This series is by Patrick Sahr, a Naked Capitalism reader and a former debt collector. Sahr is a graduate of Buffalo State College’s Print Journalism Program. This series is running because it’s important to understand the culture of debt collectors, who are increasingly a form of policing in our society. One in seven Americans is currently being pursued by a debt collector.
Admittedly, my perspective on the Great Recession is especially negative. My excuse is that I’m from Buffalo, the nation’s third poorest city, where I’ve set fire to my career in the miserable business of debt collections. I have no future business plan in place other than avoiding the grim, dull and brutal world of third party debt collection. The whole experience has given me a seemingly incurable case of existential paralysis, where the future appears bleaker than the past and the past was pretty bleak. From this vantage point, while shopping for careers, it appears the entire economy has adopted the characteristics of the collection agency: rude, short-sighted, greedy, corrupt and pathetic.
The clipped nature of customer relations, the constricting focus on short-term profits and the sarcastic vulturing of remaining wealth have long been features of the collections industry in good times and bad. Now we see these features in the “race to the bottom” with cost-cutting regional airlines and in the arbitrary fees assigned to our cable and electric bills. Is it only in a recession where these features of corporate behavior divine themselves in other industries?
The General Function of the Collection Agency and Individual Commission Structure
A little about collections for the unfamiliar. The collection agency purchases or leases debt from banks, credit card companies, virtually any company that issues financing as well as debt purchasers, companies that act as debt wholesalers to collection agencies. The agencies then load the individual account information into a software program linked to an automated dialer. An army of phone drones in comfy cubicles then extract money from these delinquent accounts.
This is labor intensive as you only make contact with maybe fifteen targets out of 200 calls or more. Of those fifteen only three will agree to pay. Of those three, one will bounce a check and avoid future calls. The business model is pretty simple. The accounts are purchased for pennies on the dollar and you turn a profit once you’ve collected more than you paid for the portfolio of debt. Your overhead is mostly the army of collectors, whose starting base pay is low and bonus is generally 2 percent of the overall collected at larger agencies.
The agency usually pays 5 to 20 percent of “fee” to the collector, which is usually 20 to 40 percent of the overall amount collected. So if the collector collects $35,000 in one month, generating (at 35%) $12,250 fee for the agency, the final payoff is anywhere from $800 to $1350 for the collector depending on the agency. Not bad. That’s why people in Buffalo do it. In addition to the hourly wage, they pay a bonus that you’re not going to earn as a security guard or a bus driver no matter how much overtime you put in.
Buffalo: Former Manufacturing Mecca Turned Collections Capital of the World
The debt collection industry is huge in Buffalo and has been for almost twenty years. There are approximately 5,000 bill collectors and over 100 agencies in Buffalo. Buffalo, a working-class legacy city with a population of 260,000 and falling, is not the manufacturing mecca it was in the 1940s. Manufacturing has slowly disappeared over the last thirty-five years and the city has struggled to find a new identity and defined purpose. Buffalo is a remarkable place with many and varied cultural attractions, distinct architecture and great restaurants, but the high cost of doing business along with high taxes, corrupt poltics and inhospitable winters outweigh the less obvious virtues and discourage industries from situating here.
At its peak, Bethlehem steel employed almost 20,000 people in a massive facility not far from the shores of Lake Erie. That facility is a brownfield now and Buffalo’s economy is scattered and unmoored, corralling a large working-class with dim prospects, low income and less resources to fund the aging and oversized infrastructure in the absence of large-scale manufacturing. The call center economy proliferated in Buffalo largely because of cheap and available workers and office space, the sorts of incentives that don’t entice reputable, growing industries to the area.
Collection agencies and call centers have replaced some of the jobs vacated by manufacturers, but the compensation is far less and the jobs themselves are unstable.