Inside the Dark World of Consumer Debt Collection

In August 2014, the New York Times published a fascinating article by Jake Halpern entitled Paper Boys: Inside the Dark, Lucrative World of Consumer Debt Collection. The article follows the intertwining tales of Aaron Siegel and Brandon Wilson, two men who invest in “distressed consumer debt.”

These guys buy up the right to collect unpaid credit-card bills, auto loans, medical loans, gym fees, payday loans, overdue cellphone tabs, old utility bills, delinquent book-club accounts, etc. The personalities and motivations described in the article are reminiscent of the Old West, or Boardwalk Empire.

Thuggish debt collectors

The team of debt collectors Siegel hired to collect on his re-purchased debt were mainly a downtrodden lot. They included ex-convicts, drug addicts, and 20-somethings without high-school diplomas. “Oh, my God, they were like thugs,” Siegel recalled. He quickly concluded, however, that the more clean-cut types simply do the job. As he put it: “You realize that you’re sitting on an investment and you’ve hired a bunch of Boy Scouts who can’t turn any money.”

Debt collectors will get you on the phone and basically say anything they can to get you to pay. Something, anything, and today, please. In most states, there are no statutes of limitations on debt collection — only on suing on the outstanding debt. While collectors cannot sue you, they can harass you until the debt is paid.

The consumer debt collection industry

From 2006 to 2009, the nation’s top nine debt buyers purchased almost 90 million consumer accounts. Those account represented more than $140 billion in “face value.” And they bought at a steep discount. On average, they paid just 4.5 cents on the dollar. These debt buyers collect what they can and then sell the remaining accounts to other buyers. And so on and so on, down the food chain.

Attempts at regulation of debt collectors

Things may be looking up, however. In 2012, the Consumer Financial Protection Bureau announced that it would start supervising some of the nation’s larger debt collectors to “help restore confidence that the federal government is standing beside the American consumer.” The bureau vowed to police the nation’s largest 175 agencies, but one recent projection on the industry estimates that by 2015 there will be 8,501 debt-collection firms in the United States.

Moreover, the companies engaging in the most grievous behavior — like falsely threatening lawsuits or collecting on bad paper — tend to be the smaller operators. It inevitably falls upon the state attorneys general to go after them. The CFPB should lock its sights on the entire industry, big players and small, if it truly wants to assist the American consumer debtor.