almost 10 years on 2009-01-01


happy new year! -- last sunday (the 28th) in the nyt gretchen morgenson wrote an article called "a paper trail that often leads nowhere" - i was exceedingly excited to read it, not only because it was a great article and expose, but because it highlights a communicative issue that i have been personally experiencing and am exceedingly worried about as a social issue in the midterm....  specifically, as she points out, the ability to re-package and re-sell commitments and relationships creates incredibly perverse economic situations which are seriously threatening, and sadly seem to require more regulation in the mid-term (though i have a hard time envisioning what exactly that regulation would functionally look like).  morgenson talks about this in terms of renegotiating home loans which are in danger of defaulting.... a business which i once studied in detail -- my personal experience has to do with predatory debt collection practices. 

by way of quick and truncated background, a few months back about my interesting issue with att and first revenue assurance -- when i set up my iphone apple and att mistakenly created a second fictitious account in my name, and then passed it to collections when i didn't pay the phantom balance on the phantom account.  att acknowledged the mistake and guarantees on the phone that the issue has been resolved, but is exceedingly tight fisted with any sort of traceable documentation by system design.  first revenue assurance and their agents refuse to acknowledge that the 'debt' is not owed, and have actively lied in attempting to collect on the account, and attempt to harass me through several channels. 

why and how?  it is all about understanding and reacting to economic incentives.

setting aside the fact that i am actually a very well paying att customer, in the general state att has zero incentive to protect individuals whose accounts they have 'written off' in any way shape or form for whatever reason.  they don't expect any future business from written off customers, and they have either already been paid a fractional fee for the defaulted account (or have assigned a definite discounted value to the account based on the probability of recovery).  their incentives in dealing with a customer in a 'defaulted' situation are squarely based on the probability/cost associated with legal action, and the brand risk associated with a negative story getting out into the public about their practices.

first revenue assurance, and their agents, have even clearer incentives.  they have either paid for the right to collect a bad debt, or have some other definite arrangement where they make money based on getting me to pay them.  as a company their job is to acquire bad accounts as cheaply as possible, work them efficiently, and get as much money paid back as possible.  they have no brand or reputation value which they are concerned about protecting with consumers, nor do they have any financial interest in how it was they came to have this 'right of collection'.  if and when they resell their rights to another agency, the same economic logic and incentives apply. 

so, as they have done to me, they will lie and actively look to deceive in any untraceable/unrecorded medium, and will engage in communication strictly on what they consider to be immediately high roi terms (meaning, as they have done, they will hang up on you, and not engage unless they think you are going to 'pay up').  as a company they will do everything right up to the line of the law, because their only risks (other than a negative roi which they are modeling constantly), is legal action or loosing access to future business from att. 

what does this mean?  it means that att thinks it has zero economic incentive to fix the situation and will try to have as few interactions with me that cost them as little as possible (meaning, not focus on the issue at all), first revenue assurance, will deploy whatever apparently roi positive tactics they can to get me to give them money.  quite simply it is the wild wild west, -- and everyone is losing as a result.

what is a consumer to do?  i take a strictly economic approach.  that means evaluating the costs and payoffs which are in bounds for each player:

my economically optimal move from day one would have been to just pay fra the extortion money (the $300 they claim i owe them) avoid the loss time and effort of dealing with the situation, and not risk my credit score (my future cost of capital).  this is how ransom works, it is the economically rational move to just pay up.  that said, i don't negotiate with terrorists as a rule because i assign a very high dollar value to my integrity. 

so, to maximize my value in the situation i deploy a few tactics:

1.  i minimize my exposure to costs that fra is trying to impose on me to compel my acquiescence.  i never read physical mail, filter my email, and as a rule i never pick up my phone when people call whom i don't know.  so, in general, fra's tactics to levy expenses on me by wasting my time and jamming my communications don't work.  further, i have stopped even trying to work with or talk to their line representatives.  the incentive structure their representatives are so misaligned that time i spend actually trying to resolve issues with them is clearly wasted and just a tax. 

2.  i maximize the actual and anticipated cost to fra to continuing to attempt to extort me.  i have begun writing letters to the attorneys general of both my home state and their states of operation, and have been scraping together all possible material and evidence of their harassment.  beyond that, i have contacted att to let them know that i had begun such action and requesting that they review their relationship with fra.  these are expensive and time consuming activities for me, but i see them as roi positive.


my personal battle will be long and drawn out.  i highly suspect that for all sorts of systemic reasons fra is massively over-estimating their likelihood of getting me to pay out, and they are massively underestimating the costs they will incur for continuing to pursue their course...  in the meantime, i find this situation theoretically fascinating (that extra bit of return which makes the whole thing roi positive on a total basis for me personally), and deeply scary in terms of what it means for our society.  so, everyone will continue to lose, but at least it will be interesting.

but, to be serious for a second, in the general case, this situation illustrates the pervasiveness of the central issue morgenson identified in her article.  the dynamics and structures in place around reselling/repackaging relationships are creating massively negative outcomes for all parties involved, and with an economic downturn more and more people are going to find themselves facing these types of communicative situations in contexts that are less entertaining.  this is a enormous structural issue and i honestly don't have any idea on how to deal with it on a 30 year time horizon outside of regulation... and i can't yet articulate what i think that regulation should actually look like.

that said, as a final note, i think i would be remiss not to note that, as with many things, pervasive access to information will make these types of issues go away on a 100 year cycle.  if all parties had perfect information fra wouldn't be making such a massive miscalculation on the value of the 'debt' i 'owe' them, let alone the fact that this situation would have never occurred in the first place -- but we are a long way from that utopia and it is going to be a scary ride in the middle.

original swl blogposts and letters 2007-2010