Let's talk about debt collections, Jake Halpern.

An Interview With the Repo Man

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Writer Jake Halpern, whose work has appeared in most of my favorite magazines, has written a terrific new book called " Bad Paper ," in which he dives into the seamy, gray-market world of the people who collect old debt. I sat down with him for an instant-messaging interview yesterday. Below is a lightly edited transcript.

Megan McArdle: Normally I'd ask why you wrote this particular book, but in this case, it seems obvious: It's completely fascinating. So I'll ask instead: How did you get started?

Jake Halpern: 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.

MM: Share your favorite moment from your reporting. What was the most interesting/amazing/crazy thing you learned or saw?

JH: There were a few moments. One was when I first had dinner with Aaron (Siegel) and Brandon (Wilson) at the Buffalo Club. The one guy is telling me how he used to run banks, and the other guy is telling me how they used to rob banks, and now they are happily in business together. It was like the best odd couple of all time. Aaron is wearing a $2,000 suit and talking about his ski trip to Tahoe, and Brandon is pulling up his shirt showing me where he got stabbed and talking about prison, and the two of them are happily toasting glasses. It felt like a Quentin Tarantino movie.

Another favorite moment is when I go to this mosque in the east side of Buffalo and meet the machete-carrying Muslim polygamist debt collector Shafeeq. He was awesome. He is the one who told me that by having multiple families in the inner city of Buffalo, he was role modeling on an exponential level, he was "Xeroxing righteousness."

MM: You would think it would be hard to get people in this gray market to talk to you, but they seem to have spoken quite freely. Are they proud of what they do?

JH: On this note I think I owe a great deal of thanks to Brad Pitt. Throughout the time that I was writing this book, Brad Pitt's production company was trying to develop an HBO television series based on the material. In the end, the television show seems to have stalled, but in the meantime I was able to talk to all of these characters. So many of these guys were enamored with the TV show "The Wire."

I think that Brandon (the former armed robber) is proud. I think that for him, collections was redemption for him. It gave him a new life.

MM: Yeah, there is something about the idea of yourself on television that seems to captivate even the most ordinarily reticent folks.

JH: I told them that this was a nonfiction book, but I think the prospect of the TV show at least got them talking, and once they started talking, they just kept on going. I actually got very close with almost all of the subjects in the book.

MM: They seem likable as you write them, even though it's not a very likable industry. Sort of Runyonesque, with less hepcat jargon.

JH: Yes, I tried to depict everyone as the complicated beings that they are -- flawed, heroic, detestable, endearing, all at once. That is, I suppose, what it means to human. I wanted to avoid cardboard cutouts of good and evil.

MM: That's hard to do well, which you do: to show them as people, without glossing over the fact that they're mostly doing something not very nice. Did it make you uncomfortable, to be around folks who are dunning the desperate for debts of dubious provenance?

JH: Yes, it did, but I tried to write the entire book in a way that I did not pass judgments and I didn't let my own biases and my own opinions cloud the way I portrayed these guys. I also resisted any temptations to sanitize them. After he read the book, Brandon called me up and said, "You told it like it is. It's not all pretty, but it's fair, you showed me warts and all. You done me right." I appreciated that so much.

MM: That's one of the nicest compliments a writer ever gets, I think.

JH; It's true. Because you don't want someone calling up and saying, "I loved every single word that you wrote, it was all fantastic." Because that probably means you have succumbed to flattery and have rendered them in a way that they are entirely happy with. I think what you want is for them to have some misgivings about what you wrote but in the end feel that it was all fair.

MM: Did you come to see any virtue in what they're doing? Is there an upside to the existence of this industry?

JH: Any virtue? Hard to say ...

Most of the people they were calling were quite poor and had limited means to repay what they owed. It was hard to feel good about collecting from such people. It was the downtrodden versus the downtrodden in many ways. I understand that in order for the system of credit to work, you need to repay your bills. That is fair and right. The problem so many people are broke.

You may have seen this, but according to a recent Federal Reserve survey, only 48 percent of respondents would be able to cover an emergency expense of $400 without having to sell something or borrow. About 43 percent said they wouldn't be able to afford a major medical expense out of pocket.

MM: Yes, America likes to live close to the edge, financially.

My sense from talking to people who have done collections calls is that many of the people are lying to you, and also that you sort of have to pretend that they're not really people to be any good at the job. You see this a lot in people who provide financial services to the marginal -- tote-the-note car lots, payday lenders. Normal people would give everyone a break, and then they'd lose all their money and get out of the business, which wouldn't necessarily make the poor worse off. So you end up with people who act pretty callous, because they're the only ones who can stand it.

JH: Yes. I tried my hand at collecting and I called people who I felt certain was the right person and they ducked out of it. I understood why they did that, but I also saw how it could be so frustrating to be a collector and how you could get very cynical.

MM: Can you talk about the industry a bit? What happens to, say, a bad dentist's bill that turns into an entry on a spreadsheet that gets sold for pennies on the dollar?

JH: Right. Well, when an account goes unpaid for 180 days, typically the original creditor can no longer deem that as an asset because, at that point, it is no longer reasonable to expect that it will be repaid. At that point, many creditors sell these debts off for pennies on the dollar. What they sell off are just spreadsheets ...

There is little in the way of additional data ... the absence of such documentation is striking. In 2013, an FTC study found that six of the nation's largest debt buyers typically receive very few documents at the time of purchase. When purchasing debts, the FTC noted, these buyers received the "account statements" -- that is, the actual monthly bills where charges appear, with dates, on an item-by-item basis -- for just 6 percent of the accounts that they purchased. And the debt buyers received copies of the original account applications -- the documents proving that consumers opened the account and agreed to the terms -- for less than 1 percent of the accounts that they purchased. What's more, debt buyers often did not receive a breakdown of what debtors owed in principal, interest and fees.

Anyway, so what they sell is spreadsheets. A debt buyer buys one such spreadsheet, collects what he can, and then sells the uncollected accounts to the next debt buyers, again and again, until the debt works its way all the way down the food chain. At the bottom of the food chain, you often have the shops that are using the most hard-hitting and illegal tactics. This is especially true in payday loans, but it is true in credit card as well. And because there is no supporting data, there is no way to verify the amount of the debts, as Brandon told me recently: "There is no way for us, who buy the debts, to confirm for certain whether the amounts owed are accurate."

The consumer has the right to ask for more information and to verify and validate the debt, but that information is often just not available. Sometimes the banks don't even have that info. I called Chase about the documentation for one debt linked to the package, and their PR people couldn't find the original records and thus just had to dismiss it as fraud.

MM: What was the most surprising thing that you discovered writing this book?

JH: I was amazed at the notion that a banker and a former armed robber might go into business together, become loyal partners and friends. These were my two main characters. Aaron Siegel was the banker and Brandon Wilson was the former armed robber. When I expressed my surprise to Aaron, he told me: "I have a lot of trepidation about Brandon, but he will always pay you, unlike Wall Street types who may have a suit and talk nicer but will hire a lawyer so they don't have to pay you." And here is the thing: Their relationship wasn't actually as unlikely as it may seem at first glance. In the world of debt collections, the marketplace is fraught with peril. Aaron repeatedly got burned by con men who sold him "bad paper" -- debt that, for one reason or another, proved uncollectible. The industry was filled with hucksters and charlatans. And he learned, the hard way, that he couldn't rely on the authorities -- or even the courts -- to protect him. That's why he needed someone like Brandon who -- in Brandon's words -- could keep the "sharks" at bay.

MM: What opinions did you change as a result of your reporting?

JH: I never expected that I would like, or feel any sympathy for, a debt collector. In my mind, I saw them as ruff, gruff, fairly ruthless repo men. That changed as I reported the book. In particular, I was moved by the story of Jimmy, a former cocaine dealer who -- after going to prison -- tries to reinvent himself as a legitimate business man, but the only business that he could get into was debt collection. And his business was doing very badly when I met him. In fact, I was sitting with him one night, in the parking lot outside his office, when he realized that he didn't have enough money in his bank account to make payroll. Not just that, he didn't have enough money to take his kids to see 'Shrek.' He literally broke down and started to sob. "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." At that moment, my heart kind of broke for him. I really saw him as a person.

MM: What do Americans need to know about debt collection that they don't?

JH: The person who calls your house and demands that you pay your debt is not necessarily to be taken entirely at his word. The amount of the debt might be wrong, his company might not legitimately own that debt, or the debt may be so old that it is no longer legally enforceable. Consumers should be very careful and circumspect before they open their wallets.

MM: Are there policies we need to change about debt collection?

JH: Yeah, there are several things that need to change. First, banks and other original creditors need to start providing detailed documentation -- like monthly statements and original signed contracts -- so that BOTH collectors and debtors have accurate, reliable information about what is owed. Second, judges need to be very careful not simply rubber-stamp default judgments against debtors for debts that are suspect and that lack proper documentation. Third, we need a system in place to keep track of who owns what debt. Can you imagine a world where cars -- for example -- were bought and sold and there were no VIN numbers, no reliable chains of title and no DMVs to keep track of everything? It would be INSANE. But that is, to a great extent, the way the buying and selling of consumer debt operates in the U.S. Finally, I would boost the budget of the CFPB. Here is some context: The CFPB's budget is equivalent to just 2 percent of what JPMorgan Chase set aside in reserves for its litigation expenses in 2013.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net

To contact the editor on this story:
Brooke Sample at bsample1@bloomberg.net