothing more than a few markings in some green-visored merchant’s or banker’s ledger, now follow us everywhere. Debt, which supposedly spurs all creative activity in our capitalist system, is a yoke that fastens across the necks of the unfortunate and requires that they pull ten times their weight, or else. Or else what? Or else they are branded, not with a scarlet letter, but with an invisible and incomprehensible signifier of their unworthiness to participate in the consumer goods acquisition that ostensibly constitutes the American Dream.

Something has to be done. We all know this. Anyone who has worked in this dreadful industry knows this, but legislative inertia will ensure that nothing always trumps something. But let me make two simple suggestions. First, bankruptcy should be an easier and more seamless process than it currently is—a legitimate second chance at a fresh start, one as accessible to consumers as the title or payday loans available in every dilapidated strip mall across the country.

Second, the government needs to devise a comprehensive statutory system that will encourage attorneys to sue both original creditors and collection agencies—a total and thorough updating of the Fair Debt Collection Practices Act. Such third-party regulation could be incentivized with a carefully constructed 21st Century Debtors’ Bill of Rights statute written and passed by politicians who understand how morally and emotionally degrading this form of debt peonage is.

It’s clear, as Langston Hughes wrote years ago, “not enough of us care anywhere.” But we should care. Millions of people are being forced to lead lives of quiet desperation, and for what? So a handful of creditors can profit handsomely from interest, penalties, and fees? Today’s debtors’ prisons may lack walls, but that doesn’t mean they shouldn’t come tumbling down.





Illustration courtesy of freelance graphic designer Emily Traynor. To see more of her work, please visit Emily Traynor Illustration.







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