Bad Paper: Chasing Debt From Wall Street to the Underworld by Jake Halpern
The New York Times Magazine has just published a cover story adapted from Jake Halpern’s phenomenal upcoming book, Bad Paper. You can read the entire article here. Because I can’t possibly capture Halpern’s outstanding writing style or story telling abilities, I offer the following excerpts article. In my opinion, Halpern’s book demonstrates that, despite what the industry contends, there is still plenty of actual ongoing systemic fraud and abuse. The seeds of fraud and abuse are planted when banks sell accounts “as is” while broadly disclaiming warranties of accuracy or even title; seeds which ultimately taint many of the lawsuits filed by debt buyers. I have written about the inaccurate data in junk debt buyer lawsuits here.
ON THE JUNK DEBT INVESTOR: “As he soon discovered, after creditors sell off unpaid debts, those debts enter a financial netherworld where strange things can happen. A gamut of players — including debt buyers, collectors, brokers, street hustlers and criminals — all work together, and against one another, to recoup every penny on every dollar. In this often-lawless marketplace, large portfolios of debt — usually in the form of spreadsheets holding debtors’ names, contact information and balances — are bought, sold and sometimes simply stolen.”
ON THE EX-CON JUNK DEBT COLLECTOR: “Later, he also became a debt broker or dealer, a type of role he knew quite well: “I used to buy pounds of weed, all right, and then break it down and sell ounces to the other guys, who were then breaking it down and selling dime bags on the corner, right? Well, that’s what [I’m] doing in debt.” …“I buy old crap,” Wilson said. “I’m the King of Crap.”
ON THE FACT THAT DEBT IS SOLD FOR SOMETIMES LESS THAN ONE PENNY ON THE DOLLAR, AND ACCOUNTS BEING DOUBLE OR TRIPLE SOLD: “It was part of a much larger package of roughly $50 million worth of debt, which he bought for just 12 basis points — or one-twelfth of a penny on the dollar. It had been bad paper, Owens said, and he’d gotten burned on the deal. After the purchase, Owens discovered that another agency was collecting on the same paper and, what’s more, that some of the dates on the debts had been manipulated so that the paper appeared newer than it actually was. As Owens saw it, when buying from debt brokers, this was all part of the risk you faced. He concluded: “It is just data you are purchasing.”
ON THE LIMITS OF ENFORCEMENT BY FEDERAL AND STATE REGULATORS: “The [Consumer Financial Protection] bureau vowed to police the nation’s largest 175 agencies, but one recent projection on the industry estimates that there will be 8,501 debt-collection firms in 2015 in the United States. And 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, which means depending on overburdened officials like Karen Davis.”
ON THE EXPLOITATION WHICH RESULTS FROM SELLING ACCOUNT DATA IN SIMPLE SPREADSHEETS, WITHOUT ACCURATE SUPPORTING DOCUMENTATION: “As long as paper continues to be stolen, double-sold or otherwise exchanged without accurate supporting information — like statements or copies of the original signed contracts — consumers will be exploited and collectors like Siegel and Wilson will have to fend for themselves.”