Jake Halpern wrote a New Yorker article, and then a book, Bad Paper (which I haven’t read), about the debt collection industry. He was interviewed by Bloomberg’s Megan McArdle.
My mom was getting hounded by a debt collector for a bill that she did not owe. She eventually paid it just to get him to stop harassing her.
I started investigating and found out that much debt-collection activities were in my hometown of Buffalo, New York. I ended up writing a profile on a Buffalo-based debt collector who bought and sold and collected on debt for pennies on the dollar; that story ran in the New Yorker.
That New Yorker story got optioned by Brad Pitt’s production company. So I went back to Buffalo with the screenwriter.
No one wanted to talk to a journalist back when I was doing the New Yorker piece, but now that I was with Brad Pitt, everyone talked. One night, the screenwriter and I go out to dinner with a banker and a former armed robber who had gone into business with one another.
They tell me an incredible tale. They purchased $1.5 billion worth of bad debt for pennies on the dollar. Their aim was to make a fortune. All goes well on this unlikely venture until some of the debt is stolen and the former armed robber must delve into an underworld where debt is bought and sold on street corners. This quest ends in a showdown with guns in the inner city of Buffalo, New York.
The world Halpern describes is lower on the economic food chain than the one described by Matt Taibbi in The Divide, but the process is basically the same. A lender decides it is not worth the effort to collect on certain bad debts, and sells the debt to a collection agency for pennies on the dollar.
The problem is the lack of reliable information as to what is owed and for what. Sometimes the collectors don’t know how much is principal and how much is accrued interest. Sometimes unscrupulous lenders will sell the same debt to several collection agencies.
Halpern said he wound up having more sympathy with debt collectors than he expected. It is one of the few occupations open to convicted felons. The central figure in his New Yorker article was a former cocaine dealer trying to go straight.
What does he think needs to be changed about debt collection?