When you hand over your personal information to a bank or a finance company you assume that your data is protected. Jake Halpern's latest book "Bad Paper: Chasing Debt from Wall street to the underworld" shatters that very idea as it tracks bulk debt sales from banks to debt collection firms, sometimes run by ex convicted criminals.
The book is an exposé on an entire industry that is completely unregulated and extremely profitable to the buyers and sellers of the personal information of debt defaulters. The book found its genesis in a story Halpern wrote for The New Yorker magazine in 2010. The article described the debt collection business of the unlikely duo of Aaron Siegel, a wealthy former banker, and Brandon Wilson, an ex convicted bank robber. Their business was based in Buffalo, in upstate New York, which also turns out to be the hub of the debt collection industry.
Jake Halpern is an author, journalist, and radio producer. Bad Paper is his third non-fiction book and due out this month (14th October 2014). The book was excerpted as a cover story for New York Times in August and we were lucky enough to catch him for a quick Q&A on the week of its release.
IBR: The entry point to this story was your own mother's experience, what exactly happened to pique your interest?
Jake Halpern: A few years ago my mother started receiving calls from debt lectors about a debt that she did not owe. My mother is extremely responsible. I like to joke that if she were a country she would have the equivalent credit rating of Luxembourg. Eventually she just paid these collectors because she wanted them to stop bothering her and she didn't want to risk anything bad happening to her credit rating. All of this made me wonder, What kind of crazy system is this? I began to do my research. I soon learned that one of the epicenters for the collections industry was my hometown of Buffalo, New York. I then got the idea it would be interesting to do a profile of a Buffalo based debt collector – you know, like a day in the life of a collector. So I did the story for the New Yorker magazine. That was how this all started.
IBR: what point did you realise it was potentially a book?
Jake Halpern: After the New Yorker article came out, Plan B, which is Brad Pitt’s production company, optioned the story. They wanted to turn it into a fictional show on HBO. So I went back to Buffalo with the screenwriter to help him research the script. It was at that point that I met the two people who would become the main characters in my book. One of them was a former armed robber and the other was a former banker. They had teamed up and gone into business together in the hopes of making a fortune in collecting consumer debt. They bought over 1.5 billion dollars worth of unpaid credit card debts for pennies on the dollar. All went well on their little venture until a portion of that deck got stolen. The debt was really just excel spreadsheets – with info on the debtors – and that info got taken. At that point, the former armed robber had to delve into that underworld and retrieve the debt from the thieves who took it. The story hugely intrigued me and was the beginning point for my book.
IBR: If this is a practice that all banks in the USA engage in, just how big a sums of consumer debt are we talking about?
Jake Halpern: When debtors stop paying those bills, the banks regard the balances as assets for 180 days. After that, they are of questionable worth. So banks “charge off” the accounts, taking a loss, and other creditors act similarly. These huge, routine sell-offs have created a vast market for unpaid debts — not just credit-card debts but also auto loans, medical loans, gym fees, payday loans, overdue cellphone tabs, old utility bills, delinquent book-club accounts. The scale is HUGE. From 2006 to 2009, for example, the nation’s top nine debt buyers purchased almost 90 million consumer accounts with 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.
IBR: Is the practice of selling debt in direct conflict with the banks privacy policy and their obligation to protect your personal information?, or is that out the window the moment you cease servicing a debt?
Jake Halpern: That is an excellent question. No doubt lawyers could – and likely will – debate this point endlessly. My feeling is that creditors do still have a moral responsibility to protect the most sensitive financial information of their former customers. They shouldn’t simply be allowed to sell that information and wash their hands of it – especially when they are selling that information into a marketplace that is chaotic, largely unregulated, and somewhat lawless. Creditors have every reason to believe that, by selling customers information in this manner, they are putting them at risk to be abused and coerced by the some of the worst actors in the industry.
IBR: Is their no legal recourse for consumers whose information, which originally they entrusted to a financial institution that is now being passed through a web of debt collectors - some of whom are former criminals?
Jake Halpern: Funny you should ask. I have already received at least one back-channel inquiry from a very successful plaintiff’s lawyer who is looking into this question. I wouldn’t be surprised if we start seeing class action lawsuits in coming years.
IBR: Is this way of dealing with debt unique to the United States or is it something that is common practice for banks and credit institutions all over the world?
Jake Halpern: I don’t know for use. I did recently meet with an official from Switzerland who runs a government office that organizes claims by creditors against debtors. The process there appears to be tightly regulated by the government and a fair amount more orderly. The guy I met says that he does see a fair amount of claims by debt buyers, so I assume that the same basic forces are at play there, just within a more orderly setting.
IBR: Since you started work on this book, is the United States any closer to regulation of selling consumer debt?
Jake Halpern: The short answer is yes. In 2014, the Consumer Financial Protection Bureau (CFPB) will start issuing new rules on how consumer debt can be collected, bought, and sold. I am hopeful that these new rules will change this industry. But much of the change will come down to enforcement. And this means the CFPB will need funding. They have a fairly modest budget. Here is one way of grasping this: the CFPB’s budget is equivalent to just 2 percent of what JPMorgan Chase set aside in reserves for its litigation expenses in 2013.
IBR: This is your third non fiction book. There seems to be a type of fringe thread to the subject matter - The dark underbelly of consumer debt, n unhealthy obsession with fame and stories of people living in hellish places - what is it you look for when searching out subject matter?
Jake Halpern: I think I am interested in people who are obsessed and people who inhabit strange niches that other people don’t necessarily know about. Above all, I am interested in good stories, and all of these worlds seemed to breed good stories.
IBR: Your biography paints you as rather nomadic, is this part of your search for new and interesting stories or is it more of a personal push back against the structural normality of life?
Jake Halpern: I have two young children, so my life has some unavoidable order and conventionality – which is all good – but I think that I have a healthy level of wanderlust, and a fairly short attention span, so I am always looking for something new. Me, my wife, and the kids recently spent a year living in Southern India. We had some awesome adventures and I was also able to do some fun writing. So I think I am driven to travel both to find stories and to escape a more conventional, confining life.
IBR: Does the change of geography manifest as a renewed energy in your writing, do you use it a tool to reinvigorate your ideas?
Jake Halpern: Absolutely. It forces me to get out of my routine existence and collide – sometimes by chance – with the kind of material that makes for good stories.
IBR: India has been a place where you have spent a lot of time. What is it about India that you find so fascinating?
Jake Halpern: I love the chaotic beauty of India – the different religions, tastes, smells, sounds, and all the people. After living in Connecticut it was just so refreshing.
Links
Publications
Jake Halpern (October 2014) Bad Paper: Chasing Debt from Wall Street to the Underworld”
Farrar, Straus and Giroux. ISBN-10: 0374108234
Jake Halpern (January 2007) "Fame Junkies: The Hidden Truths Behind America's Favorite Addiction"
Houghton Mifflin. ISBN-10: 061891871X
Jake Halpern (June 2003) "Braving Home: Dispatches from the Underwater Town, the Lava-Side Inn, and Other Extreme Locales"
Houghton Mifflin. ISBN-10: 0618446621
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