We are a nation in debt and the bill has come due. The average American consumer has four credit cards, owes nearly $10,000 in non-mortgage debt, and can no longer rely on his home equity as a safety net. With spiking fuel prices, stagnant wages, and bankruptcy costlier than ever, more people are falling behind on their bills—and getting dragged into ruin.
All of which makes now a good time to be a debt collector. Awash in fresh accounts, the business is also expanding into new areas: In the last decade, years-old consumer debt has become a commodity to be bought and sold on the free market. "Buy it now! Buy it all!" screams the six-page ad in a recent issue of Collections & Credit Risk, an industry trade publication that offers a smorgasbord of unpaid tabs for sale: credit cards, car loans, hospital expenses, mortgages, even gas bills.
When a debtor won't pay, collectors use a variety of techniques—some legal, some not—to extract the money. They might threaten to ruin your credit score, garnish your wages, and, in extreme cases, even cuss out your child. Last year, the Federal Trade Commission reported receiving 71,000 complaints about debt collectors behaving badly—more than any other industry monitored, and the highest total in the 30 years that the authority has been keeping track.
If debt collectors thrive on intimidation, there's one man who strikes fear into them: Pete Barry. In the decade he's been suing dirty debt collectors, Barry has pried loose millions of dollars in damages. So successful are his techniques that he's begun teaching seminars nationally to train up an army of lawyers equipped with the weapons to sue rogue debt collectors and win.
"He's an incredible litigator," says Robert Hobbs, deputy director of the National Consumer Law Center. "He gets cases where people have been beat up very badly and he gets good money for them."
In person, Barry is no less impressive. With his linemen's physique and trim goatee, Barry could pass for a street fighter were he not decked out in a $3,000 suit. Sitting in his office, a spacious chamber in Minneapolis, Barry can't help but break into a grin as he discusses all the ways he bedevils the debt collection industry.
"The best is serving a grotesquely abusive debt collector," he says. "Nothing makes me enjoy my job more."
• • • • •
"WHY DID YOU CALL my client a lowlife piece of shit?" Barry asked.
He was in California, deposing a debt collector who wore a Sean John T-shirt and a look of disdain.
"In my opinion, why was he a lowlife piece of shit?" the debt collector asked.
"No," Barry said, in no mood to argue semantics. "Why did you call him that?"
"Let me explain why I expressed that opinion," the collector said, launching into a long-winded soliloquy about how he approaches customer service.
Barry cut him off mid-sentence. "Why did you call my client a lowlife piece of shit?"
"In 10 seconds you're going to have your answer, Mr. Barry," the collector said.
Once more, Barry cut him short. "I'm asking you and I'm going to ask you again: Why did you call my client a lowlife piece of shit?"
"Because in my opinion, a person who doesn't pay his bills, a person who lies, and a person who—in my opinion—steals, is a person, in my opinion, who's a lowlife piece of shit."
One of the first times Barry got treated like a lowlife piece of shit was when he was nine years old. After Barry was caught fighting on the playground, his elementary school principal dressed him down. "You're worthless," the principal said. "You'll never amount to anything."
"Tears were streaming down my cheeks," Barry recalls 30 years later. "I'd rather that he'd paddled me."
At the time, there was little indication Barry would amount to anything special. Growing up the sixth of eight kids, the child of an accountant and a social worker in Brooklyn Center, he was nobody's favorite to succeed. At odds with his father—Barry declines to get into specifics—Barry moved out on his own at age 16. His new home, a tiny studio apartment in Anoka, offered little except a couch, a table, and freedom.
Entering his 20s without a college degree, Barry had limited options, so he hitched his wagon to the most promising horse he could find. In the early 1980s that was Target, then a bit player on the national retail scene, but well positioned for a major expansion. Barry took a job nabbing shoplifters. It required a keen eye for detail and an ESP-like ability to read body language, but Barry was a natural talent. Within 18 months, he was a rising star and took a promotion that brought him to the hot, dry air of Tucson.
It was on a day like any other when Barry came face-to-face with how dangerous the job could be. One of his co-workers had caught a man filching a pack of Duracels. In the cramped back office, Barry sized the guy up: He was scruffy, but seemed harmless enough. It would take a while for the cops to arrive, so Barry took off the man's handcuffs to make him more comfortable. His reward for his kindness was the business end of a Dillinger. "What do you think about that?" the thief asked, then skulked out the door, scot-free.
In addition to its dangers, loss prevention had its limits. Barry wasn't pulling in much more than $20,000 a year, and didn't enjoy being told what to do by his bosses. So in 1990, he pulled up stakes and enrolled at the University of Minnesota. After graduating with a degree in Political Science two years later, he went straight to law school at William Mitchell, a major feeder of the local legal community.
"I wanted to change the world," he says.
But the change would have to come from the bottom up. As a student, Barry poured himself into pro bono work, representing prostitutes and drug dealers. "It was the least of God's children," Barry says, channeling the priest who leads him in mass every Sunday.
Since he wasn't making money off his clients, Barry paid for school by working on computers. That's how he met Robert Hoglund, a prominent bankruptcy lawyer in Roseville. Hoglund liked Barry's hustle and took him under his wing.
"He was a real go-getter," Hoglund recalls. "He always did the job right."
Consequently, Barry was that rare solo practitioner who never had to go begging for work. On the same autumn day in 1996 that he got his legal license, he had eight clients waiting to meet with him.
"It never occurred to me that people wouldn't want me to be their lawyer," Barry says, his eyes glimmering with confidence. "I'd want me to be my lawyer."
• • • • •
WITHIN A FEW MONTHS of striking on his own, Barry came across the case that would chart the course of his career. His client was a pretty redhead in her 20s who'd made the mistake of bouncing a $10 check at a gas station. Soon after, she got a call from a debt collector demanding $300—30 times the original amount. When she protested, he offered to meet her after hours in a bowling-alley parking lot to negotiate.
Barry didn't know much about debt law, but he told her he'd take the case. "She was scared out of her wits," he recalls.
Dusting off his schoolbooks, Barry read up on the federal Fair Debt Collection Practices Act. Enacted in 1978, the FDCPA established strict rules for the debt collection game. In Barry's reading, nowhere did it say a collector could charge 30 times the amount of a bounced check. So Barry called up the collector and asked for an explanation.
After a stunned silence, the collector told him to consider the matter dropped. If Barry was ever in St. Paul, he added, they could grab lunch. Barry seemed like a guy worth knowing.
"Immediately, I realized how powerful that law was," Barry recalls.
In the years to come, Barry would take other consumer rights cases, but nothing raised his adrenaline—or his bank account—quite like suing debt collectors.
After a few years, though, Barry realized he was fighting a losing battle. No man could beat the industry alone. To truly leave a mark, he'd have to organize a posse.
In 2001, he flew out to San Diego to get started. Meeting him there was an old friend, Bob Hyde. Impressed by Barry's war stories, Hyde wanted to get in on the action. For three days, the two men, joined by Hyde's law school buddy Josh Swigart, lounged in the dining room of a Hyatt, plotting strategy over salads and steaks.
A few weeks later, Barry got a call from a lawyer in Colorado who'd heard about the project. Could Barry show him how it worked? Recruits poured in from Knoxville, Flint, and Honolulu.
Within a couple of years, a few dozen lawyers had taken Barry's free lessons. Many were emboldened to wade into the great sea of Fair Debt law. A few, like Hyde and Swigart, rode a speedboat out into the middle and dove right in. They have the cases to show for it: A naive nursing student told by a debt collector that her delinquent student loans would get her blacklisted from hospitals; a woman who feared her disabled son would die because she wouldn't be able to feed him through his tube if the collector made good on his threat to arrest her.
"Without Pete, I wouldn't be doing what I'm doing," says Swigart, who still runs a hard-charging practice with Hyde. "He's the number-one motivating factor."
By 2005, Barry was so well known that the National Association of Consumer Advocates awarded him its highest honor: Consumer Lawyer of the Year. The reception was in the ballroom at the Hyatt Regency on Nicollet Mall. With chandeliers overhead and a few hundred lawyers in the audience, Barry arrived in a sleek blue suit and gold tie just five minutes before his speech. Speaking from bullet points, Barry struck a humble tone, reminding his colleagues to do right by their clients.
Sadly, the elementary school principal who'd humiliated him wasn't there to see it.
• • • • •
THE DEBT COLLECTION industry came to Minnesota in 1949. Prior to that, the industry's heart resided in the desk drawer of Jack Price, a bill collector from Warren, Ohio, and the executive secretary of the American Collectors Association. When Price died suddenly, all eyes fell on Glenn Sanberg. The owner of a Minneapolis collection company, he was celebrated amongst his peers for a rousing speech he'd given calling on debt collectors to band together to fight for their good name. After being appointed head of the ACA, Sanberg drove 700 miles to Warren, picked up the ACA's files, and brought them home.
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.
• • • • •
THE LEADING COLLECTION industry trade group resides in a beige and brick, two-story building on a pleasant stretch of France Avenue in Edina. ACA International's home captures perfectly the design aesthetic known informally as 1960s office park. The glass double doors remain locked mid-morning on a weekday, and a receptionist only buzzes a visitor in after he explains that he has an appointment. Within seconds, an amiable, well-dressed man in his mid-30s arrives with his hand outstretched. He introduces himself as John Nemo, and though he doesn't say so, he's charged with the difficult task of convincing the media that the debt collection industry is more misunderstood than monstrous.
It quickly becomes clear that a key arrow in his quiver is humor. "Did you show him our AK-47?" he quips to the receptionist, who has clearly heard this one before.
Nemo leads the way to the office of Rozanne Andersen, ACA International's executive vice president. A middle-aged woman with shoulder-length chestnut hair and a background in international banking, she speaks with the conviction of a lawyer representing a wrongly accused defendant.
"I come to work every day thinking that I can contribute to making this industry more appreciated and professional," she says. "I really actually believe that. If I thought this was a broken industry I wouldn't be here today."
To hear her tell it, the debt collection industry plays the role of an older sibling who gently reminds people of their responsibilities. She points to a recent industry-commissioned survey that found debt collectors took in more than $50 billion in 2005, nearly 80 percent of which was returned to creditors—banks, electronic superstores, and cell phone companies. This money, Andersen points out, keeps prices down for everyday American consumers.
In Andersen's view, excessive regulation has left the industry with one hand tied behind its back. Although Andersen's group initially opposed the federal Fair Debt act in the 1970s, it eventually came around to supporting the bill as a way to keep dirty collectors from gaining an unfair advantage. But Andersen and her allies think it's time to revisit the rules. With so many technicalities, a confusing patchwork of state codes, and overlapping privacy laws, debt collectors are caught in an alphabet soup of regulations.
Only recently have legislators become sympathetic to the plight of the debt collector. In 2006, ACA International ramped up its lobbying efforts. With the balance of power up for grabs in both houses of Congress, the group, which had long favored Republicans, figured it wise to spread the wealth around. ACA International found a sweet spot in Massachusetts's Barney Frank, the ranking Democrat on the House Financial Services Committee, who stood to inherit the chairmanship. That year, ACA International gave Frank the maximum allowable donation of $5,000, more than double what it had given him over the previous three years combined.
It proved to be a good investment. In 2006, Frank helped push through the first industry-friendly amendments in the history of the Fair Debt law. Though the changes were minor and for the most part too technical for the average consumer to understand, they had a symbolic value: What had long been sacrosanct was now a matter of negotiation. (Frank declined to be interviewed for this article through his spokesman, Steven Adamske.)
Just a few days after the amendments passed, a dozen leaders of the collection industry got together at the modern-day equivalent of a smoke-filled back room: an airport hotel conference room with free sandwiches. Perhaps fearing that the meeting might look like an attempt by competitors to conspire, they hired a court reporter to transcribe the meeting and later posted it on Collections & Credit Risk's website.
"Well, everyone is here, so we should begin," announced John Frank, then the publication's editor, smiling warmly at the 11 men around the table. "I want to thank you all for coming to our first of hopefully many industry roundtables to talk about key industry issues."
The man of the hour was Gary Rippentrop, the silver-haired, bespectacled patriarch of ACA International. It wasn't every day that debt collectors got to bask in the glow of the first positive change to a resented law in nearly 30 years, and there was no shortage of pats on the back for the accomplishment.
"Thank you very much, Gary, for what you guys have done," said Jessie Riddle, a Utah-based collection boss.
"At the end of the day, we're delighted that we were able to help guide it through," responded Rippentrop. "It's an industry win."
The meeting had an element of expectancy. Now that the door had been opened to revising the Fair Debt law—the "sacred instrument" in Riddle's memorable formulation—they would have to decide what to do next. The question hung in the air, unresolved by meeting's end. But a recent visit to Rozanne Andersen's office reveals ACA International's bold answer.
Andersen almost can't help talking about it. "You are interviewing us at a very exciting time in our industry," she says, her voice perking up. Just two weeks earlier, she was entrusted with an important project: researching a sweeping new model of self-regulation. It's still in the planning stages, but she offers the broad outlines: Instead of a debtor with a gripe running to federal court, the plan calls for a new entity under the umbrella of the Federal Trade Commission to step in to play policeman.
"The whole idea is that the industry would be taking care of its own," she says enthusiastically. One area where reform could be useful, Andersen muses, is the realm of high-dollar actual damages cases. "Maybe you eliminate the concept of actual damages," she says. "Those cases are few and far between."
Making it happen will require a leader in Congress willing to carry the industry's banner. While she is careful to avoid saying he's on board, Andersen does have a champion in mind: Rep. Frank, chairman of the House Financial Services Committee.
"If there's anyone on Capitol Hill who can help us find a meaningful solution, he is the one." Andersen gushes. "He's an awesome thinker."
• • • • •
IT'S BEEN A LONG DAY for Barry. Slumped on his couch, he looks like an arm-weary boxer in the late rounds. When told of the collection industry's plans, he is unsettlingly still, like the hot, sticky quiet that precedes a spectacular weather event.
Then he explodes: "That is the most preposterous thing I've ever heard!" he says, almost at a loss for words. "The notion that a sector of this economy that creates more consumer complaints than any other business sector in the country thinks that it can self-regulate and thinks that it should shut the courthouse doors for all consumers? To privatize the court system? It's the most preposterous, far-fetched, stupid idea I've ever heard in my life!"
Still hunched on his couch, Barry is speaking—shouting, really—as if he were standing before an angry mob itching for bloody revenge.
"The collection industry is now seeking to rewrite the constitution? To strip us of our right to have a case or controversy? That's the stupidest thing I've ever heard! But it's totally consistent with the lawlessness with which this industry rules itself. They think they're above the law. They think they've got the solution for you and me: They're going to set up a private court system that will allow them to remove from the public eye their misconduct."
But if the brain trust at ACA International thinks Barry is going to sit quietly by as they plot to roll back three decades of legal protections for debtors, they've got another think coming.
"Good luck," he says with disgust, taking a hearty swig of Diet Coke to wash the taste out of his mouth. "Over my dead body. I'll move to Washington, D.C., and I'll meet them there."