Jake Halpern’s new book, “Bad Paper” is a must read for all Americans, especially Americans who are being contacted by debt collectors. Debt collecting is big business, but it is also a shady business that is largely unregulated. Halpern has “followed the money” of debt collecting. What he has followed is how a debt owed to one entity ends up in the hands of another entity, and possibly several entities, who then set about to collect money from the people whom they believe owe the debt. The process is called “buying paper.” Debts that are simultaneously sold or the data is stolen and used for collection activity is called “bad paper” thus the title of Halpern’s book.
After the financial crisis of 2008 millions of people lost jobs and homes and found themselves unable to pay a variety of credit obligations, including credit cards, utility bills, hospital bills, car notes, and debts of every sort imaginable. Halpern’s book traces the “business of debt collecting” from debt owners, such as credit card companies, banks and hospitals, to people who buy these so called “uncollectible debts.” For example, after a major credit card company or hospital spends a few months trying to collect a debt it will write off the debt as collectible, creating a bad debt expense that they can offset against income. This charge off is then reported to a credit bureau and puts a bad mark on the debtor’s credit. This charge off will remain there even after the paper is sold and the debt is later collected by a “down liner” or “milker” (milking the debt for whatever they can get) debt collector. The debt, or paper, which is simply a spreadsheet of hundreds if not thousands of uncollected debts, will then be sold to a debt buyer for pennies on the dollar. The debt buyer will then set up shop, that is, he will set up an office, hire a few “boiler room” debt collectors who work on commission, and then give these employees a list of debtors with contact information. These debt collectors sit at booths all day, calling debtors using a variety of tactics to get the debtor to pay the debt. Halpern reports on a debt collection tactic called, “marrying the debtor,” that is using all sorts of fake concern and sympathy to get the buyer to agree to pay the debt. Halpern uses an example of a debt buyer who bought paper for $30,000 and collected $90,000 within 3 months. This is a lucrative return, so much so that buying debts (paper) is big business for a certain group of so-called investors. According to Halpern, debts are sold and resold, and sometimes stolen. When the debt information is stolen, interlopers, for lack of a better term then start calling a debtor demanding payment for a debt that another debt collector may also be trying to collect.
Halpern’s book is an expose of the dark underside of debt collecting that involves rogues and underworld characters who also see the lucrative side of debt collecting. Halpern followed a debt claimed to be owed to Washington Mutual– before it was bought by Chase Bank after the financial crisis of 2008 involving bad business practices involving home loans at Washington Mutual. Halpern ended up in Georgia where a lawyer had sued the couple over the debt. In court the lawyer told the couple to just make a settlement agreement to avoid any further legal action. Halpern asked the lawyer one question to help verify the debt and the lawyer went ballistics threatening to have him prosecuted for the unauthorized practice of law. But, the question was enough to tip off the debtors to also ask questions about the debt. The lawyer then asked for time to speak with the owner of the debt and suddenly returned to the courtroom and said that they would drop the matter. The reason the matter was dropped according to Halpern is because, when pressed for validating documents, the people who bought these debts do not have the original documents to prove the debt, or the correct amount, or the correct names of the debtor. The “crooked” debt collecting lawyers are betting on the statistics that 90 percent of people who are sued for some type of debt will not show up in court and a default judgment will enter. After a default judgment is entered the “pickings are easy” because the debt collector can then garnish wages, and bank accounts and take the money claimed to be owed.
The other side of debt collecting is how it got to that point. According to Halpern, there is a shadow economy in which the people who are least able to pay are the ones who pay the highest interest rates for credit cards, car loans, home loans, and personal loans. When a payment is late, or missed, excessive fees and charges kick in making it almost impossible to stay afloat. Default and bad credit is the result—bad credit is then used to make credit even more expensive. According to Halpern, in some communities a dollar paid for credit is worth about 70 cents because the creditors assume that extending credit “to some people” will be risky so they punish these debtors on the front end. A car that might cost a person with “decent credit” $9000 will cost someone with bad credit $14,000, and a much higher interest rate and burdensome payment arrangements. These same poor credit borrowers do not have access to bank accounts so they pay extra for money orders and/or the time and gas to pay in person in cash. These people are targeted by a group of people to whom greed is good and these debtors are simply casualties of the American capitalist system where anyone is free to make a buck off anyone else.
So what is to be done about over-reaching debt collectors? The payday loan people have a powerful lobby that fights every attempt at regulation. Texas heads the pack in excessive payday loan fees and charges. The Federal Trade Commission is initiating something called, “Choke Point” designed to go after the payment processors for their role in bad debt collection activities. Beyond this the Consumer Financial Protection Bureau is trying to come up with new rules to curb rogue debt collecting practices. But, according to Halpern, consumers should take steps to protect themselves. When a debt collector calls get the names of the company. Ask for a copy of the debt you signed. Ask for a history of payments on the debt. Check to see if the debt is legally enforceable or is beyond the statute of limitation for any court action. Every state has a statute of limitation for different types of causes of actions. Find out how long a creditor has to file a suit in court on your debt after the last payment was made. But the statute of limitation on a debt that is too old to collect is an affirmative defense in a court. You have to assert the defense if you are sued. And, be careful about paying one red penny on an old debt because it will reaffirm the debt and start a new period for a new statute of limitation. Don’t be intimidated by debt collectors—if you don’t owe a debt demand proof from the debt collectors. Keep a journal of when you are called, the phone numbers and business name of the debt collector. Ask for the name of the individual debt collector calling you. Ask them who they work for. Write down the date and time of each call. If you are sued, don’t ignore a summons and complaint, go to court or you will find yourself on the other end of a default judgment and garnishment of your wages or bank accounts. Don’t be afraid to fight back.
Halpern’s book is shocking to say the least. It is a book worth reading because it shows just how far America has sunk in the name of capitalist driven money and greed. One of the owners of a debt in Halpern’s book turned out to be a wealthy investor who lives in Beverly Hills. When he was confronted about a paper he bought that was had also been bought by another debt buyer, he shrugged it off as just part of the business of debt buying. It didn’t bother him one bit that the person being contacted was a returning soldier from the battlefields of Afghanistan. To him, the same person who was fighting for his country was just another person to help make him even richer.
Copyright 2014 – L. Arthalia Cravin. All rights Reserved. No part of this commentary may be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission from the author.