Maria wasn’t even that interested in the pearl earrings that nearly ruined her life. But the saleswoman at the department store was insistent: She would be happy to hold on to the earrings, in case Maria changed her mind. All she had to do was provide the clerk with her store-branded credit card number. Why not, she figured. (The earrings were on sale.) After the clerk returned her card, Maria says, “I forgot about it.”
Maria didn’t use her card often, at the department store or anywhere else in her Texas town, and she never used it online. (We've changed the names and some identifying details of interviewees, including Maria, throughout this story, due to the sensitive nature of debt.)“When I buy something, I usually return it, because I feel guilty,” she tells me over the phone. So when monthly bills of around $100 began arriving, she paid them off quickly, figuring she had fallen a bit behind. But when the bills didn’t stop—and kept getting bigger—she grew alarmed. For months, Maria discovered, someone had used her account to buy jewelry, sportswear, handbags, lingerie—dozens of transactions that weren’t hers. “I don’t buy fancy underwear, believe me,” she says, laughing.
She called the store to complain, but couldn’t remember the clerk’s name, and in any event, they told her she had waited too long to file a fraud claim. In the meantime, as her balance accumulated interest and late fees, Maria’s minimum payments ballooned to the point where she, a retired barber in her late 60s, could no longer afford to make them.
A few months later, the debt collection phone calls started—not from the store, but from a company with an anodyne-sounding name she didn’t recognize. She explained to these new people that her identity had been stolen, and asked them to stop calling. “They wouldn’t take no for an answer,” she tells me. “They didn’t care.” When Maria learned to recognize and ignore the company’s phone numbers, she says that she noticed that it began masking its caller ID.
These calls continued, sometimes multiple times a day, for a year and a half. “It was a complete nightmare, because every day I knew something was going to happen,” Maria says. “It scared me very much.” Unable to afford a lawyer, she began to wonder if the collector had the power to put her in jail. One day, when she looked outside to see a woman in a car taking pictures, she feared it had decided to put a lien on her house.
Today, she acknowledges the photographer could have been anyone—a real estate agent, maybe, scouting for neighborhood comps. “But when you’re my age, and you’re ignorant, all these paranoid things come to mind,” Maria says. “What are they going to do to me?”
Maria is not alone. More than 70 million Americans have at least some debt in collections, according to a 2018 Urban Institute analysis. A survey conducted by the Consumer Financial Protection Bureau estimated that one in three Americans with a credit record had been contacted about a debt at least once in the preceding twelve-month period.
Many of these collectors are not the original creditors, who are required by law to “charge off” most debt—to designate it, for tax purposes, as unlikely to be repaid—after a couple of months. Nor are they debt collectors contracted to recover on the creditor’s behalf. Instead, they are debt buyers, who pay pennies on the dollar for the unpaid accounts of phone companies and gyms and hospitals, and specialize in the business of hounding people to pay them the full amount. Debt-buying accounts for about one-third of the debt collection industry’s $11.5 billion in annual revenue. In other words, if you have debt more than a couple months old, there’s a decent chance you don’t actually know who owns it.
Given the risk of failure—if a borrower is broke, incarcerated, unreachable, or dead, the buyer is out of luck—debt is cheap. The average price, according to a 2013 Federal Trade Commission (FTC) report, is about 4 cents per dollar, which means a $200 credit card balance goes for $8 on the secondary market. Individual accounts typically get bundled into portfolios grouped by some common characteristic—geographic location, for example, or the borrower’s credit score range. In 2016, when Last Week Tonight host John Oliver announced on-air that he had “forgiven” debt worth $15 million, he did so by buying a medical debt portfolio on which he had no intention of collecting. He paid about $60,000 for it.
Collectors also make money by reselling debt to other collectors, and as they pick portfolios clean and pass them along, recovering what little meat remains on the bone gets more challenging. The market reflects this risk: Debt older than 15 years, the FTC says, costs basically nothing. But in the widening space between the debt’s decreasing price and its unchanging (or increasing) face value lies a tremendous potential for profit—which means getting consumers to pay by any means necessary can be a lucrative business practice.
What consumers may not know when a debt collector calls is that many of these collection attempts are, more or less, glorified hustles. Typically, when buyers acquire a debt portfolio, what they actually get is a spreadsheet with names, addresses, Social Security numbers, and debt amounts; it might include the date of the last payment, and maybe a phone number. Portfolios are often sold “as-is,” which means the seller doesn’t guarantee the accuracy of the spreadsheet's contents or the legitimacy of the debts. They rarely include documents like contracts or statements, either. For the most part, buyers have to pay extra for this paperwork—“media,” in industry parlance—and so decide not to bother with it. Put differently, when a collector calls someone like Maria and asserts that they definitely owe a certain sum of money, the collector is hoping to be right.
Consumers, however, have even less information available at their fingertips, which makes it difficult to prove collectors wrong. (Do you remember if you paid your phone bill in June 2010? Could you show it?) Thanks to stolen and mistaken identity cases, shoddy record-keeping, and occasional infusions of flat-out deception, consumers can get harassed for debt they paid off long ago—or debt they never incurred in the first place. The FTC estimates that each year, debt buyers try to collect more than one million debts that consumers say they don’t actually owe.
In 2018, one of those debts belonged to Kristen. Last spring, she received word that some mysterious, unidentified party was about to garnish her wages for some mysterious, unidentified debt: A lawyer produced a judgment from a court in a state where Kristen used to live, with her name splashed across the top of it. She says he wouldn’t tell her anything about the debt, though—only the amount, around $1,400, and her obligation to pay it, about which he was very insistent. “‘Oh lady, you owe a lot of money. That’s a lot of money you owe,’” she remembers him saying. “The way he was talking to me—it was like how you would talk to a child.”
Confused, Kristen called the courthouse. The case files had been archived, but she was at least able to find out who was after her: a debt buyer that sued her back in 2009. Kristen says she never received notice of this lawsuit, and when she didn’t show up for it, the court entered a default judgment against her. She had no idea until the lawyer told her of its existence nearly a decade later. The “vast majority” of debt collection judgments are obtained this way, says Carolyn Coffey, Director of Litigation for Economic Justice at Mobilization for Justice in New York City. With no defendant there to argue the facts, the collector doesn’t even have to prove their case in order to win.
Buyers covet these default judgments because they can use them to obtain court orders to garnish wages, bypassing the middleman and drawing straight from the consumer’s paycheck to satisfy the judgment. At this point, consumers have little recourse; a bogus debt isn’t bogus if a court of law has blessed it. Collectors employing this strategy have monopolized dockets with rubber-stamped lawsuits, transforming state court systems into miniature judgment factories. In the case of Pressler & Pressler, a New Jersey collections law firm, an attorney took as little as four seconds to review complaints before filing them—between 300 and 400 a day, and sometimes up to 1,000. (In 2016, the CFPB ordered Pressler & Pressler and its principals to pay a civil monetary penalty of $1 million related in part to its filing practices; as part of the consent order, the firm was not required to admit any wrongdoing.)
On Kristen’s behalf, a legal aid attorney retrieved the case file from archives, a process that can take about eight weeks. Eventually, they were able to piece together what happened: Unbeknownst to Kristen, someone took out a credit card in her name in 2006 and spent a bit less than $200. By the time the bank charged off this debt, late fees, penalties, and credit card interest caused the balance to balloon to $641.10. When the debt buyer sued her in 2009, court costs and more interest bumped the total to $915.43. By 2018, annual interest on the judgment—nine percent in New York—brought the total amount the debt buyer demanded to around $1,400, Kristen says, or seven times the original amount.
“I felt like I didn’t have any help,” she remembers. “Like I was going to be stuck paying for something I had no clue what it was about.” When the debt buyer began garnishing her wages—about half her biweekly paycheck of between $500 and $600—Kristen started prioritizing bills, trying to figure out which ones she could get away with paying late. Without money for gas and tolls, Kristen had trouble getting to work, and she and her husband borrowed from the bank and took out payday loans to make ends meet. “I couldn’t figure out how to do Christmas gifts for my kids. Even Thanksgiving,” she says. “I have a family to take care of, so everything is down to the penny.”
Of course, if a debt buyer can convince an alleged debtor to give them money without incurring the time and expense of going to court, all the better for them. In 1977, Congress passed the Fair Debt Collection Practices Act (FDCPA) in an effort to set some ground rules for the world of out-of-court collection attempts. These ground rules are not especially onerous: Debt collectors must provide basic information about the debt they’re attempting to collect, and verify the debt if the consumer disputes it. If asked not to make another collection call, they cannot call again.
Such laws have not prevented collectors from employing tactics that range from obnoxious to unconscionable. Debt collectors attempt more than a billion contacts every year, according to an industry estimate. The Federal Trade Commission says it receives more complaints about debt collectors than it does about any other industry—an industry in which people are especially likely to be vulnerable, confused, and wary of speaking up.
“The further you get from the original creditor—from Buyer A to Buyer B to Buyer C to Buyer D—the further you get into the Wild West of outrageous stuff,” says David Philipps, an Illinois consumer rights lawyer. Federal regulators have cracked down on collectors who threaten to have people arrested, charged with crimes, and/or thrown in jail, among other things, if they choose not to pay. In 2011, the FTC took action against a California collections agency after one of its employees allegedly threatened to shoot and eat a woman’s dog while trying to get her to pay for her daughter’s funeral. (The government’s complaint states that the employee also threatened to “dig her daughter up” and hang the body from a tree if she couldn’t cover the bill.) The purposeful cruelty required to adopt tactics like these is astonishing. “You’re just a loser,” one collector reportedly taunted a debtor, in a recorded call featured on John Oliver’s Last Week Tonight segment. “Why don’t you just go jump in front of a train?”
Dealing with collectors can be confusing for consumers, who might remember owing money to a bank or a credit card company but not to a strange law firm across the country. Collectors do not always help clear up this uncertainty. Sometimes, they identify themselves truthfully; sometimes, they claim to be law enforcement, or government agencies, or court officials. In 2015, the FTC shut down a Florida outfit that, according to the complaint, used implicit threats of deportation to extort Spanish-speaking victims. “This is Carla Villa, calling from Supreme Court Number 11,” read the English translation of one voicemail. It warned that authorities have “already started an evaluation” of the recipient’s immigration status, and urged them to call in order to “reach some kind of solution.”
In 2015, Lisa, a postal worker in Maryland, received a letter from a judgment buyer—as the name suggests, a collector that buys judgments (like Kristen’s) instead of debts, and attempts to recover the judgment amount. The buyer wanted close to $6,000 stemming from a debt Lisa owed to a landlord from more than ten years earlier: $2,707, plus an intervening decade’s worth of interest. “If you don’t [pay],” their letter warned, “you’ll force us to pay people you know to tell us where you work, bank and own property...Do you really want your life turned upside down like that?” It included a mocked-up Facebook ad that offered a “reward” to her family and friends for providing details about Lisa’s assets. (The letter asserts that because judgments, unlike debts, are public records, it is legal for them to publicize the details.)
Baffled, Lisa tried to explain that she took care of that debt back in 2005, when the landlord garnished her wages in order to cover the original amount of the judgment. Nonetheless, the judgment buyer began garnishing her wages all over again—this time, for about than twice that figure. Lisa, who had been on leave for over a year to undergo cancer treatment, was suddenly watching 25 percent of her paycheck—a few hundred dollars, depending on how many hours she felt well enough to work—go straight into the buyer’s pocket.
“It may seem like a little bit,” she says. “But when you’re out of work with no income, you’re trying to catch up on your car payments, your car insurance—everything.” Lisa was forced to borrow money from her sister, and when her kitchen sink broke, she took to washing her dishes in the upstairs bathroom each night.
All the while, Lisa was trying to cobble together enough decade-old paperwork necessary to prove her case. But by the time she managed to do so, the garnishment—this second garnishment—was already complete. It would take two years and a lawyer willing to work on contingency for her to recover a cent of this money that never should have been taken from her in the first place. “They had the proof. They chose not to do anything about it,” Lisa says. “It’s about the bottom line for them.”
The existence of the debt-buying and debt-collection industries reflects the reality that for millions of people, financial stability is fragile at best and illusory at worst. “Credit has become a substitute for people who don’t have enough money—they can’t afford health care, they don’t make a living wage, and their car breaks down,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. “Being in debt is not a character flaw. It’s a sign that they don’t have enough.” Given that 40 percent of Americans are unable to cover a surprise $400 expense and U.S. consumer debt is at an all-time high of $13.5 trillion, debt-buying is basically the art of speculating on financial catastrophe and human misery.
Even so, many debtors carry around a deep-seated sense of moral failure. “We as a society really value creditworthiness,” says Coffey. “Being creditworthy makes you a ‘good person,’ and people internalize that.” Some lawyers I spoke to for this piece told me of anxious clients who began to experience debilitating stress or suffer from depression after enduring harassment at the hands of collectors. I heard about more than one suicide attempt.
Anna, a disabled woman in New York, says she became mired in debt after the family business went under, leaving her relatives unable to support her financially. Suddenly, using a credit card became necessary to survive. “I hardly had anything to eat,” she tells me. “There was no way.” Today, she thinks her balance is just a few thousand dollars, but since Supplemental Security Income is her sole source of income, that number is only going to grow.
Once, she agreed to use her debit card to make a $10 payment to a collector who got her on the phone. (“I tried to explain the best I could,” she remembers. “He sounded very nice.”) A legal aid attorney reminded Anna of the precariousness of her situation, though; the previous winter, she tells me, she couldn’t afford to buy weather-appropriate shoes. She apologized to the collector, and said she couldn’t make any more payments.
Still, Anna can’t shake her desire to do so. “I wish I had the money,” she says. “I’m trying very hard to figure out what I can do.” She’s thought about reactivating an expired beautician’s license, but her health conditions are likely to make that a difficult task. In the meantime, the calls continue, sometimes four or five a day. When she picks up the phone and hears the telltale beat of silence that begins each collection call, she hangs up as fast as she can.
Fear is the most powerful bit of leverage that debt buyers have over consumers, because when a collector actually follows through on a threat to sue, it doesn’t take much to beat the case. “We see that if an attorney shows up in court, often the debt case will go away,” says Rheingold. Collectors armed with only a few Excel cells’ worth of data understand that trying to convince a judge to see things their way isn’t worth the effort.
But consumers, ashamed of their debt, unsure of their rights, worried they can’t afford representation, and distrustful of a legal system that already seems to be marshaled against them, are often reluctant to ask for help. “It can be hard to get people to talk about it,” says Omar Sulaiman, a Chicago-area consumer rights attorney. Victims may worry that the laws protecting them are too good to be true, or that hiring an attorney will exacerbate the harassment. In 2016, ProPublica reported that over the course of a year, more than 97 percent of debt collection defendants in New Jersey's lower-level court had no attorney to represent them.
The FTC and CFPB have collected tens of millions of dollars in civil penalties and restitution from abusive debt collectors since the Bureau began operations in 2011, and state attorneys general do what they can to police such practices, too. But given the billions of dollars the industry generates every year, occasional punishments are of limited deterrent value. “These companies are just finding out how they can break the law without being sued too much,” says Russell Thompson IV, an Arizona consumer protection lawyer. Especially for the collection giants, courtroom losses are the equivalent of a multibillion-dollar pharmaceutical company paying a six-figure injury settlement. “Their mindset is, ‘If we get caught doing it against you, it means we’ve succeeded against thousands of others,’” Sulaiman says.
Earlier this year, the CFPB released a long-awaited proposed rule on debt collection—the most significant update to the Fair Debt Collection Practices Act since its enactment in 1977. But the proposal has been roundly criticized by consumer advocacy groups for its tacit endorsement of some of the industry’s most harmful practices. The rule, for example, would “limit” collectors to attempting seven calls per week per line of debt in collection, which means a person behind on nine debts—nine student loans, for example—could receive 63 separate phone calls in a seven-day period. “We are horrified that the CFPB’s proposed rule will actually authorize harassment of consumers through phone calls, emails, and texts,” said National Consumer Law Center attorney Margot Saunders in a statement when the proposed rule was released. “We are deeply disappointed that the CFPB failed to use this opportunity to protect consumers.”
With the help of an attorney, Kristen was able to convince the judgment buyer that she was a victim of identity theft—but like Lisa, Kristen didn’t succeed until after her wages had been garnished for the entire $1,400 judgment against her. (Although the company returned her money, she says she received nothing else for her troubles.) When I ask how many hours of her life Kristen lost to this nightmare, she can only laugh. “It’s been a lot,” she says. “I would cry at night. It wasn’t fair.” Today, she and her husband are still working to catch up on late bills and pay off those payday loans—real debt they took on to pay off a fake one.
Drew Magary on how debt is still a grift for the well-off ten years after the financial crash.
Originally Appeared on GQ