Household debt in the United States now equates to more than eighty per cent of G.D.P., a proportion that has risen steadily since the nineteen-fifties. Companies that are owed money—from credit-card issuers to hospitals and doctors—regularly sell uncollected bills to outside debt buyers, who pay a fraction of the claim’s face value in exchange for information on the debtor and the right to attempt to collect payment in full. A vast secondary market exists in which financial institutions buy and sell such debt, often several times over, until the debtor finally pays, or the debt holder gives up. Debt buyers have little incentive to advertise who they are, or how they got your bills. The homepage of Sherman Financial Group, a large consumer-debt collector, features a large photo of puppies and little else. And debt collection can be an unsavory business: the Federal Trade Commission has said that it receives more consumer complaints about debt collectors than about any other industry.
In response to such complaints, the F.T.C. conducted a wide-ranging study of debt collectors and debt buyers in 2009. “Debt buying can reduce the losses that creditors incur in providing credit, thereby allowing creditors to provide more credit at lower prices,” the report said. “Debt buying, however, also may raise significant consumer protection concerns.” The report includes information gleaned from debt buyers working with almost ninety million consumer accounts over a three-year period. One striking finding: the country’s largest debt buyers paid an average of four cents for every dollar of debt.
In the wake of Occupy Wall Street, a movement called Strike Debt revived the idea of a grand debt cancellation. They called it the Rolling Jubilee and drummed up donations to purchase medical claims in bulk, with the help of a debt buyer sympathetic to the cause, for pennies on the dollar. Over the past twelve months, the group raised more than six hundred thousand dollars. It used four hundred thousand to buy a bundle of medical bills worth almost fifteen million dollars. This year, nearly twenty-seven hundred debtors across the country received an unusual letter from the group, indicating the amount of their debt and informing them that they “are no longer under any obligation to settle this account with the original creditor, the bill collector, or anyone else.”
The project turned out to be one of the few Occupy offshoots that has had a tangible effect on people’s lives. The group made three separate purchases, buying hundreds of delinquent hospital bills each time, without knowing the identity of any individual debtor beforehand. It then contracted with a mailing group to send letters to those debtors without violating their privacy, according to Thomas Gokey, a Strike Debt organizer. The Rolling Jubilee learns about the beneficiaries of its charity only if a debtor chooses to make contact.
Terry Lavalle was homeless and uninsured when he slipped on a patch of ice near Framingham, Massachusetts, and got a concussion. That left him with a thirty-one-hundred-dollar bill he couldn’t pay. Four years later, he opened a letter from the Rolling Jubilee. “I was stupefied,” Lavalle told me. “I didn’t know if it was legitimate or not.” He took the letter to the bank, which looked up the Rolling Jubilee online and told him it seemed valid. Lavalle called the hospital in Framingham and was told the bill had been paid.
The amount of debt erased by the Rolling Jubilee has been tiny compared to the over-all level of medical debt in the United States, Andrew Ross, a professor at New York University and a Strike Debt organizer, told me. The purchases are largely symbolic. But what would happen if Rolling Jubilee-style programs became more widespread?
If the Rolling Jubilee started spending hundreds of millions of dollars buying debt it had no plans to collect, the increased demand could send the price of that debt higher. Why sell your bad loans to a debt collector for four cents on the dollar, when you can sell to the Rolling Jubilee, which doesn’t care about making a profit, for ten cents? A price increase on the secondary market would have echoes in the primary market: lenders, assured of a decent recovery for their defaulted loans, might have more incentive to issue debt to risky borrowers—the antithesis of Strike Debt’s goals.
The Rolling Jubilee’s most powerful tool is thus its most controversial. It’s a bit like the N.Y.P.D.’s Cash for Guns Program, which, by paying people a hundred dollars for guns they turn in, helps get guns off the streets and, potentially, reduce the violence that comes with them, but does nothing to limit the market for guns, or to prevent participants from buying another one. Similarly, each purchase the Rolling Jubilee makes helps prop up the system it critiques. It also directly helps relatively few people who might not even realize what’s been done for them.
“It’s wonderful that they’re thinking about how to deal with debt, but I don’t think it’s a substitute for meaningful thought about how to fix the underlying problem,” Mary Spector, a consumer-law specialist at Southern Methodist University, said. “I think it’s an expression of the most charitable, progressive sort, but perhaps they could work with lawmakers on how to reduce debt at the front end, instead of at the back end.”
Early skeptics also worried about the tax implications of the plan: because debt cancellation is typically treated as income and can be taxed, could Strike Debt leave the people it claimed to help worse off than if it had done nothing? Strike Debt says it consulted a team of attorneys who believe debtors could be immune to such consequences if the debt is treated as a tax-exempt gift and not as a taxable income gain. But the theory has not yet been tested by an I.R.S. audit, as far as the Rolling Jubilee has heard.
The way the debt purchases are made—in bulk, without details of the underlying bills—raises another concern. Do the Rolling Jubilee’s beneficiaries even notice that their debt has been extinguished? “I forgot about the bill, to be honest,” Lavalle said. He was homeless for another two years after his hospital visit, and the first letter he received about the bill was from the Rolling Jubilee.
The debt purchases were a way to start a conversation, Ross said. They help illuminate the inner workings of the consumer-debt market and show that there is another way to deal with debt collectors. The goal, according to the Rolling Jubilee’s charter, is to create broad resistance to the debt system, “with the ultimate goal of creating an alternative economy that benefits us all and not just the 1%.”
On a recent Friday, the Rolling Jubilee celebrated its anniversary in the basement of the Church of St. Luke and St. Matthew (the patron saints of artists and bankers, respectively) in Brooklyn. The event was decidedly more low-key than the movement’s launch party, a year ago, a sold-out gala in a Manhattan club with performances from the comedian Janeane Garofalo and from members of Sonic Youth and TV on the Radio. Over foil trays of free pasta, soda, and craft beer, a few dozen twenty- and thirty-somethings chatted at tables squared along the fringes of the fluorescent-lit space. The evening’s festivities got underway with a bit of theatre: eight Strike Debt members performed a dramatized call to action, growling as they bounced around the room enumerating the evils of the debt market and assuring their listeners, “You are not a loan.”
Ross, a Scot with dark, shaggy hair and Prada glasses, watched from the side, a strip of duct tape on his hand scribbled with the words “safe space”; he was one of several people at the event tasked with facilitating disputes, should anyone feel threatened during discussions—an echo of Occupy’s early days in Zuccotti Park.
The party marked a shift of focus for the Rolling Jubilee. The group will wind down its medical-debt purchases by the end of the year, using its remaining two hundred thousand dollars in donations to start chipping away at student debt. The majority of that debt consists of federal student loans, backed by the U.S. government. But there has been a sharp rise in recent years in the percentage made up of private student loans, which can be purchased and traded by debt buyers. That gives the Rolling Jubilee a chance to replicate its medical-debt efforts.
Student-loan debt is the only form of consumer debt that has grown since the crisis of 2008, according to the New York Federal Reserve Board. It stood at about three hundred and sixty-three billion dollars in 2005; it now tops a trillion dollars. Outside of mortgages, student loans represent the largest personal debts in the United States. At a Senate Banking Committee hearing this month, Rich Cordray, the director of the Consumer Financial Protection Bureau, said his office has received thousands of private complaints about student loans in the past year. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law in 2010, established the Bureau in response to the home-mortgage crisis of 2008. “At a field hearing in Miami on student-loan debt, it became clear that there are many troubling similarities to the mortgage market before the financial crisis,” Cordray told the senators.
Ross argues that student debt and medical debt are illegitimate because education and health care should be human rights, not opportunities for private profit—that is, they should be free in the first place. (His employer, incidentally, offers one of the most expensive undergraduate degrees in the country.) This is easier said than done—providing health care and education is expensive, and someone has to cover the costs—but the sentiment behind it is commendable.
Graeber writes in “Debt” that a jubilee “would be salutary not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one’s debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability to arrange things in a different way.”
Down in the basement, group discussions to plan the future of the student-debt project segued into a sing-along. A tall, lanky guy with a banjo sang a tune adapted from an essay by the Dust Bowl folk singer Woody Guthrie. The song has become an anthem of the Jubilee: “I think what I thought of this morning, I think what I thought of at three. I owe more money than I can pay back, more money than I’ll ever see.”
Photograph by Joe Raedle/Getty.
from Currency http://www.newyorker.com/online/blogs/currency/2013/11/a-robin-hood-for-the-debt-crisis.html
