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

  Ever since 2006: Information on the ranking of consumer complaints by category: The numbers for 2008–2012 come from the FTC’s annual Consumer Sentinel Network Data Book. The rankings for 2006–2007 can be found in Appendix B2 on page 75 of the 2008 Consumer Sentinel Network Data Book.

  1. THE $14 MILLION GAMBLE

  Buffalo is a major: Ken Belson, “Collection Agencies Add Scarce Jobs in Hard-Hit Region,” The New York Times, March 21, 2008.

  In the greater Buffalo: According to the Bureau of Labor Statistics’ online database (the Occupational Employment Statistics, or OES), the Buffalo-Niagara Falls area had 5,400 bill and account collectors in 2012. That’s more than the number of taxi drivers (600), bakers (500), butchers (320),

  steelworkers (320), roofers (560), crane operators (250), hotel clerks (730), and brick masons (170) combined, who total 3,450.

  Almost one-third: New York State Community Action Association, New York State Poverty Report, March 2013. “City of Buffalo Poverty Profile … Individuals in Poverty: 30.3%.”

  double the national average: The U.S. Census Bureau’s Official Poverty Measure of 2012 was 15.1 percent, while the Supplemental Poverty Measure, which takes into account government assistance programs for low-income families, was 16 percent (Kathleen Short, “The Research Supplemental Poverty Measure: 2012,” U.S. Census Bureau, November 2013).

  A 2010 report: The Legal Aid Society, Neighborhood Economic Development Advocacy Project, MFY Legal Services, and Urban Justice Center, Debt Deception, May 2010. “There are as many as 500 privately owned debt buyers in the United States. Little is known about how they finance their operations, though like publicly traded debt buyers, they most likely rely on private investors, commercial loans, and lines of credit.”

  In financing this purchase: Lincoln and his business partner William F. Berry actually purchased Radford’s store from a man named William Greene, who, earlier that same day, had bought the store from Radford for $400. Greene paid $23 in cash and wrote two promissory notes for $188.50 each. When Lincoln and Berry bought the store from Greene, they paid him $265 in cash, assumed both notes, and also threw in a horse. When the notes matured, Lincoln signed a new promissory note to Radford for $379.82. Radford then assigned this note to Peter Van Bergen, who obtained the judgment against Lincoln. (Personal Finances of Abraham Lincoln [The Abraham Lincoln Association, 1943], Harry E. Pratt.) This book can be read online at http://quod.lib.umich.edu/l/lincoln2/5250244.0001.001/1:13?rgn=div1;view=fulltext (see pages 12–13). For information, including dates, I also relied on: Lincoln’s New Salem (The Abraham Lincoln Association, 1934) by Benjamin P. Thomas; drawings by Romaine Proctor from photographs by the Herbert Georg Studio, Springfield.

  One of the early pioneers: Emily Lambert, “Return of the Billionaire Huckster,” Forbes, November 2, 2011. “By 1997 CFS owned what Bartmann claims was half the nation’s delinquent credit card debt, then worth $15 billion at face value. That year FORBES reckoned Bartmann and his wife were worth $1.1 billion.”

  He grew up in Dubuque: Bartmann chronicles his life story in his book, Bouncing Back: Bill Bartmann, an Autobiography (Dallas: Brown Books Publishing Group, 2013).

  The government seized their assets: Federal Deposit Insurance Corporation Banking Review, The Cost of the Savings and Loan Crisis: Truth and Consequences, December 2000, p. 33. “Over the 1986–1995 period, 1,043 thrifts with total assets of over $500 billion failed.” For additional information, see also Lawrence J. White, The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation (Oxford: Oxford University Press, 1992), chapter 2.

  “If I set it all on fire”: Bartmann’s boast about how much money he had: Jerry Useem, “The Richest Man You’ve Never Heard Of,” Inc., September 1997; Details about Bartmann’s lavish lifestyle during his heyday: Jerry Useem, “How to Lose a Billion,” Fortune, October 25, 1999.

  According to The New York Times: Information about the demise of CFS: Carol Marie Cropper, “Yes, Even a Bill Collector Can File for Bankruptcy,” The New York Times, December 20, 1998, Sunday, Late Edition—Final, Section 3, p. 4; Bruce Porter, “A Long Way Down,” The New York Times, June 6, 2004, Sunday edition, Section 6.

  in October, the stock market: Matt Jarzemsky, “Dow Industrials Set Record,” The Wall Street Journal, March 5, 2013.

  “I’d be a bum”: Mary Buffett and David Clark, The Tao of Warren Buffett: Warren Buffett’s Words of Wisdom (Scribner, 2006), p. 121.

  3. THE PACKAGE

  As of 2010, more than: Jessica Silver-Greenberg, “Welcome to Debtors’ Prison, 2011 Edition,” The Wall Street Journal, March 17, 2011.

  the national average: The national average of credit cards per consumer was 3.5 in 2008 (Federal Reserve Bank of Boston, The 2008 Survey of Consumer Payment Choice, April 2010, p. 9). The national average in 2013 was 2.19 (Experian Information Solutions, State of Credit: Experian’s Fourth Annual Credit Study, 2013).

  Bank of America said: Jeff Horwitz, “Bank of America Sold Card Debts to Collectors Despite Faulty Records,” American Banker, March 29, 2012.

  An official at Chase Bank: Information on JPMorgan Chase’s acquisition of Washington Mutual: David Enrich, “WaMu Is Seized, Sold Off to J.P. Morgan, in Largest Failure in U.S. Banking History,” The Wall Street Journal, September 26, 2008.

  “When accounts are transferred”: Federal Trade Commission, “Collecting Consumer Debts: The Challenge of Change,” February 2009.

  5. AARON’S PROBLEM

  According to the National Bureau: National Bureau of Economic Research, Business Cycle Dating Committee, September 20, 2010. “In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity. Rather, the committee determined only that the recession ended and a recovery began in that month.”

  the unemployment rate peaked: Peter Goodman, “U.S. Unemployment Rate Hits 10.2%, Highest in 26 Years,” The New York Times, November 6, 2009.

  foreclosure notices: RealtyTrac, “A Record 2.8 Million Receive Foreclosure Notices in 2009,” 2009 Year-End Foreclosure Report. (Note: RealtyTrac publishes the monthly U.S. Foreclosure Market Report, which is one of the nation’s leading sources of data about foreclosures.)

  The Dodd-Frank: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, H.R. 4173, 111th Congress, 2nd Session, 2010. Relevant information can be found in “Title X—Bureau of Consumer Financial Protection.”

  The idea for the CFPB: Drake Bennett, “Elizabeth Warren, Champion of Consumer Financial Protection,” Businessweek, July 7, 2011.

  By early 2012, the CFPB: Consumer Financial Protection Bureau, “CFPB Proposes New Rule to Supervise Larger Participants in Consumer Debt Collection and Consumer Reporting Markets,” February 16, 2012.

  6. BRANDON’S PEOPLE

  Brandon had chosen to: In Massachusetts, one must apply for a license to run a debt collection business. The state may reject this application if it is “not satisfied [with] the financial responsibility, character, reputation, integrity and general fitness of the applicant.” Mass. Gen. Laws ch. 93, § 24b.

  The FTC has recommended: Federal Trade Commission, “Repairing a Broken System,” July 2010. See pp. iv and 28.

  the vast majority: There are only a handful of states that require collectors to make some sort of disclosure before they attempt to collect on an out-of-stat or time-barred debt. And this, of course, remains constantly in flux as states change their laws. As of the writing of this book, in January 2014, states that required disclosures included California, New Mexico, New York, and Massachusetts.

  as far as the law is concerned: The FTC’s website says (in its Consumer Information section) this about time-barred or out-of-stat debt: “Although the collector may not sue you to collect the debt, you still owe it. The collector can continue to contact you to try to collect, unless you send a letter to the collector demanding that communication s
top.” This particular debtor lived in Pennsylvania. The U.S. Court of Appeals for the Third Circuit, which covers Pennsylvania, has ruled that a “debt obligation is not extinguished by the expiration of the statute of limitations, even though the debt is ultimately unenforceable in a court of law.” Huertas v. Galaxy Asset Mgmt., 641 F.3d 28 (3d Cir. 2011).

  7. SCORING IN VEGAS

  mainly payday loans: Written Testimony of Mike Calhoun (President of Center for Responsible Lending) Before the Senate Banking Committee on “Enhanced Consumer Financial Protection After the Financial Crisis”; Tuesday, July 19, 2011, 538 Dirksen Senate Office Building. The typical “storefront” payday loan has an annual percentage rate of 391 percent.

  “purchase and sale agreement”: Federal Trade Commission vs. Rincon Management Services, LLC. United States District Court, Central District of California, Eastern Division. Case No. ED CV 11—01623 VAP (SPx). This contract was included in the “Supplemental Memorandum of Points and Authorities Re: Receipt of Qualified Overbid for Purchase of the Uncalled Debt Portfolio; Declaration of Richard Weissman in Support Thereof,” June 3, 2013.

  As of January 2013: CFPB, “CFPB to Oversee Debt Collectors,” October 24, 2012. “The CFPB’s supervision authority over these entities will begin when the rule takes effect on January 2, 2013. Under the rule, any firm that has more than $10 million in annual receipts from consumer debt collection activities will be subject to the CFPB’s supervisory authority. This authority will extend to about 175 debt collectors, which account for over 60 percent of the industry’s annual receipts in the consumer debt collection market.”

  9,599 debt-collection businesses: IBISWorld, Debt Collection Agencies in the US: Market Research Report, November 2013.

  9. THE WHITE MAN’S DOPE

  “false threats of lawsuits”: There were 11,787 complaints in 2008 regarding false threats of lawsuits (Federal Trade Commission, Federal Trade Commission Annual Report 2009: Fair Debt Collection Practices Act). There were 30,470 such complaints in 2012 (Consumer Financial Protection Bureau, Fair Debt Collection Practices Act CFPB Annual Report 2013, March 20, 2013).

  “threats of violence”: In 2008, there were 1,186 complaints in which “collectors used or threatened to use violence” and 6,404 complaints in which “collectors falsely threatened arrest or seizure of property,” for a total of 7,590 complaints in these categories (Federal Trade Commission, Federal Trade Commission Annual Report 2009: Fair Debt Collection Practices Act). In 2012, there were 3,312 threats of violence and 24,374 threats of arrest or seizure, for a total of 27,374 complaints (Consumer Financial Protection Bureau, Fair Debt Collection Practices Act CFPB Annual Report 2013, March 20, 2013).

  a notorious local criminal: Information on Boyland’s arrest and various allegations against him: Robert J. McCarthy, “Raid on a Debt Collector Reaps Not Only Arrest, but Loaded Gun; Cuomo’s Office Spearheads Crackdown on Business Tactics,” The Buffalo News, June 24, 2009; Carolyn Thompson and David B. Caruso, “Buffalo’s Debt Collectors Allegedly Using Illegal Tactics to Intimidate Debtors,” Associated Press, January 5, 2010.

  In 2013, Schneiderman: Schneiderman made headlines for shutting down an outfit known as International Arbitration Services: Emma Sapong, “State Shuts Down Two Debt Collectors in Buffalo,” The Buffalo News, February 25, 2013.

  10. GEORGIA

  If she had to pay 29 percent: This calculation is based on simple interest, as opposed to compound interest.

  The vast majority of deptors: Three separate studies conducted in New York City indicate that the no-show rate is roughly 90 percent: The Legal Aid Society, Neighborhood Economic Development Advocacy Project, MFY Legal Services, and Urban Justice Center, Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Lower-Income New Yorkers, May 2010: “The 26 debt buyers examined in this study filed 457,322 lawsuits in the New York City Civil Court from January 2006 through July 2008 … Debt buyers prevailed in more than nine out of ten lawsuits (94.3%), usually by obtaining default judgments—automatic judgments entered in favor of the debt buyer because the person sued did not appear in court.”; MFY Legal Services, Inc., Justice Disserved: A Preliminary Analysis of the Exceptionally Low Appearance Rate by Defendants in Lawsuits Filed in the Civil Court of the City of New York, June 2008: “MFY Legal Services, Inc. reviewed available computer data on civil court cases filed in the Bronx, Brooklyn, Queens, and Staten Island in 2007 … Of the 180,177 cases filed, only 15,443 (8.57%) defendants appeared in court.”; Urban Justice, Debt Weight: The Consumer Credit Crisis in New York City and Its Impact on the Working Poor, October 2007: “This study involved a survey of six hundred randomly-selected consumer debt cases filed in February of 2006 in order to increase our understanding of how consumer debt litigation takes place in New York and how it affects New Yorkers … Our research found that shockingly few defendants—just 6.7%—in consumer debt cases ever appear in court.” In addition, journalists from the Boston Globe reported: “About 80 percent of people sued for debts in Massachusetts courts fail to show up at all, according to the estimates of clerks and lawyers and the Globe’s observation.” The Globe Spotlight Team, “Dignity Faces a Steamroller: Small-Claims Proceedings Ignore Rights, Tilt to Collectors,” Boston Globe, July 31, 2006.

  process servers never: Ray Rivera, “Suit Claims Fraud by New York Debt Collectors,” The New York Times, December 30, 2009.

  In 2009, the New York: Jonathon D. Glater, “N.Y. Claims Collectors of Debt Used Fraud,” The New York Times, July 22, 2009.

  In 2013, an FTC study: FTC, The Structure and Practices of the Debt Buying Industry, January 2013, Table 9, p. T-11.

  Down in Georgia, creditors: For debtors, the risk of getting sued over an unpaid debt is quite real. There isn’t a great deal of information available about how many consumers are sued each year, but it appears to be a significant number. Encore Capital, one of the nation’s largest collection companies, revealed in its 10-K form filed with the SEC that it filed 448,000 lawsuits in 2008—and that was just a single company. This information is available on page 39 of the 10-K filed in 2009.

  “meaningfully involved” in the: Most of the case law involving the “meaningful involvement” standard pertains to collection letters sent from law firms to debtors. In June 2011, for example, the Third Court of Appeals ruled that settlement letters sent on a law firm’s letterhead suggested that a lawsuit was imminent. Such a letter is false or misleading, the court reasoned, unless a lawyer is meaningfully involved in the process. See Leshner v. The Law Offices of Mitchell N. Fay, F.3d, 2011 WL 2450964 (3d Cir. 2011). Other courts have also ruled that sending such letters—without meaningful involvement—can be a violation of the section 1692e of the Fair Debt Collection Practices Act. There is, inevitably, debate over what constitutes “meaningful involvement” and how involved a lawyer must be at every step of the collection process.

  The state of Georgia: Norman K. Risjo, Representative Americans: The Colonists (Rowman & Littlefield; 2nd ed., May 30, 2001), p. 181; Carol Berkin, Christopher Miller, Robert Cherny, James Gormly, Douglas Egerton, Making America: A History of the United States (Cengage Learning; 5th ed., 2013). pp. 71–72.

  Over lunch, Shelton: The information about what Shelton owed Bank of America came directly from the bank. The letter from Sherwin P. Robin & Associates claiming that Shelton owed $8,189 was part of the paperwork filed with the State Court of Richmond County. The judgment for $5,229 is also part of the court’s records. The information about Shelton having paid $872 and still owing $6,786 comes from a conversation that Shelton and I had jointly, over the phone, with a representative from Sherwin P. Robin & Associates.

  EPILOGUE

  “The system for resolving”: FTC report: The Federal Trade Commission, Repairing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration, July 2010. Remarks were made by the FTC commissioner, Julie Brill, at an FTC roundtable discussion titled “Life of a Debt: Data Integrity in Debt Collection” on June 6, 2
013.

  In 2009: Federal Trade Commission Annual Report 2010: Fair Debt Collection Practices Act, p. 3.

  “enforcement action”: These are the enforcement actions brought by the Federal Trade Commission by year. For 2013: FTC v. Expert Global Solutions, Inc., 3:13-cv-26-2611-M (N.D. Tex. 2013); FTC v. Security Credit Services, LLC, 1:13-cv-00799-CC (N.D. Ga. 2013); FTC v. Goldman Schwartz, Inc., 4:13-cv-00106 (S.D. Tex. 2013); FTC v. Pinnacle Payment Services, 1:12-cv-03455-TCB (N.D. Ga. 2013); FTC v. National Attorney Collections, 2:13-cv-06212-ODW-VBK (C.D. Calif. 2013); FTC v. Asset & Capital Management Group, 8:13-cv-01107-DSF-JC (C.D. Calif. 2013). For 2012: FTC v. Pro Credit Group, LLC, 8:12-cv-586-T35-EAJ (M.D. Fla. 2012); United States v. Luebke Baker & Assocs., Inc., Civ. A. 1:12-cv-1145 (C.D. Ill. 2012); FTC v. Broadway Global Master Inc., 2:12-cv-00855-JAM-GGH (E.D. Cal. 2012); FTC v. AMG Services., Inc., 2:12-cv-00536 (D. Nev. 2012); FTC v. American Credit Crunchers, 12-cv-1028 (N.D. Ill. 2012); United States v. Asset Acceptance, 8:12-cv-182-T-27EAJ (M.D. Fla. 2012). For 2011: FTC v. Rincon Management Services, LLC, 5:11-cv-01623-VAP-SP (C.D. Cal. 2011); FTC v. Forensic Case Management Services, Inc., LACV11-7484 RGK (C.D. Cal. 2011); FTC v. Payday Fin., LLC, 3:11-cv-3017-RAL (D.S.D. 2011); United States v. West Asset Mgmt., Inc., 1:11-cv-0746 (N.D. Ga. 2011). For 2010: FTC v. LoanPointe, LLC, 2:10-cv-00225-DAK (D. Utah 2010); United States v. Credit Bureau Collection Services, 2:10-cv-169 (S.D. Ohio 2010); United States v. Allied Interstate, Inc., 0:10-cv-04295-PJS-AJB (D. Minn. 2010). For 2009: United States v. Oxford Collection Agency, 2:09-cv-02467-LDW-AKT (E.D. N.Y 2009).