I read Jake Halpern’s book Bad Paper as if it were a thriller, staying up late to see what happened to these people buying and selling debt on the down low. So when Public Books asked me if I would interview Halpern, I jumped at the chance. We had a fascinating, wide-ranging discussion about credit, privacy, gender, race, and more. Read on.
Lisa J. Servon: We have both had the experience of calling people and asking them for money. For my research on the alternative financial services industry, I worked as a check-cashing teller in the South Bronx and as a loan collector for a payday lender in Oakland. But even those were a little farther up the financial industry food chain than the case you worked on, Jake. So how did you come to write a book about debt collectors? Most rational people try their hardest never to talk to them.
Jake Halpern: I wrote a story for the New Yorker about a debt collector in Buffalo who basically ran his own payday loan business. That’s Jimmy, whose story makes up a chapter in the book. After the story came out, Brad Pitt’s company decided that they wanted to produce an HBO show based on the underworld of finance. The producers sent me back to Buffalo with a screenwriter to flesh out the story. When I was researching the investigative piece for the New Yorker, it was very difficult to get anyone to talk to me. I called all those people back and asked them if they would talk to the screenwriter for this Brad Pitt production. And lo and behold, they all said yes. I met Brandon and Aaron, the armed robber and the banker, along the way. The TV show ended up falling through, but I realized that the true story was even more compelling, and I decided to write about it.
LS: You really got incredible access to the people and the businesses you studied, especially given the shady nature of some of what they’re doing. How did you get them to open up to you?
JH: I spent a lot of time with the people I was studying, and I think I was just around enough that after a while they stopped thinking about me as a reporter. They just talked to me as someone who was there.
LS: I read the excerpt of Bad Paper in the New York Times Magazine before I read the book, and I was completely hooked. Obviously there’s so much more to the story than that slice in the magazine. At what point did you realize that you had enough material for a book?
JH: The moment I really felt I had a book was when I got the actual spreadsheet that Brandon and Aaron call “the Package.” It’s an example of product that the guys in this industry are buying and selling—spreadsheets of information on people with debt: credit card debt, payday loan debt, mobile phone debt, you name it. Once I had that, I was able to start contacting some of the people on the spreadsheet to see what their experiences were.
LS: That was an important moment for me as a reader, also. I have to admit I was kind of shocked you had access to all of this personal information about people. It seems like a real ethical breach for anyone to share that with you.
JH: Absolutely. A source sent me that file, and it was kind of creepy to open it and see seven thousand names with social security numbers and bank information for each of them.
LS: Did you have any ambivalence about using those names and numbers, or did it feel okay because you knew you were doing it for a good purpose?
JH: I felt very uneasy about having that information. And, by the way, there were many people who had access to it before I did. But ultimately I came to the conclusion that this was an investigative piece and that there was a public interest here. I was trying to expose how bad the system was. When I called people, I explained that I was an investigative journalist and that I had reason to believe that their debt was stolen. I protected people’s names and identities.
LS: That part of the story was really shocking to me—that this information we think is protected gets shared so quickly and easily in the world you entered.
JH: It was insane to me. People would send this information over the Internet to some guy they didn’t even know. They do this work so long they forget these rows on each spreadsheet represent actual people, people who, for one reason or another, have fallen into financial ruin. Most of the people in this business are desensitized about what it is that they’re buying and selling and collecting on.
LS: Do you think the problem has gotten worse as a result of the financial crisis? In my own work, I’m seeing a lot of people who had stable financial situations until quite recently and are now taking out payday loans or defaulting on their credit cards.
JH: One incredible statistic I saw after I finished my book was that, according to the Federal Reserve Board, less than half of Americans could pay a $400 emergency bill without borrowing money or selling something. They don’t have even that amount of money in a checking or savings account. That is how close people are to the edge. A lot of people in the debt-buying industry talk about how many irresponsible borrowers there are out there. And there are. But there are also a lot of people who are living very, very close to the brink. And that’s how they end up on one of those spreadsheets.
LS: Another thing that makes this story so engaging is that you tell it through the experiences of some incredibly compelling and complex individuals. I couldn’t help but feel sympathetic for Brandon and Jimmy, two really smart guys who’ve been dealt a lot of bad hands. They’re both trying to make a go of it and help other people, but their tactics can also be pretty questionable.
JH: Everyone in the book is a morally ambiguous character. But the whole situation is so complex that you find yourself rooting for guys like Jimmy and Brandon. They’re trying to make the most of things. They’re all operating in a space that is fairly unregulated and un-policed, so they’re left to figure out their own moral code and boundaries. Brandon, for example, has got no problem collecting on a debt that the debtor’s not actually obligated to repay. He’s got no problem calling up and saying, “You owe this money. You need to pay me.”
LS: These are really complex situations. When I worked the Predatory Loan Help Hotline, I would get calls from the kind of people Brandon was trying to collect from. They needed help figuring out if they really owed that money—everything was so complicated, they weren’t sure where they stood.
JH: But when Brandon finds out that he’s bought a bunch of payday loans that aren’t even loans, only applications for loans, and realizes these people didn’t owe the money he’d been collecting, he’s incensed. He insists on returning all the funds and he puts a stop to it. He’s got his own street code about what he feels is honorable or not.
LS: The big story you tell about how consumer debt is collected is very troubling. It’s the story of a system that’s completely broken. Guys like Brandon and Jimmy, who are operating within that larger story, understand there are problems, but they’re not trying to fix them. They couldn’t even if they tried. The book really makes clear the screwed up circumstances and the incentive environment in which people like Brandon and Jimmy are operating.
JH: Brandon told me the only thing he didn’t like about the book was my “lefty consumerist rants.” He acknowledged that everything I wrote was true. But, yeah, the trick was to write the book in a way that felt fair, and that showed some compassion for Brandon, but that left the reader plenty of room to see just how troubling the business is.
LS: I really got a sense of the different forces pulling at people in Jimmy’s position. There’s a moment when you’re driving around Buffalo with Jimmy, who is a much smaller-time collector than Brandon. Jimmy can’t get the quality of “paper”—of debt that has the potential to pay off—that Brandon and some of the other collectors can. Jimmy has to make it in life on his own hustle, and he’s feeling completely torn between this debt collection business he’s running, which he thinks of as doing the right thing, and the street, which is drugs and crime.
Debt collection is pretty ugly work, but from Jimmy’s perspective, he’s trying to make an honest living and he doesn’t have many options. This business seems to be an entry point into the workforce for people no one else will hire. I wonder if middle-class readers have spent much time in poor neighborhoods—it’s really easy to be judgmental about other peoples’ choices when you haven’t had to deal with the same situation yourself.
JH: You probably wouldn’t take this job if you had many other choices. There’s something kind of soul-sapping about it. Most of the guys I talked to acknowledged that this is a fairly miserable way to make money.
LS: Does race also play a role? Jimmy is black, and it seems to put him at a disadvantage.
JH: The racial dynamics were always there. Jimmy had a very messed-up relationship with Vinny, one of his collectors, but he needed Vinny because he needed a white guy on the phone. I write about a really affecting moment where Larry, another debt broker, told Jimmy that people don’t want to do business with him because he’s black. Jimmy believed that he was never going to be able to get good paper, in part because he was both poor and black. He was never going to have the money or the connections to get it. Jimmy wasn’t getting rich; he was constantly on the verge of going out of business. He was trying to operate within the law as best he could, but he was also trying not to go broke.
Would Brandon have succeeded if he were black? He overcame class to an extent. He went from robbing banks to being in business with a banker. He has a very minimal education, but he’s partnered up with this guy who’s got an MBA. Still, there’s a glass ceiling for Brandon. But I think it probably would have been harder if he were black.
LS: The world you enter for the book is also strikingly male. Aside from Brandon’s daughter, and the Wiccan woman who is a debt buyer, there are virtually no women in the story, and certainly no main characters.
JH: I think that’s true because I was in the bottom tier of this industry, which is the more lawless, grimy side of the business. It was a very alpha-male kind of world.
LS: The payday lender where I worked makes an interesting contrast. All the people who were doing collection there were women. I wonder if the people running these businesses are thinking about who makes a more effective collector. Some of the guys in the book were definitely willing to get a little tough on the phone. Is hiring based on a perception of how women or men collectors will act on the phone, or how the people who are being called will react?
JH: I don’t know. Part of the talk-off [the spiel given to debtors on the phone] is meant to be kind of intimidating, so maybe there is something about the male voice. But then again, part of what the collectors are doing is “marrying” the debtors, connecting with them on an emotional level. You might think a woman would be better at that. But for whatever reason, what I saw was a very male world.
LS: Do you think you could have reported this story if you were a woman?
JH: I think it would have been much harder. I think that because it was such a male-dominated world, I would have inevitably drawn more attention to myself as a woman, when what you want to do as a reporter is to become as close to invisible as possible. I think being a woman would have worked against me.
LS: Debt collection is just a piece of the whole, complex consumer financial services industry. Where do banks fit into the story?
JH: Banks are not the good guys in this scenario. The banks are squeezing as much as they can out of people. They’re charging incredibly high interest rates, overdraft fees, late fees. And then, when it becomes clear that they’ve squeezed as much as they can out of people, they farm them off into this lawless marketplace where they have every reason to believe that this information could end up in the wrong hands. I see banks as being very much culpable in all of this.
LS: I would agree with you. One of the most powerful lines in your book is when you say that the mistakes made with people’s debts aren’t freak occurrences; they’re the inevitable result of a haphazard system that transfers debt from one vendor to another, over and over, with minimal oversight or incentive to get it right. How can we create more accountability? Right now the only incentive debt collectors have is profit. If people are working on commission, what else could you expect? But you bring out the humanity of the individuals while also telling that much larger story. Have you given any thought to how this situation could be improved?
JH: It’s very clear that there have to be more rules guiding what people do. You could make an argument, for example, that the original lender shouldn’t be allowed to sell the debt, but I don’t think that’s going to happen.
LS: Why not?
JH: There would be too much pushback. But there are other potential solutions. When I was out in Las Vegas for the Debt Buyers Association annual conference, I heard that some of the big debt buyers were saying in their contracts that they would never resell debts they bought. That would soothe the anxieties of banks that are worried about where this stuff might end up. The other option would be a debt registry, where the debts are given an identification tag, like a VIN number on a car. Every time you bought or sold a debt, you would have to register the sale. Then the consumer could go to the registry to check if the person collecting on it actually has title to the debt.
LS: That sounds promising.
JH: Something has to be done. The way that it is now, it’s just chaos. Here’s the way I describe the situation to people: Let’s say I’m selling you a car and I say, there’s the car I’m selling right over there, and I’m going to take cash for it, but I have no chain of title for the car, the car has no VIN number, and the DMV doesn’t exist. You’d tell me I’m crazy, right? But that’s basically the way much of the consumer debt in America is being bought and sold.
LS: Do you think any of these ideas for how to improve the situation would work for the really small businesses that are the focus of your book? You talk about how small the budgets of agencies like the FTC [Federal Trade Commission] and the CFPB [Consumer Financial Protection Bureau] are with respect to the size of this problem. It seems like it would be hard to enforce the kinds of rules you’re talking about.
JH: Absolutely, that’s a real issue. The latest industry estimates say that there are about 9,600 collection agencies in the US, and about 42 percent of them have four collectors or fewer. Not all those shops are rogue shops that are buying and selling stolen debt and threatening to arrest people, but I’m sure a bunch of them are. And if you have four people, you can just shut down and pop up somewhere else. It’s very hard to police.
LS: Any final thoughts?
JH: When I was growing up, my father had this saying hanging above the door of his study: “Be kind, for everyone is engaged in a great struggle.” I always saw that growing up, and it became the epigraph for the book. I tried to write a book that showed the humanity of every single person, while simultaneously exposing just how bad the system is. The system pitted people against each other in all these ways. Everyone was flawed and was operating in a morally ambiguous space. Everyone was trying to hold onto their own dignity and hold onto their own sense of morality.