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

  “So where do you draw the line?” I asked. “Is it simply a matter of legality?”

  Joseph ducked the question and instead replied, “We own a bar, we can go there later, and they decided, as a policy, to stay open until two a.m. Now in the city of Boston, the subway, what’s it called…”

  “The T,” answered Joseph’s son.

  “Yes, the T,” said Joseph, nodding appreciatively. “I have never been on it, so I don’t give a fuck, but it often shuts down at twelve twenty-five a.m. We decided to stay open to two a.m. because we know the crowd will come in late, like after a Red Sox game, and there aren’t many other places to go. Now there is a risk running your business like that, because if someone gets drunk, drives home, and gets in an accident, they may sue. But I am just a limited partner.” Because of this, explained Joseph, he was not legally liable.

  Again, I pressed him on where he would draw the line on what he would invest in. Was it just a matter of legal liability?

  “Prostitution is legal in Kings Cross in Sydney, Australia,” replied Joseph, still dancing around my question. “You can legally own and operate a whorehouse there. I have a friend who bought one. He made a lot of money there. Now I would not buy a fucking whorehouse because of my wife and our domestic bliss. So there is a line—and it’s not just legality.”

  As dinner drew to a close, a waiter brought over a folder with the bill. It was roughly $600 for the five of us. Joseph didn’t touch it. Saul went for his wallet, as if to pay. “Let them pay,” said Joseph. “He has been pumping me for information,” he said, gesturing at me. “And he owes me,” he added, pointing at Aaron.

  * * *

  When I first met Aaron, in Buffalo, my impression was that he was the rust belt’s equivalent of landed gentry. I thought of him much the way I thought of William Weld, the former governor of Massachusetts, who, when asked how he had made his money, famously replied, “The Welds don’t make money. They have money.” I might have thought this way because I myself had grown up in Buffalo and knew the aura of wealth and glamour that surrounded the Siegel family. Aaron came from a different world than I did. I had gone to public school and had a decidedly more modest childhood, and perhaps for this reason I was somewhat impressed by his mansion on Soldiers Place and the ease with which he breezed through the doors at the Buffalo Club. By the standards of Buffalo, Aaron was a veritable plutocrat. But it was clear to me now that within the context of this industry, Aaron was a beleaguered middleman. The debtors owed Brandon, Brandon owed Aaron, and Aaron owed his investors. To make matters worse, or at least more stressful, Aaron was sandwiched between two larger-than-life alpha males: Joseph and Brandon.

  When I mentioned this idea to Aaron, he embraced the notion that Joseph and Brandon were quite similar. “You’re totally on track,” he told me. “Clearly they are doppelgangers.” One of them was Superman, he suggested, and the other was Superman’s slightly twisted alter ego, Bizarro: “Both have a tremendous amount of bluster, both have experienced a great degree of success, and both live high on the hog.” And they both—especially Joseph—don’t “really give a fuck about you.” Almost immediately after saying this, Aaron corrected himself, asserting that, at the end of the day, Brandon did care. “His heart’s in the right place,” said Aaron, “but that doesn’t mean he won’t fuck you over.”

  Aaron’s principal concern with Brandon was getting every dollar that Brandon owed him. According to Aaron’s deputy, Lilly, this was a real problem. She says that Brandon was often “very broke” and that he would sometimes erupt at her, “screaming and yelling.” Aaron eventually decided that the best way to get his money would be to have his own company, Franklin Asset, process the payments that debtors made to Brandon’s collectors. This way, Brandon never actually had his hands on the money. Aaron sent Lilly up to Maine to review Brandon’s bookkeeping and inaugurate the new system. Lilly subsequently called Aaron on the phone, in tears, alleging that Brandon was drinking whiskey and suggesting that they go to a casino. In the end, Lilly says that she implemented the new payment system, but not without considerable heartache.

  “I was begging Aaron to discontinue the relationship with Brandon,” Lilly told me. Aaron, however, clung to his conviction that he had a strong personal relationship with Brandon and that Brandon would ultimately always come through for him. For her part, Lilly speculated that Aaron stuck with Brandon because his collectors were good, his agency generated numbers that he needed to keep investors happy, and Brandon had a network of clients who were willing to buy older debt once Franklin Asset was done with it. Plus, Lilly said, Aaron was “charmed” by Brandon’s tough-guy persona. “[Aaron’s] popular with the ladies, but he’s not very popular with, well … he rubs a lot of people the wrong way.” According to Lilly, Aaron liked “to have an ally in Brandon, who is loud and who could fight his battles.”

  Even after Lilly made her trip to Maine and implemented the new credit-card processing system, Brandon continued to owe Aaron money from various other deals that they made together. Around the time that we met Joseph for dinner, in early 2013, Aaron claimed that Brandon owed him roughly $30,000. He had been calling Brandon regularly, reminding him to pay up. The irony of the situation wasn’t lost on Aaron. He had become a debt buyer so he wouldn’t have to hound surly debtors into paying their bills, and now he was hounding a former armed robber instead.

  * * *

  As it turns out, Brandon was facing some rather serious challenges of his own. Part of the problem was that the federal government had finally begun cracking down on banks and debt buyers. In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The stated aim of the act was “to promote the financial stability of the United States by improving accountability and transparency in the financial system,” put an end to bailouts paid by the American taxpayers, and “protect consumers from abusive financial services practices.” The Dodd-Frank Act also paved the way for the creation of the Consumer Financial Protection Bureau (CFPB) in 2011. The idea for the CFPB actually dated back to 2007, when Elizabeth Warren—then a professor at Harvard Law School—first suggested the idea, arguing that middle-class Americans needed to be better protected from the many financial institutions that preyed upon them. By early 2012, the CFPB was very much a reality, and its new acting director—Richard Cordray—announced that it would start “supervising” some of the nation’s larger debt collectors in order to “help restore confidence that the federal government is standing beside the American consumer.” This reform, which consumer advocates and champions of the poor had pushed mightily for, would—perhaps inevitably—adversely affect the Aarons and Brandons of the world.

  Rumors soon began to circulate in the debt-buying industry that the banks—fearful of their new regulators—would soon become more cautious about whom they sold paper to. In the summer of 2012, I was visiting the office of a veteran debt broker named Tom Borges, and I listened in on a conversation that he had with a high-ranking member of DBA International, a leading association of debt buyers. In that call, the DBA official speculated that the banks might prohibit the “resale” of credit-card debt altogether; in other words, the banks would sell it once—to a reputable buyer—but not allow the buyer ever to sell that debt again. This wasn’t even the full extent of it. By 2012, Chase—the nation’s largest bank—had already suspended the sale of all credit-card debt. The bank didn’t admit this publicly, and never has, but a spokesman for Chase told me the suspension had been in effect at least since late 2011. This was almost certainly due to the special scrutiny that Chase was receiving from federal regulators.

  In any case, none of this boded well for debt brokers such as Tom. He concluded that he would have to evolve and find new types of paper—such as debt resulting from cosmetic surgery—that didn’t have such restrictions. “I am going to have to reinvent myself,” said Tom.

  Debt buyers faced another problem as well, namely that the banks had become much choosier ab
out whom they would lend money to in the first place. Those people who did get loans typically had good credit scores and were likely to repay what they borrowed. That meant fewer debts were being charged off, sold for pennies on the dollar, and winding up in the hands of buyers like Brandon. Brandon himself was somewhat insulated from this. His specialty was older debt—“crap,” as he put it—and there was still plenty of that on the market and would be for some time. But the shortage of newer paper would, inevitably, drive up the cost of older paper. The bottom line was that the supply of paper was, at least for the time being, diminishing. A drought was coming and no one would be totally immune to it. All of these factors were starting to make Brandon’s job harder and less profitable. Brandon was struggling—not just to make money, but to see a way forward for the collection agency and brokerage firm that he owned and operated in Bangor, Maine.

  I was eager to see Brandon’s operation in Maine for several reasons. I wanted to see how his collectors handled the likes of Joanna, Theresa, and the other debtors from the Package whose accounts had passed through his offices. But I also wanted to see how Brandon was planning to survive the imminent drought. Somehow or another, Brandon had to find a way to exploit new inefficiencies in the paper market. He would have to reinvent himself or he would simply have to get that much better at finding deals and acquiring diamonds in the rough, like the Package. His own survival depended on it. In fact, as I would soon see for myself, the survival of an entire clan of Brandon’s friends and family was depending on it.

  6

  BRANDON’S PEOPLE

  Brandon’s agency was situated right in the heart of downtown Bangor, in between a dingy-looking school for dancers and a curio store whose billboard featured an old sea captain and advertised gold coins, costume jewelry, and “small antiques.” The agency occupied a stately old brick building from 1911 that had once operated as a hotel. The first floor housed the actual agency and the higher floors served as a flophouse where Brandon’s collectors were allowed to sleep, eat, and shower for fifty dollars a week. Brandon had chosen to base himself in Maine because regulators in his native state of Massachusetts had apparently made it difficult for former felons to obtain licenses to run their own collection agencies. “They have been trying to stop me from working in this business for years because I did ten years in the can and I am a three-time loser,” Brandon explained to me. The authorities in Maine had proved more hospitable.

  I visited Brandon several times in 2012 and 2013. On my first visit I found him strutting up and down the main hallway, puffing out his chest and speaking in his preternaturally loud voice. He was exhorting his collectors to hook a few last “payers” before the business day ended. “Fifteen minutes!” he yelled. “We need a buzzer beater. We need a good one!” His collectors, who seemed to range in number from five to fifteen depending on the day, tucked into their respective cubicles, trying desperately to maintain a semblance of decorum and muffle the shouts of the madman who was their boss.

  One of Brandon’s employees spoke up. He was Jeremy Mountain, the tall, fair-haired, earnest-looking kid in his late twenties who had accompanied Brandon down to Buffalo and confronted Bill at his corner store. Jeremy started to say something—a question, an objection, an excuse-me-your-fly-is-open—but he never got it out: Brandon pointed to a sign on the wall that read, NO WHINING, CRYING, BITCHING, MOANING, COMPLAINING, BLUBBERING, OR OTHERWISE EXPRESSING INVALID OPINIONS. Jeremy looked at me with faux-wounded eyes and said, “This is how I am treated for all my service to this office.”

  Jeremy, the son of a paper mill worker, had dropped out of college, started working for Brandon as a collector, and now headed sales and compliance for the agency. He told me that he’d quit his job six times because of Brandon’s chaotic management style, which included moving Jeremy’s desk no fewer than fifty times in four years. “He’s never satisfied. He always wants to do better, better, better,” lamented Jeremy. “He’s always [saying], ‘Complacency kills.’” Complaints aside, Jeremy revered his boss, noting that he had treated him like a son. “He’s just a genius—probably not when you’re talking about molecular science geniuses, but socially and businesswise, the guy is as smart as they come.”

  Jeremy and the other employees in the office seemed to take a perverse pride in what a hard-ass their boss was. “We had this guy working here, who was a former marine, and he had done like three or four years in Iraq,” explained Jeremy. “He quit here after one month—he said it was the most hostile work environment he had ever been in.” The other collectors in the office loved this story, just as they loved their boss’s reputation as a former bank robber. The collectors were mainly native Mainers, including several from the more rural parts of the state. In these regions, one collector told me, you often didn’t know whether it was your “daddy” or your “uncle” who sired you and so you simply called all of the potential candidates “duncle.”

  Brandon’s collectors saw their boss as the great redeemer. One of them, who struck me as especially earnest, told me that he was one of the “good eggs” at the office, despite being a felon. “I had a drug habit, and the only way to support a drug habit is to deal. No one would hire me because of my record except Brandon. We here are people who have done really stupid stuff, but we are intelligent, and Brandon has no trouble redeeming us.” Another collector, named Jason Robinson, admitted to me, rather sheepishly, that he had gone to jail for accidentally shooting off his gun. He had been on a city bus, en route to sell a .357 Magnum to a friend of his, when he fell asleep. He claims to have had too much Xanax. Shortly thereafter, the .357 Magnum went off and the bullet tore a hole in the side of the bus. When the young man got out of jail, Brandon gave him a job as a collector. For a while, Jason lived upstairs in what used to be an old hotel room. Jason said that the floor he inhabited was nice enough, but that the building’s upper levels were abandoned and creepy, furnished with claw-foot bathtubs and antiquated heating stoves. “Homeless people used to climb in the back window upstairs and sleep up there,” he said.

  For his part, Brandon thrived on the notion that he was the great father figure to his band of former miscreants. “I’ll always give people a shot,” he told me. In fact, as a matter of company policy, the only people that he wouldn’t hire were “rats” and “child molesters.” He added, almost apologetically, “I gotta draw the line somewhere.”

  In addition to all the locals whom he hired, Brandon also had quite a few of his family members working for him—his mother, nephews, and grown children. I met one such relative, a guy named Tony, who lived with Brandon but nonetheless was uncertain how exactly he was related to him. A collector named Brent offered to clarify matters.

  “Tony is Brandon’s brother or his nephew, depending on how you tell it, though he is actually his cousin,” explained Brent.

  “Brandon’s mother is my great-aunt,” added Tony helpfully.

  “So he is your second cousin?” asked Brent.

  “We make no distinction in our family,” replied Tony.

  Brent finally concluded, with a chortle, that Brandon was probably a kind of a “duncle” to Tony.

  * * *

  For a small shop, Brandon insisted the key to survival was “the lost art of skip tracing.” Skip tracing is industry slang for sleuthing and tracking debtors down—finding out where they work, where they live, and who their neighbors are. Bigger agencies often used computer software to “batch skip,” generating leads through an automated system that searched through a variety of online databases. Such a system could be profitable, explained Brandon, but it was also inefficient and allowed a lot of debtors to slip through the cracks. At a smaller shop like his, with just a few dozen collectors, they could pick through a file and identify the debtors who had been missed by the “batch skip,” and then, with a little legwork, collect on their debts.

  According to the Brandon Wilson school of skip tracing, you started by identifying and then calling the neighbor. Legally, under
the provisions of the Fair Debt Collection Practices Act, a collector is allowed to call a neighbor only to verify a debtor’s contact information such as phone number or home address; and a collector may not mention anything about a debt or ask the neighbor to relay a message. “But if the neighbor volunteers to pass along a message, you can say: ‘Gee, do you think you can leave my name and number on the mailbox?’” insisted Brandon. In such a scenario, Brandon wouldn’t say he was a debt collector. The trick was simply prompting the neighbor to help out. “I will say things like: ‘They don’t have my number—and I am calling all the way from Bangor, Maine—I don’t know what I am going to do.’ When the debtor gets the message, nine times out of ten they will call us, even if just to say, ‘Fuck you—don’t call my neighbor again.’ And that’s what we want. We want that chance to get them on the phone and turn them. I can say, ‘Look, man, you can rant and rave all you want, but if you cleared this up we wouldn’t have to call your neighbor. Let’s clear this thing up.’ And you just try to talk him down.” Apparently, the very best person to contact was a debtor’s scornful ex-spouse: “They’ll tell you, ‘Here is his number, here is his mother’s number, here is his slutty girlfriend’s number…’ We will usually put it on mute and say, ‘We got a rat—we got a rat!’”

  After debtors were located, and then contacted, the next step was to classify them appropriately. To this end, Brandon had developed his own quasi-scientific taxonomy, placing debtors into some thirty-eight different species or types. If a debtor hung up, he was a “DHU”; if he procrastinated, he was a “Stall”; if he bothered to call back, but did nothing else, he was a “Call Back”; if he bounced a check, he was a “Bounce”; if he promised a payment arrangement, he was a “PPA”; if he broke that pledge, he was “Broken Promise”; if he started to make payments, but then stopped or broke the deal, he was a “Broken Payment”; if he was very ill, he was a “Health”; and if, for some reason, he ended up in prison, he was simply a “Jail.” Each of these types had their own value. For example, a DHU was a sorry specimen because he had hung up and likely would do so again; a CB was a better prospect, because he had at least bothered to call back; a PPA had potential, because he made a promise to pay and thus acknowledged the debt was his; a Broken Promise had failed to honor his guarantee, but that wasn’t entirely bad, because you could now use that against him; and a Broken Payment simply needed a little nudging because he had started to pay and just needed to get back on track.