MELISSA BLOCK, HOST:
If you take out a loan and you don't pay it back, eventually you'll get a call from a debt collector.
(SOUNDBITE OF ARCHIVED RECORDING)
JAMES NELMS: You don't want to pay your bill, we're going to contact your sister and forward this as a refusal.
BLOCK: This is James Nelms. When he made that call he wasn't working in a cubicle in some bank or big collection agency. He was working for himself. It turns out, lots of debt collectors work this way, running small storefront shops, often struggling to stay in business.
Jacob Goldstein from our Planet Money team brings us this story about life at the bottom of the debt business.
JACOB GOLDSTEIN, BYLINE: In person, James Nelms is this big charming guy. Everybody calls him Jimmy. I met him a few weeks ago on the East Side of Buffalo, New York.
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 could protect me.
NELMS: (Laughter) You're really safe. You're all right.
GOLDSTEIN: By the time Jimmy opened his debt collection shop a few years back, he'd already been through a lot. He'd gotten involved in drugs, gone to jail on a gun charge and worked as a debt collector.
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.
GOLDSTEIN: At the time, the world was going wild for debt - credit cards, payday loans, even book clubs. When people didn't pay that debt back, there was an opportunity for debt collectors. A lot of people in Buffalo were getting in on it. Eventually so did Jimmy. He opened his own office. Jake Halpern is a journalist who just wrote a book called "Bad Paper: Chasing Debt From Wall Street To The Underworld." He visited Jimmy at that office.
JAKE HALPERN: And it's an old karate academy. You know, there's mirrors all the way up. There's like, stranded equipment in like, the back behind the cubicles. It looks like kids might have taken classes there last week.
GOLDSTEIN: So Jimmy has his office, but he needs one more thing. A debt collector needs debt to collect on. And what debt looks like is pretty simple.
When I visited Jimmy recently he took out his iPhone phone to show me. The screen was shattered.
NELMS: I can barely read on it, but I mean, it's just cracked all up the screen.
GOLDSTEIN: He pulls up a Microsoft Excel spreadsheet listing hundreds of people who didn't pay their bills.
NELMS: You have the first name and last name. You have the home phone number, some of them have cell phone number.
GOLDSTEIN: Jimmy says he paid about $18,000 to buy this spreadsheet, which meant everyone listed on it now owed money to Jimmy - not to whoever they'd borrowed money from in the first place. To buy a spreadsheet like this Jimmy can't just call up some bank and say hey, it's Jimmy from Buffalo, sell me some debt.
He says it's just like the drug business.
NELMS: It's just like the streets. I can't walk into Mexico and go tell some drug cartel dude, listen man, I'm from the hood in Buffalo man, give me all the keys you've got. No man, it's a proper chain of command.
GOLDSTEIN: In other words, Jimmy needs a dealer, someone who can start getting him those spreadsheets. He puts the word out and he finds another Buffalo guy named Larry - just Larry. He asked us not to use his last name because he was worried about getting into legal trouble. Larry's niche was linking up people who were looking to sell debt with people who were looking to buy. He's a middleman. Larry says around this time, lots of people in Buffalo needed his services.
LARRY: 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: Larry says those street-level guys - those guys like Jimmy - they were really good at getting people to pay.
LARRY: They're bread and butter collectors that become the top collectors - are always the guys from the street. 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?
LARRY: Hunger. Just being hungry to want something.
GOLDSTEIN: Jimmy was hungry. And he was very good at collecting. Sometimes that meant being a nice guy on the phone.
NELMS: Nine times out of 10, man, these people just want somebody to listen to them.
GOLDSTEIN: Other times though, Jimmy would take a harder approach. Jake Halpern, the journalist, says Jimmy would not exactly threaten legal action against people but he would use this formal language, terms like first substantive contact and this is a refusal, to suggest that legal action might be coming. Jake recorded Jimmy making some calls a few years back. Here's a sample.
(SOUNDBITE OF ARCHIVED RECORDING)
NELMS: This is a refusal. This is going to be considered first substantive contact. You don't want to pay your bill. We gave you an opportunity to pay it.
GOLDSTEIN: Even if Jimmy was making these calls, he says he knew what it was like for the people on the other end of the phone.
NELMS: I mean, look at where we're sitting at right now. We're in the hood, man. I know that don't feel good - I know. I'm putting people out - I see their living condition, look at mine. I've been in positions - I mean, just recently - where you know, you need a couple of extra dollars. It feels horrible. But you owe this money. And I got kids to feed.
GOLDSTEIN: After a few years Jimmy did well enough to move to a bigger office in a more upscale neighborhood. At one point, he had 17 people working for him. By the end of the credit boom so many Americans owed so much money. This meant lots of business for Larry, Jimmy's dealer.
LARRY: I was on top of the world. I was doing great. I had two homes paid for. We was those dudes. We had more money than the drug dealers. They looked up to us.
GOLDSTEIN: It was a good time to be working at the bottom of the debt business, but it didn't last. Just like some people on Wall Street went wild with debt and started going too far, some debt collectors in Buffalo started doing things that were blatantly illegal. Threatening people, saying they'd go to jail if they didn't pay.
Jake Halpern says things were also getting out of control at the highest echelons of the debt business.
HALPERN: Larry himself got debt from a broker way up the food chain who was making lots of money, who was basically selling debt that he did not own, that someone showed him to see if he wanted to buy and he just sold as if he owned it.
GOLDSTEIN: Straight-up theft. Larry brokered a few deals where his customers wound up with the stolen debt, which got him into trouble with those customers.
GOLDSTEIN: And Larry says it's his own fault.
LARRY: 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: Larry got out of the business a few years back, bought a small house in a working-class suburb outside of Buffalo. For Jimmy, it all came to an end this spring. The company that processed payments for his agency cut him off. Jimmy says this happened to lots of small collection agencies in Buffalo. And the federal government has been putting pressure on some payment processors. But it's hard to know for sure, maybe it's just that too many people complained about charges from Jimmy's shop. In any case, Jimmy could no longer get the money he needed to keep his business running.
GOLDSTEIN: I mean so what'd you do with your office?
NELMS: I didn't do anything with it. I lost it. I lost it.
GOLDSTEIN: Jimmy's out of the debt business now. Like a lot of the world, he came out of the boom and bust about where he started - without much left.
Jacob Goldstein, NPR News.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.