Spain uses public shame to collect debts

With close to 4 million people in Spain out of work, one business is booming: debt collectors who use public shaming to extract payment.

Juan Medina/reuters
Manfred Gunther of the Spanish collection firm El Cobrador del Frac (roughly, ‘the debt collector in top hat and tails’) pays a visit to a debtor.

Embarrassed when a man in a tuxedo and top hat follows you into a restaurant and silently joins your lunch date?

Mission accomplished.

Mortified when a trio of rotund men dressed as superheroes asks your neighbors for donations to help your financial situation?

Juan Carlos Granda sees his job as almost done.

The recession has hit Spain hard, with official figures showing the unemployment rate has reached 19.3 percent, one of the highest in Europe. Close to 4 million people are out of work – the same number of jobless as France and Italy combined. One business that is booming: debt collection.

And no one does debt collection like El Cobrador del Frac.

"Spaniards are macho, they don't like people drawing weird attention to their failings. It's not manly," says Mr. Granda, El Cobrador del Frac's manager, a rail-thin man in a pinstriped suit who works out of offices that scream macho: antelope and bear heads on the walls, elephant tusks decorating the door frames, dark furniture, and rows of secretaries with miniskirts, long hair, and hoop earrings.

Public shaming is not new. Juan Diez Nicolas, a professor of sociology at the University of Madrid, points out that since medieval times, shaming has been used as a tool of coercion across Europe. "No one wants to be pointed out as the one who has done an offense against the community," he says.

But Spanish law is relatively lax when it comes to debt payment, allowing 95 days to settle bills (it averages 30 elsewhere in Europe). And Spanish courts give the matter low priority. It can take three years to pursue a debtor in court. That puts collection agencies in high demand.

"The government and justice system don't do anything … and people think they can get away with anything. We are here to do public justice," says Granda. "I see us as sort of Robin Hoods," he adds, eliciting a raised eyebrow from even his own secretary. "We are helping honest clients get their rightful money back. I do not feel sorry for these professional debtors. I feel sorry for our clients who have to close their businesses and whose families might go hungry because these bad people don't pay."

El Cobrador del Frac – which translates as "The Debt Collector in Top Hat and Tails" – employs more than 250 collectors, and an equal number of secretaries and investigators.

"If we feel the debtor has no money at all – we don't even take the case. Our goal is to work out some deal and recoup money, not run after people with no means whatsoever," says Theresa Seves, a researcher at the agency.

These days, El Cobrador del Frac can hardly keep up with demand for its services, continues Ms. Seves. She admits that most new business is coming from the construction trade, which is going through a massive slowdown. Homeowners owe contractors, contractors owe construction companies, construction companies owe equipment-makers, and so on.

The success of El Cobrador del Frac, which opened its doors 21 years ago and boasts a 70 percent success rate in redeeming its debts, has inspired imitators.

Journalists are not allowed to join in on rounds of the El Cobrador del Frac collectors – "because of the need to respect people's privacy" explains Granda, without irony. But Pablo, a collector who asked his last name not be used, was happy to recount some of the agency's more unusual debt-recovery tales.

Last year, for example, the agency had a case of a couple who did not pay the €60,000 ($83,000) bill for their fancy wedding. "The wedding company contacted us, we got a guest list and started phoning up the guests one by one...," recalls Pablo, "asking them if they had had the lobster or the chicken – and then asking them where to send the bill." Eventually, the embarrassed bride and groom decided to pay up.

Not everyone is amused. Spain's Consumers Organization has complained that the way some of the debt-collecting agencies work borders on the illegal – and has urged the government to consider increasing regulation in the business, as has been done in most other European countries. Britain's Office of Fair Trading, for example, describes "acting in a way likely to be publicly embarrassing to the debtor" as unfair practice and rules it out. Many US states have similar laws that don't permit harassment or abuse.

Moreover, as the unemployment rates continue to rise, such tactics risk becoming less effective, says Mr. Nicolas. "There is no empirical data on shaming, but it is clear it is more successful in affluent times than in times of crisis," he says. "Today, so many people have debts – and they really can't pay. It does not matter how much you embarrass them."

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