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If you don't pay your credit card bill, the first thing you might get is an email saying, hey, just a reminder - you missed your payment. If you still don't pay, you'll start getting phone calls. Eventually, you may get a letter. Your bank might pass your debt off to a collection agency.
Some guy in a cubicle will start calling and interrupting your dinner night after night. And then if you still don't pay, there's one final stop for your debt. You might get a call from a guy like Jimmy, a guy who I met last week standing outside a boarded-up house in Buffalo, N.Y.
JAMES NELMS: You're in a rough part of the neighborhood. But I want you to know you're safe.
GOLDSTEIN: I appreciate that. I feel safe. I feel like you can protect me.
NELMS: You're really safe. You're all right. But this is the hood, man. You know, I mean, this is Buffalo.
Hello, and welcome to PLANET MONEY. I'm Jacob Goldstein. I'm joined today by a special guest, Jake Halpern. Hey, Jake.
JAKE HALPERN: Hey.
GOLDSTEIN: Jake just wrote a book called "Bad Paper," all about Jimmy and this world. And that's our show today. It's the story of this one guy who tried to make something of himself by getting into what's really an ugly business.
It's also the story of this whole low-level, semi-legal debt collection economy that sprung up in Buffalo. And even in a small way, it's the story of the last 20 or so years of global finance, a time when the world went wild for debt.
(SOUNDBITE OF SONG, "SHAKE ME DOWN")
CAGE THE ELEPHANT: (Singing) I'll keep my eyes fixed on the sun.
GOLDSTEIN: Jake, you actually went to high school with Jimmy. You've been talking to him for years for this book. And you and I met up in Buffalo last week. And we went to see Jimmy.
(SOUNDBITE OF CAR DOOR)
NELMS: How you doing? How you doing there?
GOLDSTEIN: Nice to meet you. I'm Jake.
NELMS: How you doing there? Two Jakes.
GOLDSTEIN: Jimmy's a big guy. He's wearing a baseball hat and a gray waffle shirt. And he grew up not far from here. And he says it's a rough neighborhood.
NELMS: They stole the hot water tank out of this house. They'll steal the sweetness out of sugar around here if you let them.
HALPERN: Jimmy, whose full name is James Nelms - he had a rough childhood. I mean, after high school, he got into dealing drugs. He went to jail on a gun charge. And even if you're not an ex-con, Buffalo's a tough place to find work. But there's one local industry that was hiring, a place where, even if you had a criminal record, you could get a job. And that's debt collection.
GOLDSTEIN: Jimmy got a job at one of the big corporate debt collection shops in town - hundreds of people sitting in cubicles, calling people who haven't paid their credit card bill. And pretty quickly, Jimmy realized he was really good at this.
NELMS: I was one of the best, walking in there smoking, like, a pound of weed. And out of all those people, you know, I was producing. Your name gets called over the PA - big payments - but only because of the money I was making. You're only good as the last payment you got.
HALPERN: So this was the golden age of debt collection, right? We remember the mortgage part of this world. But people were also in debt for gym memberships, for book clubs, for payday loans. And, you know, when they couldn't pay, you needed someone who could call them up and get them to pay. And that was Jimmy.
GOLDSTEIN: So when Jimmy got in trouble with the law again and got fired from that corporate debt collection job, he thought, I don't need this. I'm going to open up my own shop. He convinced his brothers and sisters to stake him $10,000. And he rented his own office.
HALPERN: So I actually visited his office on a few occasions and spent a lot of time there. You walk up this tight, little staircase. And you get up to the top. And it's an old karate academy.
GOLDSTEIN: (Laughter) Like, kids used to take classes there or something?
HALPERN: Yeah. I mean, like, it looks like kids might have taken classes there last week. You know, there's mirrors all the way up. There's, like, stranded equipment in, like, the back behind the cubicles. It looks like the whole place could've gone up yesterday and down tomorrow.
In the main room, there's Jimmy and one other guy. Each have their desk. And they're kind of the corporate side. And then all the workers are in back - maybe half a dozen - in their cubicles.
GOLDSTEIN: The office - it's above a liquor store next to a used-car lot. And across the street, there's this little women's clothing store. It's got this optimistic name, The Sky's The Limit. Jimmy took his mom to see the office just after he rented it.
NELMS: Well, for my mom to finally look at something I was doing and smile - well, she pointed over across the street. She said, the sky's the limit, baby. You see that? That's a message from God.
GOLDSTEIN: Jimmy has his mom's blessing. He has his karate studio/office. He has his phone set up. He needs one more thing. He needs debt.
HALPERN: So what debt actually looks like is basically just a Microsoft Excel spreadsheet that lists hundreds of names of people who borrowed money and didn't pay it back. And last week, we met up with Jimmy. He shows us one of these spreadsheets. He pulls out his iPhone. And the screen is all cracked up.
HALPERN: It looks like crap. (Laughter) I can barely read on it. But - I mean, it's just cracked all up. The screen is cracked up.
GOLDSTEIN: The spreadsheet he shows us has hundreds and hundreds of names on it. In this case, these names are people who took out payday loans and didn't pay them back. And for each name, there is this incredible amount of information.
NELMS: The address of the debtor, Social Security number, the balance that they borrow. Some of them even come with an email address, such as this one. That's the bank account number. You have the home phone number. Some of them have cell phone number. The majority have place of employment.
GOLDSTEIN: Just to be clear, Jimmy bought this spreadsheet. He says he paid $18,000 or so for it. And what that means is all these people on the spreadsheet - these hundreds of people - they used to owe money to a payday loan shop or to some big-debt collection firm. Now every one of those people - they owe Jimmy.
HALPERN: Spreadsheets like this are not easy to find. Jimmy couldn't just call up a bank and say, hey, it's Jimmy from Buffalo. Yeah. Can you sell me some debt? No, it doesn't work like that. And Jimmy said it's the same situation he was in when he used to sell drugs.
NELMS: It's just like the streets. I mean, you know, I can't walk into Mexico and go tell some drug cartel dude, listen, man.
NELMS: I'm from the hood in Buffalo, man. Give me all the keys you got. No, man. It's a proper chain of command. You don't come in here and talk to me. You know what I'm saying? Can you imagine that?
GOLDSTEIN: In other words, Jimmy needs a dealer. He needs someone who can start getting him those Microsoft Excel spreadsheets. He puts the word out. And he finds a guy named Larry - just Larry. He asked us not to use his last name in this story.
LARRY: Jimmy such and such over here has an agency. And he's looking for something. I call Jimmy up. And I came right to visit him. Like - just got a good, leveled understanding.
HALPERN: Larry has a lot in common with Jimmy. They both grew up in rough neighborhoods. Larry went to prison on robbery and drug charges. Then he got a job at a big debt-collection company. And then he went on his own. Larry's niche was linking up people who are looking to sell debt with those who are looking to buy it. He's the middleman.
GOLDSTEIN: And in the same way that, a few years back, the global debt market was booming, Larry says in Buffalo, things were booming, too. Lots of people like Jimmy were getting into the business.
: All of a sudden, there became an explosion of street-level agencies on just about every block. Guys were coming out of prison, literally. And in a couple of months, they're running a collection agency. They get the debt. They get people on the phone. They start dialing and start collecting.
GOLDSTEIN: And Larry says those street-level guys - those guys like Jimmy - were really good at getting people to pay.
: Collection agencies - their bread-and-butter collectors that become their top collectors are always the guys from the street.
GOLDSTEIN: Yeah. When you say from the streets, what do you mean?
: I mean, like, didn't go to college, didn't grow up in the suburbs, you know, pretty much came up the same way I did, on food stamps and ramen noodles.
GOLDSTEIN: What do you think it is about growing up that way that makes people good at the job?
: Hunger - just being hungry to want something.
GOLDSTEIN: Jimmy was hungry. At that office in the old karate studio, he hired a small staff to go through those spreadsheets and call people who owed money. When they got people on the phone, they transferred the call to Jimmy.
And whether Jimmy made a profit or went bankrupt came down to what Jimmy said next. Think about it. Jimmy is about to talk to someone who has refused to pay collectors again and again - people who are so unlikely to pay that Jimmy was able to buy their debt for pennies on the dollar. A hundred-dollar payday loan he might buy for a dollar or two because the odds are if he can find them at all, they're probably going to hang up on him.
HALPERN: But there's that beautiful moment when Jimmy actually gets the person on the other end of the line. And then everything comes down to what he says. There's an art to it. In fact, they call it the talk-off. And Jimmy has a few different talk-offs, depending on who he's got on the phone. Like, there's a nice-guy talk-off if the person seems willing to pay.
NELMS: Nine times out of 10, man, these people just want somebody to listen to them. You know, you're the first person to ever talk to me like I was a human being. I didn't pay the bill because the last guy I had a talk with - you know, he was an a-hole. I didn't pay the bill because I just didn't have it at that point in time.
HALPERN: When I first visited Jimmy a few years ago, I heard him do a version of the nice-guy talk-off. And one of the things that you'll notice here, besides the sort of gentle tone, is all the formal-sounding language. You can hear him trying to communicate that this is an official matter. He's not just some guy in an old karate studio calling you up about a debt.
(SOUNDBITE OF ARCHIVED RECORDING)
NELMS: The last thing we want to do is pressure you or put you in a position as to where you're making an arrangement, and you're not going to be able to, you know, hold it. If we were to table this until the 1, I wouldn't even want to keep it for an amount that you're sure you are going to have.
If we were to give you until you have your funds are available, we don't want you to rely on someone else. And, you know, in reference to selling this out, if you needed until the 1, how sure would you be that you would have those funds available?
GOLDSTEIN: Of course, that's the way it goes when people are willing to pay. When they're not, Jimmy gives a very different version of the talk-off. It's the tough-guy talk-off.
NELMS: You need to pay me before you go shopping, before you pay your rent, before you pay your phone bill, before you take care of this and before you take care of that. Give me some money.
HALPERN: Now, in the tough-guy talk-off, Jimmy would sometimes get into a legal gray area. Under federal law, guys like Jimmy can't straight up lie to people. They can't say, pay up or you're going to get thrown in jail. Or I'm going to take away your car. But what Jimmy would do is use the same kind of formal, official language to imply that legal action was going to happen. He used trigger words such as refusal. And this is first substantive contact. Here's an example of what I'm talking about.
(SOUNDBITE OF ARCHIVED RECORDING)
NELMS: This is a refusal. You don't want to pay your bill. This is going to be considered first substantive contact. We're going to contact your sister and forward this as a refusal. We gave you an opportunity to pay it. And you didn't want to take advantage of it.
HALPERN: So this call actually ends with Jimmy hanging up on this woman. And then he turns to me and says, she's going to call right back. And then boom, like that, the woman calls back. And he's right back at it. In the end, he doesn't end up collecting. But that was his power move.
GOLDSTEIN: And remember, these are payday loans Jimmy's trying to collect on, meaning the people who borrowed the money were probably people who didn't have much money in the first place, people who didn't have access to better kinds of credit. One of the ugly things about this world is is it's people like Jimmy who don't have much money trying to collect from other people who don't have much money. And Jimmy says he understood this. And that made it tough.
NELMS: I mean, look at where we're sitting at right now. We're in the hood, man. No, that don't feel good. I know - I know I'm putting people out that take payday loans out. I see their living condition. Look at mine. I've been in positions, I mean, just recently, where, you know, need a couple extra dollars - and this that and the third. Man, it feels horrible.
NELMS: Now it feels like a hustle. Now it don't feel like, you know, legitimate work because you're coercing people, again, creating a sense urgency for them to pay something that they don't got. But you owe this money, and I got kids to feed because I bought this portfolio. I own this debt.
GOLDSTEIN: Still, after a few years, Jimmy's shop does well enough that he's able to move to a bigger office in a more upscale neighborhood.
NELMS: I have a real nice office, fake trees and all that crazy stuff.
GOLDSTEIN: How many people were working for you?
NELMS: At one time, at the most I had 17 people working in there.
GOLDSTEIN: At around the same time, as all those street level agencies were springing up and looking for debt to buy, business was booming for Jimmy's dealer, Larry.
: I was on top of the world. I - yeah, I was doing great. I had two homes paid for. We was playboys. We was those dudes. We had more money than the drug dealers. They looked up to us.
GOLDSTEIN: If you had a spreadsheet and a good talk-off, you were in good shape. At least that's the way it was for a while but just like people on Wall Street started going wild with debt going too far. People in Buffalo started crossing out of that gray area and doing things that were just blatantly illegal.
HALPERN: So the illegal version of the talk-off has its own name. Jimmy calls it the Buffalo talk-off. I hear another guy call it the shake. And basically, it's we're coming to your house. We're going to arrest you. Your kids are going to social services. We're taking your car - all lies. The most awful things you could think of to just scare people silly into paying.
GOLDSTEIN: The guys doing that stuff - the guys doing the Buffalo talk-off, they are some of the people buying debt from Larry. And debt is supposed to come with paperwork. Sometimes the paperwork is virtual. Sometimes it's actually boxes full of paper to prove that the people in the spreadsheets really owe the money, to prove that there's a clear chain of ownership from the original bank or payday loan shop all the way through different debt collectors. But Larry says these street-level guys doing the shake, doing the Buffalo talk-off, they weren't paying attention to any of that.
: My street-level guys, they don't care nothing about the paperwork. A lot of them don't even know about it. Just get me the portfolio. I've got wolves at my agency. We're going to get the money. All they want is that file.
GOLDSTEIN: This kind of disregard for the law is happening all the way up to the top of the debt food chain. People start selling the same spreadsheet to two or three different debt collectors at the same time. That means if you're one of the people who owed money, you might get a call from one debt collector, pay off your debt to them, and then hear from another collector saying, hey, you owe this money.
HALPERN: And it's important to understand here that this just isn't happening at the street level in Buffalo. You've got guys way up the food chain who are wealthy finance people who are getting their hands on files that they don't own and are selling them. It's straight up theft.
GOLDSTEIN: Larry wound up brokering a few deals where his customers got some of this stolen debt. This of course, got him into trouble with his customers and the whole thing he says is his own fault.
: We let greed step in, like, we stopped doing our due diligence because the money was right there to be gotten and we wanted it.
GOLDSTEIN: For Jimmy, It all came to an end this spring, just a few months ago, really. Normally when he convinced someone to pay their debt, the money would appear in his bank account shortly after that. But one day, that money didn't show up.
NELMS: I was looking for some money to be deposited on Friday and it never came. And Monday it never came.
HALPERN: There's a company that process payments for Jimmy. And that company, it turns out, just cut him off cold, decided not to work with him anymore. Now Jimmy says that this happened to a lot of small agencies in Buffalo. He says they got cut off and then they couldn't process their payments and then went bust. But, you know, it's hard to tell what really happened. Maybe it was just Jimmy went too far too many times in that gray area, too many people complained about the charges on the account and so the processor just said enough. In any case, without that payment processing company, there's no way for Jimmy to get paid. I mean, that just pulls the plug on his operation. He can't pay his workers, he can't pay his rent.
I mean, so what'd do you do with your office?
NELMS: I didn't do anything with it. I lost it. I lost it.
HALPERN: After we talked to Jimmy, I put out some calls. And it turns out the federal government is cracking down on some of these payment processors and holding them accountable for what payday lenders do. So, you know, maybe Jimmy was right. It's possible that he did get shut down as part of some broader sweep.
GOLDSTEIN: And Larry, Jimmy's dealer? He got out of the business before this crackdown. He bought a little house in a working class suburb outside of Buffalo. We actually talked to him there in his garage. He had a weight bench, a little mini fridge with bottled water in it.
: I just want to just be a regular, normal guy, waking up every day, listening to the birds, cutting my grass, give my thumbs up to the neighbor. That's what I do all the time.
GOLDSTEIN: Jimmy is now trying to get into real estate. That boarded up house where we met him, the one where the thieves stole the hot water heater? Jimmy actually bought that house for $2,000. He wants to fix it up and rent it out. He said he's glad to be out of the debt business.
NELMS: I'm tired of running. I need something a little - a lot more solid.
GOLDSTEIN: Like houses? Solid as houses I think is the expression.
NELMS: Yeah. I mean, as solid as this raggedy one is. But you got to start somewhere.
GOLDSTEIN: Like a lot of the world, Jimmy came out of the boom and bust about where he started - without much left.
(SOUNDBITE OF SONG, "SHAKE ME DOWN")
CAGE THE ELEPHANT: (Singing) In my past, bittersweet. There's no love between the sheets.
GOLDSTEIN: Today's show was produced by Jess Jiang. Jake Halpern's book has more about Larry and Jimmy. The book's called "Bad Paper." He's also written about the buffalo debt world in the Times Magazine and in the New Yorker. We'll have links to all of that on our blog at npr.org/money. Also if you're looking for more to listen to, check out Pop Culture Happy Hour. You can find it on iTunes under podcast. I'm Jacob Goldstein. Thanks for listening.
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