Law firms working for collectors file thousands of templated lawsuits at once. The goal is not to win in court, but to generate valuable 'default judgments' when the vast majority of debtors don't show up. This automated legal process transforms unsecured debts into garnishable assets.

Harms like contacting the wrong person arise not from malicious individuals but from automated, error-prone systems designed for scale and low cost. No single person makes the mistake; rather, the system is architected to generate these incorrect outcomes by default, with no accountability.

In credit, contracts are king, unlike equity's fiduciary duties. Historically, unspoken norms prevented creditors from exploiting every loophole. These norms have eroded, leading to more "creditor violence" and making cooperative agreements between lenders an essential defensive tactic.

Federal Reserve policy requires financial institutions to 'charge off' delinquent debt to maintain accurate books. This accounting mandate, rather than a simple business decision, creates the portfolios of bad debt that are sold to third-party collectors, shaping the entire industry.

When considering debt against a signed contract, operate under the assumption that the contract will not come through. This prevents piling financial risk on top of an already risky situation. Only proceed if your business can sustain the debt repayment without that expected revenue, as a signed contract is not guaranteed cash.

Under the law, a debt claim is treated the same regardless of who holds it. However, the negotiation strategy changes dramatically depending on whether the creditor is an original lender or a hedge fund that bought the debt at a steep discount, impacting the perceived fairness of any offer.

Auto parts company FBG funded its acquisition spree with a sophisticated fraud using "invoice factoring," a corporate version of a payday loan. By selling the same tranche of invoices to multiple private creditors, it illegitimately raised funds, leading to a collapse with $2.3 billion unaccounted for.

With the average defaulted debt around $2,000, individualized attention is unprofitable. This economic reality forces the industry into a scalable, 'McDonald's burgers' approach that relies on cheap labor and automated systems, which inevitably leads to errors and abuse.

With many "Buy Now, Pay Later" (BNPL) services not reporting to credit bureaus, lenders face "stacking" risk where consumers take on invisible debt. To get a holistic view, lenders are increasingly incorporating cash flow data, like checking account trends, into their underwriting processes.