Deepthroat: Debt Collector Edition

The American Banker has been running an important series on credit card debt collection (here, here, and here) that Joe Nocera highlighted in his NY Times column today. The story that they're telling, however, is only part of the picture. To fully understand the debt collection industry, it's necessary to take Deepthroat's advice, and "follow the money." 

I haven't gone very far down this rabbit hole, but it's clear to me that there's another important angle to this story, namely, who is funding the debt collectors. 

A lot of debt collection is done by law firms, because if you can't convince the borrower to pay on unsecured debt, then you've got to go to court in most cases. So enter the law firms. These aren't law firms as anyone would traditionally recognize them, however. A traditional law firm would have a bunch of lawyers supported by paralegals and administrative personnel.  It would fund its operations from cash flow and perhaps a line of credit and partners' contributions. And the income-generating work would be done by lawyers.

That doesn't describe a lot of the collections law world. Instead, collections law firms are the dystopia of the legal industrial complex. These firms take the theory of the firm serious and rather often the "firm" is little more than an lawyer or two and their law license. Everything else, from the office equipment to the support staff, is contracted out. Most of the work is done by non-lawyers, and the lawyers are essentially renting out their law license to firms that supply the equipment and staffing. Instead of rent-a-BIN or rent-a-charter, it's rent-a-license lawyering. Robosiging?  Of course--the whole point of the operation is to be industrial.  It's transaction processing with a legal heksher. And it is the antithesis of the sort of judgment and counsel that lawyers have traditionally prided themselves as providing. 

These firms also often work in network pyramids--a national contractor firm will then farm work out to regional contractors, who ultimately farm it out ot the locals.  (That's the LPS network model, for example). Again, industrialized transaction processing and economies of scale. 

But back to the money. Who do you think is funding the firms that are renting the law license? That's Wall Street money. It wouldn't shock me at all if some of the Holier than Thou financial institutions mentioned in the stories happened to have a sizable stake in a firm that provides virtually everything but the law license for debt collection. And if that's right, then what's really going on, is a PR move, in which Wall Street can claim that it isn't engaged in debt collection abuses, while it profits from it all the same. 

Again, follow the money.