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

  * * *

  One afternoon, over the summer, Jimmy and I were driving around together in the Bailey-Delavan neighborhood when he caught a glimpse of someone he recognized. He slammed on the brakes and hopped out of his car. I waited by myself in the passenger’s seat, puzzled and somewhat uneasy, for ten minutes or so.

  Finally, he returned to the car.

  “It was that dude,” explained Jimmy as he got back inside. “Which dude?” I asked. It was the former employee who had pulled a gun on him, Jimmy said. He was shaking with anger. Jimmy had been unable to find him.

  He started driving again. “Back when he ran up into my office with that gun, I’ll tell you what, it felt good,” said Jimmy. “My adrenaline was pumping. I wanted to shoot him.” He paused, then continued. “It has been a real tear between the nigger that I was and the nigger that I am. Now, the way things are, everything has to be worked out and talked out. I am not used to that. I wanted to kill him.” He went silent. “I think I need to get out of this town because my past is eclipsing the present,” he said finally. “Sitting behind that desk, working that job, it really ain’t who I am.”

  At this point, his shoulders were trembling and he began to sob. “That shit ain’t who I am. I am an animal. I want to do something to that nigger. As much as I hate that shit, I love it, too. I know who he is—up on that corner, selling drugs—and I don’t want to be into that. I don’t want them streets, but I miss them so much.” Jimmy drove silently now, heading back to the office. Then, under his breath, he added, “I feel like I am living someone else’s life here.”

  There were two things that Jimmy did to find relief—fire guns at the shooting range and go to church. One evening, I accompanied him to a midweek service. We parked in a vast lot surrounding a cavernous brick building. As Jimmy got out of his Navigator, he grabbed a small black bag, unzipped it, and pulled out a Bible. “This is my new gun,” he joked. “This is where I go to blow off steam, when I got to look deep inside myself for the energy to keep going.” We spent the next hour or so singing hymns and participating in Bible study. At one point, when the entire congregation was singing “Show Yourself Strong,” with a choir and a band, Jimmy glanced across the aisle and saw a kid doing his homework. “This is positivity,” he said.

  After church, we drove around for a while, and eventually we ended up back in the parking lot behind his collection agency. Jimmy turned off the engine, sat back in his seat, and sighed.

  “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. For starters, he said, he wasn’t going to be able to pay Vinny his weekly salary, which was more than a thousand dollars.

  “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.”

  * * *

  Though there are many lower-tier collection agencies in Buffalo, they’re countered by a good number of respected agencies as well. These are the sorts of agencies that often work directly for the banks and have elaborate monitoring systems in place to make sure that their collectors follow the Fair Debt Collection Practices Act. One afternoon, I drove to Cheektowaga, just outside of Buffalo, and visited a prominent debt-collection agency called Northstar, which works on consignment for some of the nation’s largest creditors.

  After spending time at both Jimmy’s and Brandon’s small shops, I was curious to see how they compared with a big corporate agency that worked the very best paper—paper that the original creditors had not yet sold. This paper had not been “beaten up” by a long string of collection agencies. These accounts were fresh. And these debtors—or many of them, anyhow—were likely the sorts who had just started to fall behind on their bills and had not yet gone under. These were the people who might actually have some savings stashed away for an emergency. This was the kind of paper that Jimmy would never get his hands on.

  The interior of the Northstar facility is lined with cubicles and looks like a typical call center, unless you happen to visit on the fifteenth of the month, as I did. At 2:00 p.m., the agency began celebrating Bonus Check Day. The lights dimmed. A disco ball began to spin, and blue, green, and red lights flashed. Noisemakers sounded; confetti was dropped. And four hundred debt collectors began to cheer. One of the agency’s executives, Maggie Long, grabbed a microphone and called out to the crowd, “Are you ready for some bonus checks?”

  There were hoots and whistles as Long announced the month’s top ten earners, those who had collected more than $25,000 in fees that month. (Northstar says that it typically earns fees of 20 percent on collected debt.) The mood was euphoric. As one manager later described it to me, “You feel the energy running through you—it’s like walking down the Strip in Las Vegas.”

  The top earner was twenty-seven-year-old Jason Poeller, who had collected $51,123 in fees. Long handed him a bonus check for $10,000 and the kind of boxer’s belt that heavyweight champs wear. The crowd cheered. Poeller, who was delivering pizzas before he started working at Northstar three years ago, told me, “I’ve been hoping to do this since I first came here.”

  Joel Castle, Northstar’s founder, was present for the ceremony, and he told Poeller, “You broke the office record.”

  Poeller, swallowing hard, made no reply.

  “This is a record year for us in profits,” Castle later told me. “Our business is up thirty-five to forty percent.”

  Abruptly, the overhead lights came back on, the disco ball stopped turning, and the collectors returned to their desks. As work resumed, I chatted with Lashari Huling, a thirty-eight-year-old woman who has been in collections for more than a decade, and now works as a manager at Northstar.

  “This is an excellent, excellent place to work,” she told me. One of the keys to success, she said, is that “you have to empathize with debtors but not have sympathy, because if you have sympathy you don’t get paid.” She told me that, a day earlier, she had been attempting to collect on a defaulted auto loan. The debtor was a disabled veteran who was paralyzed from the neck down. “I listened and I let him go through how he had fought for our country,” Lashari recalled. “I let him vent how he didn’t get the veterans’ benefits that he was promised.” She inquired if there was anyone who could help him. Eventually, she managed to reach the veteran’s ex-wife. “I spoke with her,” Lashari said. “She wanted to help him, and she transferred the debt onto a credit card that she had.”

  Lashari said that when she was a novice she used to get very emotional about her work. “I used to cry—oh, yeah,” she told me. “It still touches home sometimes. But I have to work.”

  * * *

  Payday at Jimmy’s agency was a somber affair. That morning, he had tried to cash several postdated checks and credit-card payments provided by his debtors. They were small amounts, ranging from $100 to $250. Of the payments, $514 cleared, and another $747 bounced. Jimmy said that he hadn’t earned any money the previous day. “I am fucking disgusted right now,” he told me.

  In the afternoon, Jimmy’s point callers came by to pick up their commission checks. One of the callers, a former car salesman named Ted—Jimmy’s oldest employe
e at fifty-eight—received $115. Another employee, Robert, made just $88.

  “Now I got to go home and tell the kids, ‘Okay, well, we’re short on cash because Dad didn’t make any money today,’” Robert told me. “I’m going to take the little money I have, and I’m going to take my kids to the zoo and enjoy the rest of the day. That’s how I’m going to resolve this matter.”

  “Now you see why people break the law to get money in this business,” Jimmy added. “That’s why agencies open and close so quickly. They’re either operating illegally or they can’t keep up.”

  After his point callers were paid, Jimmy said he wanted to take a drive, and he invited me to come along. Jimmy tried to turn on the car’s sound system, but it didn’t work properly, and he cursed the car for being such a “hoopty.” He pulled up next to a bank. The security guard, a large young man with a beard, came over to us.

  “You look like me,” Jimmy said, with a smile.

  “You look like me,” the young man replied. It was Jimmy, Jr., the son whom Jimmy had once beaten. “He only got a job because he seen me working,” Jimmy had told me. “That’s my reward, man.”

  The previous night, Jimmy had told me, “I hope that God blesses me to move on to other things—more secure things for me and my family.” He wasn’t sure if the agency could last much longer. “After this, bro, with my record, I’m not getting no job nowhere else. No matter how smart I am, or whatever the case may be, the only thing I’d probably be able to do is work in another collection agency—unless I work for myself. You know what I mean? This it, bro.”

  10

  GEORGIA

  You might think that collection shops like Jimmy’s represent the last and lowest link in the food chain—the final resting place for the most beaten-up, hard-to-collect-on paper. They don’t. Below the hedge fund managers, the reputable debt brokers, the midsize agencies, the mom-and-pop shops, the black-market dealers, and even the collectors like Jimmy who were just barely hanging on—below all of these players are the toughest collectors and the final stop for debt in America: the lawyers. Why the lawyers? Because they have a competitive edge—they can use the power of the courts to their advantage.

  In 2009, Aaron Siegel sold 233 accounts from the Package to a company in Georgia named Associated Receivables, Inc., which promptly hired a local law firm to collect on the accounts. Making this deal was no small feat. Once a portfolio of debt has been to Buffalo, it’s marked for life. If paper has been owned or collected by a Buffalo company, the assumption is that it has been beaten up, tapped out, and collected upon by any means necessary. Potential buyers simply assume the worst. Such is the city’s stigma. For example, when I visited Tom Borges—the debt broker who once ran a Christian collection agency—he received a voice mail from an angry client in Buffalo: “Sell that fucking package! I’m serious. I’m fucking pissed! End of fucking story.” It couldn’t be helped, explained Tom. “It’s not moving because it’s been worked in Buffalo.” And this was, often enough, Aaron’s predicament as well. He was from Buffalo and even though many of the collection agencies that he hired were not based in Buffalo, he still had to overcome his buyers’ skepticism.

  When Aaron sold the 233 accounts to Associated Receivables, he did so for 1.4 cents on the dollar. This was quite a coup considering that Aaron had bought them for a penny on the dollar; done his best to collect on them; and was now selling them at a 40-percent markup. But Aaron had known what he was doing. Collection lawyers are the equivalent of relief pitchers in baseball: they only appear late in the game to make a final push. It makes no sense to introduce them earlier in the process because suing debtors is expensive; after all, there is the cost of compensating the lawyers, paying various court filing fees, and hiring someone to find a debtor’s assets (if they have any). By contrast, it is much cheaper to pay a collector in Buffalo fourteen dollars an hour to make phone calls and collect money over the phone. Yet when the collectors fail, the lawyers step in.

  After purchasing the accounts, Associated Receivables hired the Savannah law firm Sherwin P. Robin & Associates to collect on at least some of them. The debtors were all people who lived in Georgia and, unbeknown to them, were on the verge of falling into a legal quagmire. Their ranks included a young prison guard, a schoolteacher, a handyman who was raising two of his grandchildren, an accountant, and an immigrant from India who had worked as a car salesman and then opened his own steakhouse. Their fortunes were now lumped together. I decided to follow these 233 accounts—which I dubbed the “Georgia Splinter”—down into the courts to see what happened at the bitter end of this trail of debt.

  One debtor in the Georgia Splinter, Shelton, was a twenty-nine-year-old man who had recently moved across the border to Greenville, South Carolina, where he now worked as a prison guard. I first spoke with him over the telephone in the spring of 2013, before I headed down to Georgia. At the time, he had just discovered that his bank account had been garnished and that his next paycheck—along with any money that remained in his bank account—would be going directly to Sherwin P. Robin & Associates. This would leave him unable to pay his bills, including his car insurance, which meant that he would no longer have a reliable way of getting to work. “This whole month I will have to see how I can live by day to day and pay my bills,” he told me. “Because they’re taking all my money.”

  * * *

  I met Sherwin P. Robin in Savannah, Georgia, at an old speakeasy known as the Crystal Beer Parlor. It was a cozy, dimly lit brick pub rumored to have served “hooch” throughout the Prohibition era—and the place still seemed the perfect setting for discreet conversation. We spent the better part of three hours sipping iced tea in an old-fashioned wooden booth in a corner of the pub. Sherwin was a soft-spoken middle-aged man dressed in a pink Polo button-down and a pair of white slacks. There was something decidedly old-fashioned about Sherwin, and he pined for the days earlier in his career when people in Georgia still harbored a kind of reverence for lawyers. At the courthouses, the old bailiffs would address him as “colonel”—in tribute to the rank often bestowed upon lawyers in the old Confederate army. There was once a belief, said Sherwin, that a lawyer was an officer of the court and therefore entitled to some respect. “At that time, if I wrote you a letter, people would respond, ‘A lawyer wrote me. Oh, my God! I’m in such trouble!’” Nowadays, he said, no one worried about a letter from a lawyer reminding them about money they owed.

  Part of the problem was the banks, Sherwin said. Starting in the 1990s, financial institutions started bombarding Georgians with preapproved credit cards, which ultimately caused a backlash. Over the years, Georgians had been overexposed to debt collectors and become “anesthetized to collection efforts,” he said. For a while, people responded to his threats only when he sued them. “Then they started paying attention only when I got a judgment. Today, they don’t pay attention until I garnish their wages.”

  Sherwin took a long sip of his drink and then confided in me: “I hate to put it this way, but it’s almost like they’re glad they’re being garnished because then we’re making the decision for them.”

  In running his own law firm, Sherwin insisted that he only took clients who furnished him with paper that had a clean chain of title and plenty of documentation. Most of his clients, he said, were big national companies that hired him to sue debtors who happened to live in Georgia. Sherwin had only a few smaller, Georgia-based clients—including Associated Receivables, which was the entity that had purchased the Georgia Splinter. Sherwin also told me that he generally had a high level of confidence in the paper that he was suing on. I asked him to what extent he could—implicitly—trust the quality of the paper that his clients provided. Wasn’t it possible, for example, that somewhere along the way—perhaps even at the level of the original creditor—mistakes were made? “Humans make mistakes,” he told me. He then added, “It does not surprise me when a creditor makes a mistake—it surprises me when the customer doesn’t dispute it. If you do
n’t, then look, it’s your fault. When Washington Mutual sends out an account that was not good and the customer doesn’t object, and lets it go, then that’s what happens. The side that shows up wins. Not everyone gets a trophy.”

  As it turns out, the written contract between Aaron and Associated Receivables anticipated the possibility that there might be precisely these sorts of mistakes. It mirrored the contract Aaron had signed with Hudson & Keyse when he bought the Package: it promised almost nothing. The contract noted, “There is no representation or warranty either given or implied as to the accuracy, truthfulness or completeness of any or all information contained in Exhibit B.” Exhibit B, it turns out, was the “electronic file” providing all the information about the debtors and what they owed.

  And there were problems.

  I tracked down a dozen or so of the 233 debtors from the Georgia Splinter and, even in this small sample, there were a number of serious issues. One woman, named Rachele, had actually paid Bill’s agency (though Franklin Asset didn’t know this when it sold her account). Another case involved a schoolteacher named Amy, who owed $4,271 on her Washington Mutual credit card. Before charging off this debt, Washington Mutual gave her a credit of $608, forgiving her interest on the account and reducing her balance to $3,663. Official bank records confirm this. Yet when Aaron Siegel’s company purchased the account, the balance was back to $4,271. Somewhere along the way, quite possibly at the bank itself, the $608 credit had been forgotten. (This had happened to both Joanna and Theresa as well.) A difference of $608 can have big consequences when interest is factored in. Amy’s debt, for example, had been charged off in July 2007. If she had to pay 29 percent interest—and many debt buyers charge that rate—this $608 would have generated an additional $1,234 in interest by July 2014. Amy was somewhat lucky in this regard. In a letter, Sherwin P. Robin & Associates told her it charged only 18 percent.