Bad Paper: Chasing Debt From Wall Street to the Underworld Read online

  “Ma’am, you know what it is,” Jimmy said. “It’s a payday loan.”

  The argument escalated, and eventually Jimmy told her, “Our next call is going to be your sister.” (The sister’s name had been listed on the paperwork for the loan.)

  The woman became more upset. “No, no, no, no,” she said. “Are you going to listen to me?”

  “This is a refusal,” Jimmy continued, talking over the woman’s voice. “You don’t want to pay your bill. This is going to be considered first substantive contact. We’re going to contact your sister and forward this as a refusal. We gave you an opportunity to pay it, and you didn’t want to take advantage of that. We wish you…”

  “Listen to what I am telling you!” the woman demanded.

  “Best of luck, ma’am,” Jimmy said, and hung up. He explained his strategy. “If I’m sitting here begging for money or begging for her to pay this bill, it puts a chink in my armor. If I hang up on you, like I don’t want anything from you, nine times out of ten—especially a woman—they going to call back, because a woman don’t like to be hung up on. Period.”

  Moments later, the woman called back.

  Vinny took the call and tried to calm her down. “Ma’am, you never spoke to me, okay? Can you stop using profanity? You’re on a recorder line. Please, act professional.”

  “I’m trying to get information on this shit, and you hang up on me?” the woman said. “That’s very professional?”

  Vinny said, “This is a litigation claim pending, ma’am. Attorneys and investors bought your debt. Okay, we’re only trying to offer you an out-of-court settlement. Very simple.”

  “I understand,” the woman said.

  Vinny hit the mute button and declared, with a grin, “I’m the good guy now. Love it.” Turning off the mute, he explained to the woman that although she had borrowed only $300, her current balance—with interest and late charges—was $747. “And that’s without any court costs if it goes into litigation.” Then he made his offer: “You can settle for three hundred, and it’s going to show you paid it in full on your credit reports.”

  The woman thought it over, then said that she didn’t have the money. Vinny ended the call. Jimmy was frustrated, but said that he’d call her again. “We might still have her,” he said. “Because if she does have any care in the world for her credit, and if she has any morals, she’s going to want to pay this.” Incidentally, if and when this woman ever did pay, the onus would be on her to request a letter of payment from Jimmy’s agency and then send it to the three major credit bureaus. Some large agencies will communicate directly with the credit bureaus, but smaller operations working older paper—like Jimmy’s shop—rarely do.

  Eventually, I told Jimmy about Theresa and Joanna. I described how someone had informed them that they were about to be taken to court and—in Joanna’s case—arrested.

  Jimmy didn’t seem the least bit surprised. “That’s the Buffalo Talk-Off,” he told me matter-of-factly. It was illegal, he said, but common. “You hear that at the small places. Larger agencies, they fire people for talking like that because it will start going viral.” Once one collector starts using this talk-off—and making more money with it—others will soon follow, he explained. Jimmy claimed that collectors usually used this “sterner” talk-off with older debt that was harder to collect on. The only problem with the Buffalo Talk-Off, said Jimmy, was that it “burned” the paper and made it difficult to resell. In fact, many buyers were leery of purchasing any paper that had been worked in Buffalo, fearing that it would be impossible to collect on it after Buffalo collectors had hounded the debtors.

  I asked Jimmy if he ever used the Buffalo Talk-Off.

  “We used a variation,” he told me. “The ‘jail’ shit is what they come down on you for. Guys use that as a last resort, with old debt, to get it settled out. But that talk-off makes it hot. I would never use the ‘jail’ line. I say, ‘This call is in reference to a prelegal matter, and we will file a judgment against you. Please call before we have to take this as a refusal.’”

  “Is it true?”

  “It is not true at all,” Jimmy replied. “Unless you have an attorney and you are actually ready to sue.” Vinny had apparently used a variation of Jimmy’s talk-off—both versions were bluffs and could be considered violations of the Fair Debt Collection Practices Act, which says that “a debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”

  According to the annual reports filed by the FTC, the number of complaints about “false threats of lawsuits” from collectors more than doubled between 2008 and 2012; in other words, the Buffalo Talk-Off has become increasingly prevalent. What’s more, the combined number of complaints about “threats of violence” and “false threats of arrest or seizure of property” more than tripled.

  When I visited the FTC’s headquarters in Washington, D.C., I met with David Torok, who oversees the commission’s complaint database. I asked him what explained the recent spike in reports of egregious tactics. Torok said it was impossible to say for certain, but then he speculated that there are “more consumers truly on the edge,” and therefore collectors are simply “trying to squeeze even harder to get some money out of an extraordinarily dwindling pot.”

  I eventually asked Jimmy whether someone at Bill’s office might have been using the Buffalo Talk-Off, and threatening debtors with arrest. “Yes, that is very easy to believe,” said Jimmy. “A lot of people do that, especially if the owner is not around. You say whatever you can to get the money.” (I found evidence of this elsewhere as well. In one lawsuit against Bill’s agency, a debtor alleged being threatened with “arrest” if she didn’t pay up and claimed that such harassment had caused her “mental anguish, fright, headaches, [and] insomnia.”) Jimmy insisted that he never threatened debtors with the prospect of arrest or jail time—both because it was too risky and because it violated his sense of what was honorable.

  Jimmy relied on his own code when interacting with debtors. He believed in collecting aggressively, but never threatening people or unnecessarily bullying them. He loathed a notorious local criminal, Tobias “Bags of Money” Boyland, who had recently been arrested and jailed on gun charges. Tobias, or “Toby” as he was known, allegedly coerced consumers into paying debts—which had often been artificially inflated—by threatening to have them arrested and their children turned over to social service agencies. And there were others like Toby. Jimmy despised this behavior. He despised Toby in particular, which was awkward because they had the same barber. “Every time I seen him walking in the barbershop, man, I left,” Jimmy said. “I couldn’t even stomach looking at this boy, with his Harley-Davidsons and ten-thousand-dollar belt buckles and stuff.”

  “We are professional nags, not con men,” Jimmy said. There was, quite clearly, a ladder of honor and propriety among collectors. Brandon, for example, might hound a debtor very aggressively, but he would never buy paper of dubious origin or double-sell a file, because this was the practice of the “sharks” and “scumbags” he scorned. Jimmy, meanwhile, might buy paper without asking any questions and he might lead debtors to believe that he was about to sue them, but he would never threaten them with jail time, because this would make him a thug like Toby. For his part, Toby would, apparently, use whatever coercive means he could to collect. Each collector clung to his code and looked down on those below him with no small measure of moral superiority.

  This was certainly the case for Jimmy. As he saw it, Toby made it harder to collect, because many debtors assumed that collectors were affiliated with Toby or someone like him. “You know, every time I seen this man I looked at him like, Man, you taking food out of my kids’ mouths,” he said. “That shit ruined it.”

  * * *

  Another reason that Jimmy hated Tobias Boyland so much was that he had drawn the attention of the state law enforcement officials. As he put it, “New York State got a hard-on for col
lections agencies because of brothers like Tobias.” Much of the policing of debt collectors is done on the state level, by state attorneys general. It falls upon them to monitor all the thousands of smaller outfits that the FTC and CFB tend to overlook. Among these state attorneys general, New York’s is a leader. Eric Schneiderman and his predecessor, Andrew Cuomo, both earned great fanfare for going after scofflaw collectors, many of whom hailed from Buffalo. In 2009, Cuomo filed a lawsuit against a company known as the Benning-Smith Group, which was made up of thirteen separate collection agencies. Workers at these agencies allegedly threatened to arrest, and even physically harm, consumers who did not pay up. According to Cuomo’s office, one Benning-Smith collector “kept repeating the name of a consumer’s daughter, describing various sexual things he would do to her unless the debt was paid.” In 2013, Schneiderman made headlines for shutting down an outfit known as International Arbitration Services (IAS) for lying to and intimidating consumers.

  I was curious to learn more about the efforts of the New York State Office of the Attorney General—and so I interviewed all of the full-time staff members in the Buffalo bureau. There were two. I found this somewhat surprising, given that Buffalo is often called the capital of the debt-collection world. It seemed rather miraculous that this office of two could be as effective as it was, especially since its staff, by its own reckoning, was able to devote only roughly 65 percent of its time to collection-related cases. Karen Davis, who was the office’s “senior consumer fraud representative,” told me that, each year, she receives thousands of written complaints about debt collectors. After sifting through these complaints and investigating many of them, she singles out those companies whose alleged behavior is the most egregious, nasty, and violent. She puts those companies on her list of the worst offenders that she, personally, has to monitor. When we spoke, in the spring of 2013, there were 324 companies on her list.

  One of Karen’s most recent coups was the IAS case. The agency’s collectors had been posing as law enforcement officers and threatening debtors with arrest. Rogue agencies, such as IAS, use fake addresses, P.O. boxes, and rented phone numbers to mask their whereabouts. As a result, a reliable address was the “golden information” that she often needed in order to shut down an agency on the list. In this particular case, Davis believed that the company was located somewhere in Canada, but she couldn’t determine where exactly. “It went on for months, with us being frustrated, but we could get nowhere,” Davis told me. “We just simply couldn’t figure out where they were.”

  Then came the big breakthrough.

  One day, an informant showed up at the Buffalo bureau and announced that he worked as a collector for IAS. He said he was unhappy because he had been cheated out of his pay—so unhappy that he had walked over to complain in person. Walked. That single word left Karen flabbergasted. “What do you mean?” she said. “They’re not located in Canada?” No, said the informant, explaining that the IAS office was located just a few blocks away. Two days later, she served IAS with a subpoena. Davis’s office ultimately forced IAS to shut down and assessed the owner with $10,000 in fines. And this is how a list of 325 companies was shortened to 324.

  There was always the worry that a company like IAS might reopen somewhere else under a different name. According to Davis, many agency owners were relocating to Georgia because “they believe that consumer enforcement in Georgia is not as tough.” If this happened, there was nothing that Davis or her office could do.

  * * *

  One afternoon, after I had spent the entire morning at his offices, I asked Jimmy bluntly whether he had been working stolen debt during his time with Bill. He said he didn’t know the details of where or how Bill bought his paper, but that he was under the impression that Bill was buying paper properly, and that a collector usually knows when he is working stolen debt or debt that has been double-sold. In such cases, Jimmy said, debtors usually make a fuss, complaining that they have either already paid off this particular debt or that another agency just called them about it. This wasn’t happening at Bill’s agency with great regularity. Nonetheless, Jimmy took it as a given that at least some of the paper in the office didn’t have a proper chain of title.

  As it turned out, Jimmy wasn’t even fully informed about the kind of paper that he was working at his own shop. This became apparent to me when Jimmy’s supplier, Larry, told me the following story. While working as a broker, Larry once had a buyer who circumvented him and made a deal without giving him the commission that he was due. In retribution, Larry hired a hacker from China to break into the buyer’s e-mail account and obtain his password. Once he had the buyer’s password, Larry had access to his paper. Larry then simply took a portfolio and subsequently sold it to Jimmy—who didn’t know and didn’t ask where it came from.

  According to Jimmy, it was a common practice among many small agencies in Buffalo to work a few stolen or double-sold files along with the legitimate ones. They were cheaper to buy and so, he explained, “you make ends meet off the stolen shit.” Working a few stolen files was just like adding “the cut,” or the filler, in a package of cocaine; and it was how you padded your profit margin. With cocaine, the cut is typically baking soda, Jimmy said. “You mix it in, you put it on ice, you cool it up, man, you cool it down, that shit get hard. One turn into two. That shit—that’s the dope game all the way around, man. You stretch that shit so you can make more profit.”

  In Jimmy’s view—much like Brandon’s—the economic models for selling debt and selling illegal drugs were strikingly similar. “You got the guys at the top—the hedge fund tycoons—and they are just like the big drug cartels,” he explained. “They buy huge amounts of debt, and they break it up into smaller packages and sell it to dealers who then break it up again and resell it to even smaller dealers. And this continues until it hits the street level, where guys like me do the actual work of collecting. It’s just like drugs, man. It’s a hustle—only it’s a legal hustle. That’s why guys on the street, like me, we call debt the ‘white man’s dope.’”

  Finding stolen debt was pretty easy, insisted Jimmy. You could buy it from a broker, like Larry, on the implicit understanding that it might be stolen. There were also ways to steal a file by “unmasking” it. Sellers typically sent prospective buyers a “masked” file—which meant that they had altered, removed, or blacked out certain fields in a spreadsheet, such as first names or the last four digits of debtors’ social security numbers. The idea was that the prospective buyer could study the paper and try to assess its worth, but would not have the ability to collect on it until the seller sent over an unmasked version of the file. Some rogue agencies, however, were adept at covertly unmasking a file without ever paying for it. If you had a debtor’s last name, for example, you could use the program called Insight to locate his social security number. Insight doesn’t provide a debtor’s home address, but another program called Accurint does. In this fashion, Jimmy said, it was sometimes possible to treat the masked file like a “jigsaw puzzle” and “put the file back together as if the mask wasn’t there.”

  I subsequently got a tutorial in just how easy it could be to do this from David Hadley, an employee of a debt-brokering firm called International Credit Services in California. He was responsible for protecting the firm’s files and masking them properly. David told me that sometimes sellers thought they’d removed a column from a spreadsheet—for example, a column containing debtors’ social security numbers—only to have a prospective buyer access the column and use it. (This can happen, for example, when a seller uses the spreadsheet’s “hide” option instead of hitting “delete.”) Other times, “they replace certain letters and numbers,” explained Hadley. “So people are able to rebuild it, based on, Okay, every time I see a dollar sign that means that it is really a four. And every time I see an asterisk, that is really a six. So the sellers think they are being good about masking it up, but they are using a similar tactic every time.”

  Jimmy mad
e it clear that, in his own shop at least, he was determined to operate within the law. He emphasized that he had borrowed money from his siblings to start this venture—that he had struggled his entire life to be in control of his own fate—and he didn’t want to tarnish his efforts. He saw his agency as a fresh start for himself, even though elements of his old life often resurfaced. Not long ago, for example, Jimmy hired an old acquaintance whom he knew from his time in prison. The acquaintance proved to be a lazy collector; Jimmy fired him, and the man soon reappeared in Jimmy’s office brandishing a gun. Jimmy said he was often being tempted to go back to his old ways, especially as lately his agency was barely turning a profit.

  Whatever the reason—whether it was the bad economy or the quality of Jimmy’s paper—business had been especially slow lately. “If I let everyone know we were teetering on the edge of financial destruction, they would start jumping ship,” he confided. On one afternoon that I spent with Jimmy, his point callers sent only a single call his way. “If you want to be a rogue agency, you can leave certain messages—like, ‘The police are coming to get you right now’—and these phones would be ringing off the hook,” Jimmy said. “But, you see, whatever messages that we are leaving are not creating a sense of urgency, because the phones are not ringing.”

  Jimmy said he worried that his point callers might start getting more reckless in the effort to intimidate debtors. The previous week, he had to fire a point caller, a woman. Inside her cubicle was a memo with her talking points, which included, “The call is concerning a hearing being filed in your county,” and “Did you get served a summons for anything?” The first statement was almost certainly untrue, and the second was misleading. As soon as Jimmy understood what was happening, he told the point caller, “Baby girl, this is your last day.” Jimmy tolerated a certain amount of maneuvering within a gray area of the law, but she had—apparently—pushed it too far on too many occasions. Jimmy told me, “You got to separate yourself from those type of people—you got to. You know what I mean? But, for some bosses, you looking at it like, Man, shit, this the bitch who’s getting the money.”