Every day, many thousands of people have to deal with the prompts, solicitations and threats of creditors and debt collectors. And yet, despite being such a crucial part of our credit-driven economies, this is a business that remains poorly understood, with its inner workings largely hidden from public view. In my recently published book Lived Economies of Default I try to change this.
Misconceptions about debt collection abound. It is still, for instance, a widely held assumption that debt collection first and foremost involves the knock on the door - the heavy set bailiff coming to reclaim what possessions he can towards the repayment of the debt. Yet by and large contemporary debt collection is at once much more mundane and much more clever than that. Irrespective of the impression given by programmes like The Sherrifs Are Coming, this is an industry that is now overwhelmingly concerned with technologies of mass contact: the phone, the letter and, increasingly, text messages, emails, and automated voice messages. Successful contemporary debt collection means combining these various approaches in as profitable a way as possible, while dealing with potentially thousands of accounts simultaneously.
Nowadays, this work also routinely involves sophisticated data-driven forms of analysis, designed to identify which types of debtors to contact and how exactly to do so. This is further helped by the conduct of what can only be described as experiments - experiments in which groups of defaulting debtors are tested for their propensity to respond more in one way rather than another. Many will remember the controversies that surrounded researchers' experiments with the emotions of an unwitting section of Facebook's userbase. What relatively few people understand is not only that very similar experiments are increasingly common across a wide range of domains – debt collection as much as online dating for instance – with consent rarely explicitly asked for or given, but also that this has been going on for a long time. As far back as the 1960s, debt collectors in the US designed experiments deliberately designed to test the emotional responses of debtors by experimenting with different letter designs and sequences, with sample sizes in the hundreds of thousands. In this sense, debt collectors truly are one of the ancestors of the Facebook experiment.
By looking at these unknown histories and practices, part of what the book does is simply put on more public display some of the inner workings of this hidden industry. However as it does so, it opens up much that is troubling about consumer credit and the grasp that it has on so many of our lives. On the one hand, there is nothing special about debt collection: almost all debts work with the assumption that one form of collection or another will eventually happen. No credit, no debt. No lender, no collector. What, after all, is a routine credit card statement but (at least in part) a soft collections device? But, on the other hand, in looking at the work of the industry that has explicitly made it its business to collect debt that is past due - debt, in other words, that requires collection to become a little, or a lot, harder - the more obvious it becomes that credit is not, and cannot be, about playing fair.
The point is not simply that debt collection companies are breaking the regulations by which they are bound, although this can and inevitably does happen. It is also not (quite) that some of the problems that surround the debt collection industry would be solved by tougher regulation. For, although it is possible to imagine all kinds of ways that changing the rules could transform the conduct of collectors and potentially improve the outcomes of default for debtors, pointing the finger just at regulation also misses the mark. The problem with debt collection is not just a problem of debt collection.
One of the things I show, including by looking at debtors’ everyday experiences, is that debt collection is utterly dependent on the opacity of its prompts. Or, to put it the other way round, debt collection would be utterly destroyed by transparency. A particularly egregious example of opacity in collections work was highlighted in the recent furore over how Wonga used letters that appeared to be issued from what were, in effect, fake law firms. Wonga’s aim was clear: to try to convince debtors that they had left its own internal collections department and were potentially much closer to legal action.
The shock at its apparently brazen duplicity was however tempered slightly by Wonga’s reputation: this was, after all, a company that had already been widely criticised for a certain ruthlessness in its dealings with customers. What seemed more surprising was that high street banks were routinely using exactly the same tactics. As it turns out, they have been at this for years – I have letter evidence that for some banks points back at least as far as 2007. Exactly how much further the practice stretches back is unclear, but quite similar tactics were already being used by the wider collections industry in the 1960s. As hard as it is to feel sorry for Wonga, in this instance it is clear that it became something of a scapegoat. It is not that banks used 'Wonga-style letters' but that Wonga, a company operating in the murkier end of the credit market, made the mistake of using tactics that were in fact utterly routine in large parts of the mainstream banking and credit industries.
The practice could involve not just fake legal companies, but also nested chains of apparently fake collections companies. HSBC, for example, set up not just a fake legal firm, but issued letters to collectors from as many as three distinct collection companies that it effectively fabricated. Sometimes this involved setting up separate non-trading subsidiary companies whose purpose was nothing other than to provide some distance to the parent company. One of the appeals of this method was that letters did not have to make the relationship to the parent company clear. The other method was to use 'trading styles' – here the relationship to the parent did have to be stated, but often only in easy to miss small print. In some cases, even here a debtor would have had very little chance of identifying the actual parent company, given that it was also possible to create trading styles of subsidiary companies. So, in HSBC’s case, it issued collections letters from two trading style companies – Central Recovery Unit and Payment Services Bureau – but these were not trading styles of HSBC but of Metropolitan Collections Services, a separate company that HSBC set up as a subsidiary. The relationship between HSBC and Metropolitan could only be established for certain by checking Companies House records. Here it is also worth noting that, contrary to evidence provided by HSBC to the Treasury Committee, letters did not always indicate that Metropolitan was a member of the HSBC group.
After coming to the attention of the Financial Conduct Authority, this practice has, as far as it is possible to tell, now been halted. However, what hasn't gone away are the principles of opacity that informed it. Ever since the abolition of debtors' prisons, debt collection has been engaged in an ever-changing game of smoke and mirrors. It has had to overcome the highly inconvenient truth that creditors and collectors are often in a far weaker position than it might appear because of the relative paucity of sanctions available to them. In many cases, legal action is either ineffective or simply not worth the time and expense. And threatening a debtor's credit rating by the time she or he has already defaulted is to a degree symbolic given the damage that will have already been done.
Yet the collector does have one powerful weapon at its disposal: the difference between the actions debtors imagine the collector will pursue next, and what it knows it will or will not. These actions can vary hugely between companies, or even between different groups of debtors at the same company. Say, for instance, a bank is experimenting with the effectiveness of passing out a debt to a third party collections company. Two debtors in effectively identical positions might both be sent the same letter, containing the same threat, but in one case a collector will follow through with it and in the other it will not. How, then, is the debtor to take threats like this, or the implication of imminent legal proceedings, or indeed the unexpectedly friendly solicitation? Opacity is the wall that prevents debtors from ever quite knowing for sure. And our contemporary debt-led economies are hugely dependent on keeping it secure. Strip away the ability for collectors to be unclear about their intentions in their communications with debtors and many forms of credit would collapse. Any problems with debt collection are therefore not entirely of its own making, but are a much wider problem of credit itself.