BusnessWeek’s “Prisoners of Debt” received first-place in the 2008 Barlett & Steele Awards for Investigative Business Journalism. The annual awards are sponsored by the Donald W. Reynolds National Center for Business Journalism.
By Brian Grow, Robert Berner, Keith Epstein and Geri Smith
In early 2007, before the full extent of the subprime mortgage debacle became evident and the U.S. financial system crumbled, BusinessWeek launched an examination of less-well-known lending and credit practices aimed at vulnerable consumers. The resulting series of in-depth articles unearthed a range of abusive methods American and international companies employ to ensnare poor and unsophisticated customers with high-interest, high-fee loans.
The genesis of the series was a single report and a simple thought. The Brookings Institution, in late 2006, published a study that showed companies in many industries were eagerly targeting the poor with high-priced goods and services. We wondered: If more companies are offering more high-priced goods and services to the people who can least afford them, is the cost of being poor on the rise? We decided to investigate the dark side of consumer lending.
Each of the stories required exhaustive document analysis and shoe-leather reporting from correspondents Brian Grow, Robert Berner, Keith Epstein and Geri Smith. Mining for data showing how cancelled bankruptcy debts were being kept alive and traded by creditors and debt buyers, the subject of “Prisoners of Debt” (Nov. 12), Berner and Grow waded through dozens of voluminous credit reports of borrowers, then compared them with bankruptcy court records. In “Fresh Pain for the Uninsured” (Dec. 3), Grow and Berner scoured uninsured patient-support groups to find examples of people who had borrowed to pay their medical bills with credit cards or through other means. Epstein and Smith spent weeks examining the methods of Latin American banks and microlenders, and then walking the back streets of small Mexican towns interviewing borrowers for “The Ugly Side of Micro-lending” (Dec. 24).
And there were certainly surprises all along the way.
While reporting an earlier article called “The Poverty Business,” Berner and Grow were told by bankruptcy attorneys about a little-known trade in discharged bankruptcy debts. The very idea that legally expired debt retained some value was startling. “Prisoners of Debt” showed how big creditors routinely collect debts that have been forgiven in the courts—a flouting of the bankruptcy system’s promise of a “fresh start” for individual debtors.
The story had impact. In response to questions from BusinessWeek, CreditMax, a major online marketplace, said it would stop selling cancelled debt. When we inquired about one lawsuit, credit card company Capital One claimed it had made an isolated, administrative error in keeping the debtor’s bankruptcy-discharged account appear to be open. But a year later, the company agreed to pay more than $10 million in fines and restitution to debtors and the Office of the U.S. Trustee for keeping hundreds of borrowers’ cancelled debts listed as active on credit reports.
In “Fresh Pain for the Uninsured,” Grow and Berner examined one medical credit card product that touted its 0 percent interest rate. Harmless, even beneficial, most people might think. But a deeper look revealed that uninsured patients who used the card were charged the maximum rate for medical care, unlike insured patients who received a large discount. And the hospital was selling the medical debt to the credit card company for less than its face value, a discount not passed on to the patient.
That story left a mark, too. Under questioning, GE said it would drop certain individual collection efforts and rein in medical practices requiring patients to use a GE-sponsored credit card. The Senate Finance Committee says that BusinessWeek’s reporting spurred the committee to launch an inquiry in 2008 into new methods of financing medical debt. Medical finance firm CompleteCare reduced the payment obligations of one uninsured patient and eliminated all interest charges. One hospital also ended its policy of allowing CompleteCare to charge interest on unpaid medical debts.
“The Ugly Side of Micro-Lending” was no simple reporting exercise. Most people don’t like to talk about their debt; in Mexico, many are virtually silent for fear of the consequences. Epstein and Smith spent months tracking down borrowers. The reporting stirred tension and hostility when they attempted to interview Mexican micro-lenders’ debt collectors, who ride scooters through the back streets, knocking on doors. The hard work revealed phenomenal corporate profit-making in Mexico and interest rates topping 100 percent. Many unsophisticated borrowers, meanwhile, were mired in debt.
Since the story appeared, many nonprofits and microlenders have set about trying to develop new standards for lower interest rates, clearer disclosure of the terms to borrowers, and debated the extent to which providers of credit should derive revenues and profit from the poor.
Our advice to other reporters planning to take on projects of this scope and complexity is – persevere. There were many instances when Grow, Berner, Epstein and Smith thought they had hit a dead end, whether it was finding uninsured patients who would share their medical histories and bills, or Latin American bankers, microlenders and their working poor clients who would open the door to talk about methods and consequences. In each case, the reporters went back again and again to seek interviews and assistance. The perseverance paid off.