What happens when you decide not to pay off those Jimmy Choos you bought on your Chase credit card? Chase will attempt to recover the money owed; but maybe you lost your job, or have other bills to pay, or are in prison. Who knows? At some point, it becomes more profitable for Chase to sell your debt, rather than try to recoup the money themselves.
One of the amazing things about this process is that the debt, YOUR debt, is sold as a line on an Excel spreadsheet. There might be thousands of clients on a single spreadsheet, which is considered a portfolio. So brokers who manage the sale of these portfolios are literally selling a thumbdrive with an Excel file on it. This is a process that is largely unregulated, easily pirated, and potentially lucrative for those willing to do the work.
And the quality of the portfolio, or paper, determines the price paid. What is the geography of the debtors? Is it credit card debt, or payday loans? Has the paper been sold more than once? Are the debtors young? Old? These questions, and more, all play into determining if the portfolio is sold for pennies or hundredths of a penny on the dollar.
Bad Paper focuses on individuals in the business who specialize in, well, bad paper – older, harder to collect debt. This usually means millions of dollars of debt can be bought for dirt cheap with potential for significant profits IF the debt can be collected. With thousands of debtors to contact, it’s sometimes a game of throwing the spaghetti on the wall and seeing what sticks. Of course, there’s the potential for collectors to employ less than palatable tactics on these types of debts. Threats of lawsuits, imprisonment, and even personal threats can occur (which is totally illegal). But even if the debtors agree to pay a fraction of what they owe, the collection agency is making a massive profit.
Because of the risk involved, and the sometimes questionable tactics used, this industry attracts occasionally unsavory characters. Because of the lack of regulation, those in the industry often find themselves “working out” conflicts on their own.
Halpern also highlights a few stories from the other side of this industry. Those of the debtors themselves. Why did they go into debt? How successful (or not) was the collection agency in collecting that debt? And if it came down to it and they were taken to court, what happened? It was amazing to hear how easy it is to fight these cases, yet how rarely people do.
You don’t need to be interested in finance or the economy to find this book interesting. It’s something that I think most people can relate to on one level or another and a real eye opener to an industry you don’t hear much about. A solid recommend.
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I’ve never read this but I have heard Jake Halpern talk about his reporting process on Longform, a podcast that does really long in-depth interviews with different writers. It’s incredible how much work went into unraveling this world — I’d love to read it one day. How’d you get on to it??
It was a Christmas gift from someone who heard him on NPR. I’d never heard of him before.