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.
[Matt here]: 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.
Mixed Messages: High Turnover is bad, but it’s Music To the Collection Agency Owner’s Ears
Collection agencies are filled with a variety of people from different backgrounds like any other occupation. Many are decent and hard-working. Despite the popular conception that only the hateful and unpleasant seek employment as a debt collector, there are many in the industry who are honorable and kind. They are capable of eking out a fair living under difficult circumstances in a local economy of dwindling opportunity.
Unfortunately, losers are over-represented in the collections world. Drug addicts, ex-cons, drop-outs, wash-outs and the mentally ill populate the lower ranks of the typical collection agency in great numbers. They generally don’t last long, but they are always present because the high turnover at any agency assures a new crop of losers will be coming through the door each week. Some of your savvier losers stick around because there really is little difference between a street hustle and a phone hustle. Think of Tobias “Bags O’ Money” Boyland, the enterprising ex-con who operated a constellation of crooked agencies in Buffalo after 13 years in prison. He has since returned to prison after a firearms conviction that began with an investigation of his shady agencies.
Although lower management decries high turnover as a waste of time and money, it is actually saving them in the long-run and likely functions exactly as planned. High turnover depresses wages in the middle and upper brackets of the workforce. If you can find an army of $9.00 an hour employees every week to nip the heels of the middling $14 to $17 an hour employees it will keep the overall wage scale low. It also keeps your mid-level employees productive and fighting for viability in an ever-changing environment. Who has time to talk unions when your survival is at stake daily?
Illegal Collection Practices: Damned if you do, damned if you don’t
Almost every collection agency in Buffalo violates the Fair Debt Collection Practices Act regularly and, mostly, with impunity. Most of the violations are minor, some major. The law is a weak consumer protection with very little enforcement. Although most Buffalo agencies have cleaned up their act in the last three years, collectors still use non-existent legal threats as leverage to persuade debtors to pay. They also contact third parties to relay messages to debtors, a well-used play to generate call backs. It is widely understood in the business, with the existing commission structure and debtors who are resistant to standard overtures for payment, that the only way to generate income and protect your job is to wield false threats as leverage. To a certain extent, this is true. The law requires debt collectors to behave as customer service agents and, as the result of hundreds of lawsuits, agencies now use call scripts that are almost obsequious in tone. Debtors will hang up on you if you begin the call with, “federal law requires that I inform you that this is an attempt to collect a debt—“
Beneath the surface of compliance and cooperation, the typical collection agency has a set of rules that are not written down anywhere, the most important of which is “don’t get caught.” The shadow world of informal rules, in most cases, has the unofficial sanction of management and agency owners. This system is the engine that generates the most profit for the agencies and collectors well-connected enough to be involved. Your monthly all-star bill collectors are usually people involved with the shadow system.
The typical agency is assured some profit by following the law. Only a very tiny percentage of debtors pay their bill after receiving a call or two and a letter, but enough to generate a modest profit for the business. Also, there are collectors at every agency who offer very flexible monthly payment arrangements to debtors so to build bonus money up gradually. That brings in steady revenue as well. As smart as that strategy sounds, management generally hates these collectors and are sometimes openly hostile to them. They want the whole bill in one payment. These collectors are taking the dreaded long view, gradually building a “payer base” so they don’t have to start from zero each month. But it’s not enough and it will never be enough for management and agency owners. That’s why agencies create a climate where the collector is tacitly encouraged to use illegal threats to collect debts. If you don’t generate a minimum amount of money in three months, you are fired. If you generate a little bit of money, it’s not worth the stress and aggravation. So it’s go big or go home, a mindset that managers encourage enthusiastically.