If anybody was to have made a killing in the economic crisis, it should have been debt collectors. With consumers going bust at the worst rate in decades, who likelier than the debt hounds to score a big recession payday?
That they turned out to have been just as incompetent, compromised and insolvent as everybody else might be all you need to know about the economy.
In a tawdry coda to the financial crash, one of the nation's biggest debt-collection law firms has gone belly-up, just like many of the people it had been dunning. Rockville-based Mann Bracken has ceased operation. Maryland judges are tossing out tens of thousands of collection cases the firm was handling.
The country's most promising growth industry - harassing unsophisticated consumers - has fallen on hard times. Even the recession business is having a recession.
At one time or another, Mann Bracken was assigned to collect money owed to American Express, Johns Hopkins Hospital, M&T Bank, Midland Funding and many others. (Hopkins and M&T say they stopped doing business with the firm.)
Mann Bracken was a superfirm formed in 2007 by the merger of three big debt-collection shops, including Rockville-based Wolpoff & Abramson. The deal looked like genius. A huge bull market in bad debt was about to take off.
But the debt-collection industrial complex, like the mortgage companies and the debt insurers, had gotten a little too clever.
With lenders as clients, Mann Bracken was secretly linked to the National Arbitration Forum, a dominant, supposedly neutral company that ruled on disputes between lenders and consumers. New York hedge fund Accretive held investments in both the arbitration group and Mann Bracken's telephone-collection operation, a company called Axiant.
Basically the hedge fund was "controlling the two sides of the equation or involved in the two sides of the equation - the debt collection side, and as well the arbitration side," Minnesota Attorney General Lori Swanson told Congress. She sued the arbitration group, which agreed to stop handling all consumer disputes.
That spelled trouble for debt collectors who had set themselves up to handle cases through an arbitration system that was not only cheap but also seemed biased in favor of their clients. Especially when another major arbitrator decided to stop handling consumer-debt cases.
Mann Bracken's debtor-hounding operation, Axiant, is liquidating and owes the law firm $10 million. Those lawyers need to hire a good debt-collection company.
In what is surely a case of cosmic justice, the credit industry's disaster is the consumer's gain, at least temporarily. With Axiant closing, Mann Bracken, which had an "F" rating from the Better Business Bureau, lost access to computers, phones and other support services to do its business, the firm said last week.
So more than 20,000 debt-collection lawsuits are languishing in Maryland courthouses without a lawyer. A firebomb tossed into the company's offices could not have been as effective. Many of the cases might not be refiled.
Most credit card contracts in recent years required arbitration and denied consumers a day in court, a situation companies counted on to work to their advantage.
"You have all the leverage and the customer really has little choice but to take care of this account," the National Arbitration Forum boasted to card companies, according to the Minnesota suit. Customers "ask you to explain what arbitration is, then basically hand you the money."
But thanks to the demise of arbitration, they may collect millions of dollars less than they otherwise would have. It's a little economic stimulus package for consumers, thanks to Mann Bracken and the National Arbitration Forum.
We should not cheer irresponsible folks who defaulted on card debt. But what heart could suppress a frisson of populist glee at seeing collection firms in bankruptcy and the card industry falling into its own trap? Debt collector, dun thyself.