By Chris Parker
By Jesse Marx
By John Baichtal
By Olivia LaVecchia
By Jesse Marx
By Olivia LaVecchia
By Tatiana Craine
By Judy Keen
The following decades were a golden age for debt collection. With little in the way of laws to rein debt collectors in, many went to extreme measures to wring money out of recalcitrant debtors. Some collectors sent phony court documents demanding payment. Others banged on doors dressed as cops and offered a choice: your money or your freedom.
In the 1960s, Ralph Nader ignited the consumer rights movement. By 1968, the reformers had targeted lending laws: Congress passed the Consumer Credit Protection Act, mandating that banks disclose all fees associated with loans. Better known today as the Truth in Lending Act, it was the first national consumer protection law on the books.
It was only a matter of time before debt collectors came under scrutiny. The path was cleared by David Caplovitz, a sociology professor at Columbia University who in 1967 embarked on a four-year study of the credit industry's inner workings. His findings, codified in the landmark 1974 book Consumers in Trouble, turned conventional wisdom on its ear. It turned out that less than 5 percent of debtors were what the industry called "deadbeats"—those who were able but unwilling to pay. The vast majority were people who were simply in over their heads.
Three years after the book's publication, the injustice it spotlighted became impossible to ignore. Under pressure from consumer rights groups, Congress appointed a commission to investigate Caplovitz's findings. Relying on interviews with financial industry executives, the commission arrived at virtually the same conclusion. Key Democrats in the House responded swiftly, convening hearings in March 1977 to get to the bottom of how the shadowy debt collection industry was operating.
Perched on the dais, members of the House Banking Committee opened the floor to former debt collectors who had been summoned to confess their sins. One was so afraid of being kneecapped by his former colleagues that he would only agree to speak if allowed to wear a hood to disguise his identity. Others told of posing as Red Cross representatives and I.R.S. investigators—whatever it took to track the debtor down and scare him into paying.
Dumbstruck lawmakers were told of a California woman encouraged by debt collectors to put her son up for adoption to save funds, or, as a last resort, to commit suicide. Then there was the unforgettable tale of Ann Caputo, a New Jersey woman who learned her husband had terminal cancer just six months after their wedding. That same day, she started to get calls from a debt collector demanding she pay an old $200 bill of her husband's. Not even the hospital room was a safe haven.
"Make no mistake about it," one debt collector summed up. "This is an industry like no other you can imagine. While some businesses sell furniture and others are engaged in grocery store operations, debt collectors are greedy people who live off the misery of others."
Out of those hearings came the Fair Debt Collection Practices Act, which is widely considered one of the most consumer-friendly laws in the nation. It bars collectors from calling before 8 a.m. or after 9 p.m. and forbids a variety of humiliating tactics. Strict rules were laid down: Debt collectors can't identify themselves as such when calling the debtor's friends, family, or co-workers, and are allowed to ask for only three pieces of information: the debtor's home address, home phone number, and place of work.
While Congress ordered the Federal Trade Commission to keep tabs on the industry, the bulk of enforcement was left to private attorneys. On run-of-the-mill claims, plaintiffs are awarded $1,000, while lawyers typically pocket a few grand in fees. It might not sound like much, but consider that someone being harassed for $100 can turn around and demand 10 times that in recompense. The math adds up to a strong incentive for debt collectors to stay within the bounds of the law.
This was the world that Pete Barry entered into at the turn of the millennium. His great innovation was systematically going after "actual damages": pain and suffering inflicted by debt collectors who stepped over the line.
Take, for example, the case that found him asking why the debt collector had called his client a lowlife piece of shit. It all began with a telemarketer offering a socket set. Happy to have more tools around the house, the man took the bait. But when the tools arrived in the mail, he received a rude surprise: As wide around as saucers, the sockets were more likely to fit a tractor's wheel than his car's. Having no use for industrial-sized tools, he sent them back, but the company denied receiving them. A debt collector got involved and went about his work with a torturer's zeal. According to depositions in the case, he called the man's 13-year-old daughter "a fucking liar" and told her that she'd "amount to nothing and grow up to not pay her bills like her dad." In the aftermath of the calls, her schoolwork suffered.
After Barry got involved, the debt collector's poison tongue cost his boss dearly. Within a matter of months, the company agreed to pony up $275,000. Not a bad return for a lawsuit over a $199 socket set.