Farrar, Straus and Giroux: October, 2014
A trip to the underworld of debt collection, where bankers team up with ex-burglars and few rules apply.
Bad Paper is a riveting exposé, a moving story of an unlikely friendship, and a gritty narrative of how scrappy entrepreneurs profit from our debts. Jake Halpern introduces us to a former banking executive and a former armed robber who become partners and go in quest of "paper" - the uncollected debts that are sold off by banks for pennies on the dollar.
As Halpern shows, the world of consumer debt collection is a wild and unregulated shadowland, where operators may misrepresent a debtor’s situation, make illegal threats, and even lay claim to debts that are not theirs to collect in the first place. It is a realm of indelible individuals who possess a swagger and vocabulary that even David Mamet could not invent. Halpern follows his collectors as they intimidate competitors with weapons, manage high-pressure call centers, and scheme new ways to benefit from American’s debt-industrial complex. He also explores the history of collection agencies and reveals the human cost of a system that leaves hardworking Americans with little opportunity to retire their debts in a reasonable way. The result is a bravura work of storytelling that is also an important consciousness-raiser.
Advanced Praise for BAD PAPER
“A dramatic rise-and-fall tale . . . Halpern brings unexpected literary heft to the world of debt collection.” — Kirkus
“Bad Paper is nonfiction that reads like the finest thriller: suspenseful and frightening, eye-opening, and even, at times, funny. Jake Halpern’s fascinating, fearless tour of the underworld of debt collections introduces us to a cast of characters—the (mostly) men behind the scary phone calls—who deserve to be the stars of the next great HBO drama.” — Joseph Finder, bestselling author of Suspicion and Paranoia
“Bad Paper is a riveting tale, fast-paced and filled with unforgettable characters. It is also a deeply reported and powerful exploration of America’s shadow economy.” — David Grann, author of The Lost City of Z and staff writer for The New Yorker
“Jake Halpern knows how to follow the money. Only a consummate reporter could have achieved such an intimate view of the two debt collectors he chronicles here. And because he really knows how to tell a story, we can’t take our eyes off this nasty business.” — Anne Fadiman, National Book Critics Circle Award–winning author of The Spirit Catches You and You Fall Down
“Bad Paper is a terrific achievement—for the wonderful Ponzi-scheme absurdity of the story, for the outsized characters and the skeptical sympathy they elicit. It’s a book that hangs out in that gray and widening zone where the civilization we take for granted starts to break down, and it reads like Michael Lewis with a sense of the abyss. It’s about downward mobility and the subtle apocalypse and it feels important—important in the way few books ever are.” — Gideon Lewis-Kraus, author of A Sense of Direction
“Jake Halpern’s gripping tale provides an unprecedented view into the criminal underbelly of consumer finance. It’s required reading not only for everybody with creditors on the line, but for anybody who cares about money or debt.” — Felix Salmon, senior editor, Fusion
Why I Wrote This Book
It all began with a call from my mom – seriously.
She told me that she’d been getting calls from a debt collector who was demanding $200 for a charge on a store credit card. "He told me to pay up immediately or he'd ruin my credit rating," my mother recalled. It was a groundless claim. Total hogwash. My mom pays her bills before they’re due. If she were a country, she’d have a credit rating on par with Luxembourg. Anyway, my mom called up the store – hoping to rectify the situation – but got nowhere. The store had, apparently, had sold off the debt. Meanwhile, the collector called her everyday at work, harassing and threatening her. My mother eventually acquiesced and paid him $200. "It didn't owe him the money, but I wanted him to stop calling, and I didn't want to risk a problem with my credit rating," my mother said.
What kind of crazy hustle was this?
Not that crazy, as it turns out – because this is how consumer debts are often handled in the United States. Such scenarios are prevalent enough that, in 2009, the Federal Trade Commission (FTC) stated in a report: “When accounts are transferred to debt collectors, the accompanying information often is so deficient that the collectors seek payment from the wrong consumer or demand the wrong amount from the correct consumer.”
Many consumers assume that when they receive a call about an unpaid debt—from Bank of America, or Verizon, or Aaron’s Furniture Rental—they are actually speaking with an official from that company. Not so. The original creditor has often written off that debt as a loss years before and sold it at a fraction of its value to speculators who hope to collect on it and turn a tidy profit. Much has been said and written about the subprime mortgage crisis and how risky loans were issued, bundled, spliced, diced, and sold. Far less has been written about the enormous quantity of consumer debt that is bought, bundled, and sold each year; those who trade in such debt call it “paper” and they typically buy it and sell it for pennies on the dollar.
My mother’s story peaked my interest in this subject matter and, in the fall of 2010, I wrote a long profile about a debt collector in the New Yorker magazine. (You can read the article, PAY UP, by clicking here.) The story is about a former cocaine dealer from Buffalo, New York, who tries to make a go of it in the grimy world of debt collections. The main character, Jimmy, is surprisingly sympathetic. He is a single dad who is trying to make an honest living and provide for his kids. He is just barely getting by.
One night, after work, Jimmy confessed to me that his business was on the brink of going bust. "I got two hundred fucking dollars in the bank, and payroll is tomorrow," he told me. I asked him what he was going to do. "Everything be all right," he said finally. "I think I'm just telling myself that right now because I'm in a bad fucking place, bro. I do a job that's hated by everybody and anybody on both sides of the fence, and it ain't even doing that well, man. I got people that's depending on me. My mama, my kids and shit, and even these employees, man. And every day I be just trying to think of how to keep shit afloat, bro. And wondering when they going to come knocking and shut shit down, man. You know what I mean? And I hold my head so high that people don't see the pain."
He said he didn't have to be broke. He could pick up the phone and have "ten keys"—or kilos—of cocaine in a minute. But he vowed this was something he was not going to do. Jimmy said he wasn't sure if he would even have the cash to take his kids to the movies that weekend. "They deserve to go see Shrek tomorrow, man," he told me. "My son has got the highest average in the fourth grade. I got good kids, man."
After this article came out, I received emails from around the country from people who told me that they were moved by Jimmy’s story. I also got a call from Brad Pitt’s production company – Plan B – which wanted to develop the story into a television series. I was incredulous, but Plan B was serious, and several months later I agreed to go back to Buffalo and show the screenwriter around. I am from Buffalo – my dad and his wife, Betty, still live there – and so we stayed with them. I set up a number of meetings for the screenwriter, mainly with people whom I had interviewed for my story.
The most memorable of these meetings was with a guy named Aaron Siegel, who was a former banker, and who now invested in “distressed consumer debt” – basically unpaid credit card bills. At this meeting, Aaron brought along one of his most trusted associates, a former armed robber named Brandon Wilson. Brandon worked as Aaron’s most valued “debt broker,” buying and selling portfolios on Aaron’s behalf. He also served as his emissary to the collection industry’s many unsavory precincts. That evening, the two of them told me a story about how someone had stolen debt from them – which was just data encrypted on spreadsheets – and tried to collect on their debt. Brandon then set out on a quest to resolve the matter. He headed down to Buffalo with a car full of his associates, mainly ex-cons, some of them armed and all of them determined to help fix the problem. Their goal was simple: rescue the stolen accounts.
From the moment that I heard this story, I knew that it was pure nonfiction gold. It did not need to be transmuted into fiction for television. It needed to be told as a true tale. And that was the moment that this book was born. I spent the next two years hanging out with Aaron and Brandon – following them from Maine to Las Vegas and many places in-between. BAD PAPER chronicles these adventures.
The Major Characters
Aaron is a former banking executive and one of the protagonists of the book. Early in his career, Aaron landed a job at HSBC and completed the bank’s executive training course in London. By all indications, he was well on his way to a very respectable career in the financial world. Aaron was smart, hardworking, and ambitious. All he had to do was keep moving up the corporate ladder; instead, he decided to take a gamble. In 2008, he created a private equity fund that purchased well over a billion dollars of “distressed consumer debt” -- basically the right to collect on unpaid consumer debt. He also teamed up with a former armed-robber named Brandon Wilson. (See below.)
Brandon Wilson: Brandon is a former armed-robber who – after spending ten years in prison – gets a fresh start as a debt broker. He is the other protagonist in the book. Brandon is colorful, shrewd, and tough. He has a genius for finding good “paper” (i.e., debt) that can be collected on profitably. Brandon also offer something else: “Part of the package you get of being my business associate or my friend is that I’m gonna protect you from the sharks,” he explains. And by “sharks” Brandon is referring to the industry’s many unscrupulous collectors, brokers, and agency owners. “If you don’t give them a little bit of fear, right — if it’s just the law, if it’s just the attorney general, if it’s just a civil suit — they could care less.”
Shafeeq runs one of the collection agencies that Aaron hires to “work” his paper. He is a devout Muslim, who tries to avoid charging interest whenever possible. Shafeeq also runs his own security firm and is licensed to carry a firearm.
She is a debtor, whose debt Aaron Siegel owns. Theresa’s debt gets stolen and Brandon eventually must rescue it from the debt underworld. Theresa joined the U.S. Marines in the early 1990s, at the age of eighteen, and served for the next eight years. She was so determined to live responsibly that, throughout much of her teens, she worked more than thirty hours a week at McDonald’s, earning $4.25 an hour.
Jimmy is a former cocaine dealer who later opens a collection agency on the East Side of Buffalo. “I feel like I am great at this,” he says. “I have a lot of things that I have been good at, but I am so good at this that I don’t have to break the law.”
Larry is a debt broker based in Buffalo. Larry says that he has often made deals in his car in which the buyer gave him cash, and he handed the buyer a thumb drive with a spreadsheet containing the names, addresses, social security numbers, credit-card balances, or loan amounts of several thousand debtors. Where exactly did such files coming from? “I’m not asking where the files are coming from,” says Larry. “I’m just dealing.”
The Lingo of Debt Collectors
Welcome to the world of debt collections, which has its own unique language. Here is a quick glimpse at the local dialect and vernacular. *Note: Some of these terms are specific to regions, businesses, and niches of the industry.
Bad Paper: Consumer debt that has been stolen, double-sold, already collected upon or is – for various reasons – no longer valuable or collectible.
Basis Point (bip): One-hundredth of a penny. If a debt buyer pays 5 bips for a $10 million portfolio of debt, he or she would be paying $5,000.
Beaten Up Paper: This is typically paper that has been bought, sold, and collected upon by many different agencies. For this reason, it tends to be cheap and difficult to collect on.
Blaster: This is the automated system at a collection agency that leaves recorded messages on debtors’ voice-mails and answering machines. The blaster does not route calls to collectors; it simply leaves message.
Bouncer: A debtor who wrote a check that bounced.
Calls Per Hour: This is a metric that helps managers measure how productive a collector is. Generally, if a collector is making 15 or 16 calls in an hour, that is satisfactory. A highly motivated caller might makeover 20 calls in an hour.
Charge Off Date: This is a term used to describe the moment when a bank or creditor deems an account no longer an asset, writing it off as unlikely to be collected. This typically occurs 180 days after the last payment.
Close Out: These are the last few days of the month when collectors are under pressure to reach their monthly goals.
Dialer: This is the automated system at a collection agency that calls a debtor, gets him or her on the line, and then immediately transfers the call to a collector.
Dial Out: This is act of actually calling debtors by phone. A manager may exhort his collectors: Stop wasting time and dial out!
Doc: This is the act of writing notes about a given account, such as notations on when a debtor was reached and what he or she said. A collector might say: I just spoke with that debtor, I am going to doc it. This is also a noun describing paperwork accompanying an account when it is purchased. A purchaser of accounts might say: I am excited about the file of accounts that I purchased, because it comes with docs including debtor information. This will make our job easier.
Double-Sold: This a term used to describe a bundle of consumer debt that a debt broker or debt buyer has sold simultaneously – and often deceitfully – to two or more buyers at the same time.
Drops: These are regularly scheduled events where management provides or drops newly-acquired accounts into the hands of collectors at an agency. A collection agency may schedule one drop on the first of the month, another on the tenth, and a third on the twentieth. Typically, an agency will assess the performance of each drop. A manager might observe: My collectors really did well on the December 10th drop.
Dummy Doc: This reflects a number of activities that a collector may engage in to obscure the true collection record. This includes creating false notes in a debtor’s file, which might enable a collector to lay claim to an account and render it protected. On a given day, for example, a manager might turn on the auto dialer and allow collectors to collect whatever comes their way. A collector might then see a hot account – one that is likely to pay – but fail to make contact with a debtor. Typically, a collector can only claim account (and protect it) when he actually gets the debtor on the phone. In this case, a collector might dummy doc the account and claim – falsely – that he made contact, thus claiming it and protecting it. This term might also refer to a collector who puts notes into accounts he did not work with requisite diligence, overstating his effective daily production.
Fresh Paper: A bundle of consumer debt often purchased directly from a bank or creditor. Such paper is usually highly prized: “This is fresh paper straight from Bank of America, so it is ripe for the picking.”
Front Line & Back Line: This is a distinction made at some collection agencies, dividing collectors into two categories or classes. The top collectors at such an agency belong to the front line. Collectors in this group get the first crack at collecting on the best accounts. At some point, typically in the middle on the month, any accounts that were not collected get sent from the front line to the back line. In short, the back line collectors get the leftovers or remainders. Those in the back line tend to be newbies and underperformers. They have to earn and prove their right to enter the front line. In addition, statistical analysis is oftentimes used to assess what accounts should begin in the front line versus the back line based on the likelihood of collection.
Heavy Hitter: This is a collector who is the top dog at the office. At an office of with 150 collectors, there might be ten heavy hitters. Such collectors can occasionally get away with a more lax schedule, showing up late and leaving early. A heavy hitter typically knows his or her worth.
Hoppers: Collectors who are notorious for suddenly leaving one agency only to begin working at a new agency shortly thereafter.
Hot Account: This is an account that is likely to pay. Hot accounts are distinguished primarily by the creditworthiness and responsiveness of the debtor. Such accounts are the low hanging fruit and are coveted by collectors.
Marrying the Debtor: This is technique where a collector tries to ingratiate himself to a debtor, establish or rapport, or otherwise earn enough trust so that the debtor ends up paying his or her bill. This term can also be used in a deprecatory manner by others when a collector has pinned misguided hopes that an account that might pay. A colleague might say; “John married that debtor, and she still isn’t paying.”
Meat on the Bone: This a phrase used to describe a bundle of debt where there are plenty of hot accounts that are readily collectible.
Out of Stat Paper: This is older debt where the statute of limitations has expired and the debtors are no longer legally liable to pay it.
Paper: A bundle of consumer debt that is typically bought and sold in the form of spreadsheets, often for pennies on the dollar.
Post Dates: If a debtor cannot pay his or her debt in one lump sum, he or she may create a payment plan and agree to pay a certain amount each month. These planned future payments are called post dates. A collector often relies on post dates to help sustain him during the dry months when, for whatever reason, it is proving hard to collect. For example, in December – when consumers are typically spending their money on holiday gifts – it is often crucial for a collector to have many post dates lined up. Some agencies rely on post-dates as a way to develop a predictable flow of revenue, as opposed to agencies that rely on “one-time” settlements. The former are referred to as “post-date shops.”
Protected Account: This is an account that a specific collector has identified and staked out as his own. Typically, in order to protect an account, a collector must make phone contact with a debtor and begin a dialogue. That collector can then claim the account is protect and he may have until the end of the month to collect on it. Protected accounts are, by their nature, expected to be exempt from being shuffled. However, shuffling of protected accounts is a common source of discord in collection agencies, regardless of reason.
Psychological Pause: This is calculated break in the phone conversation, when a collector puts a debtor on hold—ostensibly to consult with a manager or supervisor. A collector might, for example, suggest to a consumer that he can reduce the amount of a debt, but first must consult with his superior. At this point, the collector would take a psychological pause, place the debtor on hold, and then sit back and relax for a minute or two. The goal is to make the debtor sweat it out. Then the collector picks up the phone and offers the debtor a deal.
Refusal: From a collector’s perspective, this is perhaps the worst kind of debtor—namely, one who refuses flatly to pay.
Rolling a Check: This is a complicated maneuver that collectors will try in order to pad their totals for a month, enabling them to reach their goals or receive a bonus. For example, a collector may be nearing the end of the month and be $5,000 short of hitting his or her goal, triggering a bonus. However, a debtor may have agreed to pay $5,000 on the 10th of the following month. In order to roll a check, a collector might enter false information into the system – for a bogus $5,000 check – that is dated for a date before the end of the month, perhaps the 31st. That check, of course, does not go through. Yet that collector often has as much as two weeks to sort the matter out and collect the $5,000. So, on the tenth of the following month, the collectors processes the legitimate $5,000 check and collects the money. That money counts toward the previous month’s totals and thus, by rolling the check, the collector has managed to hit his goal and earn a bonus.
The Shake: A very aggressive kind of talk-off, in which the collector falsely identifies him or herself as a process server who is en route to deliver court summons papers to the debtor’s house. Feeling immediately threatened, the debtor is more likely to pay. This technique is, of course, illegal and is favored by rogue agencies that tend to work Payday loans.
Shuffle: In the same way that card players shuffle a deck of cards, so that a player doesn’t get stuck with the same cards repeatedly, managers will shuffle accounts so that the same collectors don’t continue calling the same debtors. The thinking is that, if a collector is failing to collect from a give debtor, it may work better to switch things up and swap in a new collector who will establish a better rapport and succeed at “marrying” that debtor. Agencies also use shuffling as a psychological tool with collectors, recognizing that shuffling accounts between collectors gives even old accounts a veneer of “newness” to the collector that has never seen them before, thus increasing morale. A collection agency might shuffle accounts once or twice in a give month. Front Line accounts and Back Line accounts are shuffled separately.
Six and Out: Some states require that employers have their employees take a lunch break after a set number of hours. In New York State, for example, an employee must take a break after six hours. Instead of taking a break, some collectors just put in a six-hour day. This is called six and out.
Skip Trace: This is the process by which debtors search all available databases to find out information on the whereabouts and contact information for a debtor. In addition to querying databases, this also refers to more old-fashioned methods, such as calling known relatives and associates.
Talk-Off: This is monologue, spiel, or routine that collectors say over the phone in order to coax a debtor into paying his or her bill.
Tax Return Season: This time period, spanning from January to early May, is the most lucrative time to collect on debts, because consumers tend to have a extra money in their savings accounts.