Repo Man in the Suburbs

In an era when lenders routinely target the almost-bankrupt for extra loans, how do they ensure that they will get their money back? Corporate lenders don't have "Jimmy the finger-breaker" on retainer, but they do have thousands of trained professionals who do nothing but hound families for money. Most of the time, these agents make their living by calling families at home, reminding them that they are late on their bills and pressing them to make a payment. (Or, in the case of Jamal Dupree, urging them to take on a second loan to pay off the first.) But when a simple request isn't enough, they, too, use tougher tactics.

Sears, America's fourth-largest retail chain, got caught threatening to nab a battery from a Massachusetts family's car unless the family promised to send Sears some money-money that the family no longer owed. This was in clear violation of the law. The family had filed for bankruptcy protection, so Sears was legally barred from further collection efforts. Aside from that, it is reasonable to wonder: What could Sears possibly want with a used car battery? Or with the used dehumidifiers, mattresses, and Walkmans the company had threatened to take back from thousands of other families? Sears was not in the business of selling used household goods. And it would have cost the company several hundred dollars to hire a repo man and send a truck to someone's door-far more than a used Walkman or car battery would be worth.

Sears almost certainly didn't want those goods; the company wanted the money people would pay to keep the Sears repo man away. The company probably hoped that some families were unaware of their legal rights, and that if they were frightened enough, they just might keep making payments on old bills, even after those bills had been discharged in bankruptcy. FBI Special Agent in Charge Barry Mawn described the Sears case as an example of "Corporate America blindly [pursuing] profitability over its obligation to treat the consuming public with fairness and honesty."

And Sears was not alone: AT&T, General Electric Credit, Federated Department Stores (owner of Macy's), J.C. Penney, Circuit City, Tandy (owner of Radio Shack), and General Motors also paid multimillion dollar fines for making collection threats against families whose debts had been forgiven in the bankruptcy courts. But these companies were punished for pursuing families that were under the protection of the bankruptcy courts, not for aggressive collection tactics per se. Indeed, many aggressive collection tactics are perfectly legal. For example, Sears, unlike J.C. Penney, issues credit cards that add some special touches in the fine print. Whenever a customer purchases something on a Sears card, the goods become collateral against the loan. That means that Sears is within its legal rights to repossess (or to threaten to repossess) everything the family bought with the card if it falls behind on its bills. Even when those threats are patently absurd.

Consider, for example, a conversation we had with "Sally," a former Sears collection agent in the Boston area. Sally's job was to call families that had fallen behind and to pressure them to pay up. One incident particularly stood out in Sally's memory. When another Sears agent threatened to repossess a mattress from a woman who was delinquent on her payments, the customer in question stuck to her guns. "You will not. It isn't worth anything. Besides, you can't even sell a used mattress. It's not legal." Sally's coworker was quick on her feet. "We'll come and get it because we can. And then, we'll set it on fire and burn it up. It won't give us anything, but you won't have it either." The woman caved in and sent Sears a check for $50. According to Sally, the story was widely told and retold in her department and praised by the department manager as an example of "real initiative." Since we only have Sally's word, we can't confirm the facts of her account, but it is a matter of public record that Sears has threatened to repossess used mattresses from other families.

Sally's real expertise wasn't collecting from the living. She spent most of her days collecting from the dead -- or at least the family members of the dead. When a person dies, only a cosigner on the account is liable for the bill. If no one has cosigned, the store can repossess the goods (if the original contract permitted this) or collect from the estate of the deceased, but they cannot hold other family members liable for the debt. The company is not, however, prohibited from trying to collect from the family. So Sally's job was to call the adult children or grieving widows of customers who had died leaving an outstanding bill. She typically started a call with something gentle and confidential. "Mabel was a longtime member of the Sears family, and we're sure she would have wanted her bills to be paid." Sally then read from a list of purchases Mabel had made on her Sears card, inserting some personal comments. "I see she bought eyeglasses. And some baby clothes-I love those sweet little sweaters and matching caps, don't you?" If the soft sell didn't work, Sally would turn up the heat, threatening to send a collection agent who would plow through the deceased's closets and drawers and "take back what belonged to Sears." If that wasn't enough, there was a final warning that must have sent many families running for the checkbook: She threatened to reclaim every gift ever purchased on the Sears card. Again, the claim seems ridiculous; how would a Sears agent ever figure out that Mabel had given the frilly dress to her grandniece in Detroit, while the Walkman had gone to a great-grandson in Denver? But these threats were put to grieving family members who had just lost a loved one, not to battle-hardened debt-dodgers who were primed to defend themselves. Not surprisingly, Sally said that most families paid.

We remind the reader that we have only Sally's word to go on. It is possible that she wasn't telling the whole truth or that she had an ax to grind. But a statement by former Sears CEO Arthur C. Martinez is certainly in keeping with Sally's story. He explained the company's aggressive debt collection practices this way: "We have an old-fashioned view. People should pay for what they take." As he touted that "old-fashioned view" of debt, Mr. Martinez seemed oddly blind to the fact that Sears is no longer an "old-fashioned" merchant. At the time Mr. Martinez made his statement, Sears reportedly earned more money from the interest and late fees the company charged its credit cardholders than it earned from selling merchandise. In other words, Sears kept all those stores open and sold all those Lady Kenmore washing machines and Craftsman tools in the hope that its customers would buy on credit and pay over time. Merchants like my grandfather used to offer credit as a way to increase store purchases. For stores like Sears, that formula has been turned upside-down: Store purchases have become a way to increase credit card debt. That's not "old-fashioned" at all; indeed, it is possible only in the new world of uncapped interest rates and deregulated lending.