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Inside the Dark, Lucrative World of Consumer Debt Collection


Credit Illustration by Francesco Francavilla

One afternoon in October 2009, a former banking executive named Aaron Siegel waited impatiently in the master bedroom of a house in Buffalo that served as his office. As he stared at the room’s old fireplace and then out the window to the quiet street beyond, he tried not to think about his investors and the $14 million they had entrusted to him. Siegel was no stranger to money. He grew up in one of the city’s wealthiest and most prominent families. His father, Herb Siegel, was a legendary playboy and the majority owner of a hugely profitable personal-injury law firm. During his late teenage years, Aaron lived essentially unchaperoned in a sprawling, 100-year-old mansion. His sister, Shana, recalls the parties she hosted — lavish affairs with plenty of Champagne — and how their private-school classmates would often spend the night, as if the place were a clubhouse for the young and privileged.

So how, Siegel wondered, had he gotten into his current predicament? His career started with such promise. He earned his M.B.A. from the highly regarded Simon Business School at the University of Rochester. He took a job at HSBC and completed the bank’s executive training course in London. By all indications, he was well on his way to a very respectable future in the financial world. Siegel was smart, hardworking and ambitious. All he had to do was keep moving up the corporate ladder.

Instead, he decided to take a gamble. Siegel struck out on his own, investing in distressed consumer debt — basically buying up the right to collect unpaid credit-card bills. When debtors stop paying those bills, the banks regard the balances as assets for 180 days. After that, they are of questionable worth. So banks “charge off” the accounts, taking a loss, and other creditors act similarly. These huge, routine sell-offs have created a vast market for unpaid debts — not just credit-card debts but also auto loans, medical loans, gym fees, payday loans, overdue cellphone tabs, old utility bills, delinquent book-club accounts. The scale is breathtaking. From 2006 to 2009, for example, the nation’s top nine debt buyers purchased almost 90 million consumer accounts with more than $140 billion in “face value.” And they bought at a steep discount. On average, they paid just 4.5 cents on the dollar. These debt buyers collect what they can and then sell the remaining accounts to other buyers, and so on. Those who trade in such debt call it “paper.” That was Aaron Siegel’s business.

It turned out to be a good one. Siegel quickly discovered that when he bought the right kind of paper, the profits were astronomical. He obtained one portfolio for $28,527, collected more than $90,000 on it in just six weeks and then sold the remaining uncollected accounts for $31,000. Siegel bought another portfolio of debt for $33,388, collected more than $147,000 on it in four months and sold the remaining accounts for $33,124. Even to a seasoned Wall Street man, the margins were jaw-dropping.


Aaron Siegel driving his Maserati in Buffalo. Credit Jonno Rattman for The New York Times

Siegel soon realized that there was the potential to make a fortune. What he needed was capital to invest in portfolios on a grand scale. Using his connections from his school days and from the banking world, he courted eight investors to fund a private-equity firm that would deal exclusively in such paper. He opened the firm, which he named Franklin Asset Management, in an elegant old home at 448 Franklin Street in Buffalo. In the ensuing year and a half, he bought $1.5 billion worth of unpaid debts. This would be his trial run. If all went smoothly, he would soon start another fund with even more money in it.

But all did not go smoothly.

Some of the deals Siegel made were hugely profitable, while others proved more troublesome. As he soon discovered, after creditors sell off unpaid debts, those debts enter a financial netherworld where strange things can happen. A gamut of players — including debt buyers, collectors, brokers, street hustlers and criminals — all work together, and against one another, to recoup every penny on every dollar. In this often-lawless marketplace, large portfolios of debt — usually in the form of spreadsheets holding debtors’ names, contact information and balances — are bought, sold and sometimes simply stolen.

Stolen. This was the word that was foremost in Siegel’s mind on that October afternoon. He had strong reason to believe that a portfolio of paper — his paper — had been stolen and was now being “worked” by one of the many small collection agencies on the impoverished and crime-ridden East Side of Buffalo. Using his spreadsheets, this unknown agency was calling his debtors and collecting debt that was rightfully his. The debtors, of course, had no way of knowing who actually owned the debt. Nor did they have any reason to suspect that they might

be paying thieves. They were simply being told they owed the money and had to pay.

This was not a problem Siegel was used to handling. There had been no classes at Simon Business School on how to apprehend crooks who appropriated your assets. He could, of course, call the police or the state attorney general, but by the time they intervened, the paper would be picked clean, worthless. His problem was more fundamental, more pressing. At this point, he didn’t know exactly how many files had been stolen, but he knew he needed immediate intervention.

Fortunately, Siegel had someone to call — a fixer who knew just what to do.

What got Siegel into this mess — and into the shadowy realm of debt collecting — was the simple desire to return home. In 2005, when he was 31, Siegel left Wall Street and decided to move back to Buffalo, where his parents and sister still lived. He took a job at a local division of Bank of America, specializing in private-wealth management. The only problem was that he had almost no work. “I spent my days spinning around in a chair and throwing pencils at the ceiling,” Siegel said. “There was nothing to do. There’s very little private wealth to manage here.”

In many ways, Buffalo never recovered from the loss of its steel mills in the 1980s. Yet at least one industry was booming: debt collection. Buffalo is among the nation’s debt-collection hubs. One of the largest collection agencies in the country, Great Lakes Collection Bureau, was once based there. When many of the com­pany’s managers eventually struck out on their own, their companies prospered, multiplied and hired still more collectors.


Siegel at his office in Buffalo. Credit Jonno Rattman for The New York Times

Siegel was intrigued by the fact that so many people in his midst were toiling to collect on debts that his employer — the bank — had given up on and had sold at huge discounts. He sensed an opportunity and in the fall of 2005, using $125,000 from his personal savings, he bought his first batch of paper and opened a collection agency. During the day, he worked at the bank; after hours, he ran his new company.

The most pressing order of business was hiring collectors. Those who applied to work for him were mainly a downtrodden lot, and their ranks included ex-convicts, drug addicts, 20-somethings without high-school diplomas and a variety of other hard-luck cases. “Oh, my God, they were like thugs,” Siegel recalled. He quickly concluded, however, that the more clean-cut types simply couldn’t get the job done. As he put it: “You realize that you’re sitting on an investment and you’ve hired a bunch of Boy Scouts who can’t turn any money.” What he needed were telephone hustlers. The problem with the hustlers, Siegel explained, was that they hustled not just the debtors, but him as well. Siegel said one of the first truly great collectors he hired — an overweight, womanizing aspiring bodybuilder — robbed him of several thousand dollars by counterfeiting the firm’s checks.

Still, he was making money. And that was largely because of a former armed-robber named Brandon Wilson, whom Siegel met in 2006. Wilson worked as Siegel’s most valued debt broker, buying portfolios on his behalf. He also served as Siegel’s emissary to the collection industry’s many unsavory precincts.

From the outset, they were a most unlikely duo. Siegel likes to wear $2,000 custom-­made pinstripe suits, and he strikes a patrician demeanor from the moment he shakes your hand. His sister told me, “I always say that you can tell he hasn’t worked a manual-labor job in his life because his hands are like butter.”

Wilson, by contrast, favors loosefitting sports clothing — the style and the brand don’t matter, so long as they come with a Red Sox or Celtics logo. He spent much of his youth in the notorious housing projects along Mystic Avenue in Somerville, Mass. His mother recalled that “when he was growing up, I was chasing Brandon around the projects with a bat, and he was throwing stones at me, and I was hitting the stones back at him with the bat — but boy, could he run.” When Wilson pulls up his shirt, which he does with some regularity, his arms and upper body are covered with scars, the marks of various knife fights. This is a guy you’d cross the street to avoid.

By the time he was in his early 20s, Wilson had amassed an impressive criminal record. His many offenses included assault and battery, armed robbery (three counts), larceny, armed assault in a home (two counts) and knowingly receiving stolen property. And these, of course, represented only the times he was caught. He was never busted for robbing toy stores or night deposit boxes at banks, both of which he claimed to have done repeatedly.

‘You realize that you’re sitting on an investment and you’ve hired a bunch of Boy Scouts who can’t turn any money.’

Category: Bank

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