Spain's collection agents practice public humiliation

Jose Romero remembers the farmer from Alicante. The man owed money – a lot of it – and Mr. Romero sent one of his agents to collect the debt. When the collector arrived, the farmer told him to wait while he went in the house to get the payment. A few minutes later, the farmer came out with his rifle, shooting and yelling "Take that, Zorro!" The collector ran for the car, his black cape flapping behind him.

It wasn't a scene from a movie. Every day in Spain, collectors disguised as monks, bagpipe players, bullfighters, and, yes, Zorro, attempt to get the recalcitrant to make good on their debts.

Costumed collection is a growing phenomenon in Spain, where a boom in consumer spending and variable-rate mortgages have left many deep in debt and creditors seeking more effective collection.

A recent Equifax-Iberia study shows a steady growth in defaults in Spain – with 12 percent more unpaid transactions in March over the same month a year ago, and 50 percent more than the same month five years ago.

While personal debt has increased dramatically all over Europe, Spain has the fourth highest default rate among the 25 European Union nations. That rather miserable standing is fueled, say financial experts here, by Spain's notoriously lax debt laws and certain quirks of the Spanish culture.

Although a law was passed in 2005 to crack down on those who delay or default on payments, few of those defaulters are prosecuted or otherwise affected.

"In the United States, if you don't make your car payments, the repo man comes and takes away your car," says Pere Brachfield, professor of credit management at Barcelona's School of Business Administration. "Here in Spain, that would be impossible. Even if you never made a single payment in the 26 months of your loan, nothing would happen."

The laxity of the law may stem in part from Spain's cultural climate. Luis Salvaterra, general director of the Spanish branch of Intrum Justitia, a leading European collection company, said in an interview published on the firm's website that, "In Spain, there is a culture of debt, and delays in payment are, to a certain extent, intentional, designed to provide financing at the cost of the provider."

Professor Brachfield goes even further. "You have all these picaresque novels like "Lazarillo de Tormes'," he notes, referring to the romanticization of rascalish characters devoted to petty thievery and skipping out on their debts. "That tradition has created tolerance for the character of the professional debtor. He's not a delinquent; he's a charming, amusing figure."

The failure of the courts to force debtors to pay and the expense of mounting a lawsuit convince many businesses to look to the costumed agencies for relief. The phenomenon is not new – the first such agency, the Cobrador del Frac, whose agents wear tuxedos, has been in business for more than 20 years. It has proved peculiarly effective in a culture where honor still matters. In fact, the success of the Cobrador del Frac has spawned a slew of rival companies: Town Criers, Buddhas, and even Pink Panthers.

The Monastery of Collection is one of them. Of its 28 employees, four regularly dress as 16th-century monks, though in special situations – such as a recent collection against the municipal government of Madrid for failure to pay its cleaning services – the company will send out extra monks. The monk idea came from Spanish history: in the Renaissance era, certain orders of monks would go out on horseback and collect tithes owed the Catholic Church. "Plus," says the agency's head manager Miguel González, "monks have a certain moral authority."

Not all debtors get the monk treatment. "The first thing we do is work up a report on the debtor's environment – his work situation, his financial situation, his family, his social standing. We use that information to determine the most effective strategy," explains Mr. González. "But the end is always the same: We have to find his weak spot. That's where we'll attack."

In many cases, the agency will reach a "friendly agreement" with the debtor; in some business cases, it will pressure a company's suppliers to stop delivery.

The monks are reserved for a certain profile – either the "professional debtor" or the person whose public image makes him or her especially vulnerable. Like many of its competitors, the Monastery sends out its agents in cars emblazoned with the company logo. The costumed agent will show up at the debtor's home or place of work and sometimes follow him on his daily rounds. In some cases he may carry a sign identifying the "person in front of me" as a debtor, or he may speak to – or shout at – the debtor. "A good collector can't be very easily embarrassed," explains Romero, of El Zorro Cobrador, which nearly lost its caped agent to the rifle-toting farmer.

In one notorious case, the owner of the Erreka restaurant in the Basque town of Irun was subject to a visit from a collector dressed in a tux. At first, he didn't notice when the specially marked car ("Tuxedo Collection Agency") parked outside his door. But when the costumed agent entered the restaurant and loudly demanded payment, there was no missing it.

"Everyone eating in the restaurant knew he was in debt," says Pablo Camacho, a lawyer who defends victims of what he calls "attacks" from collectors.

The agencies count on the power of that sort of humiliation.

"Personal honor, your public image, is still very important in Spain," says Zorro's Romero. "If one of our agents shows up at an apartment, everyone in the building is going to know there's a debtor there." Sometimes, the agent doesn't even have to say a word – the briefcases and cars emblazoned with the words "debt collectors" do the work for him. "If a guy goes into a restaurant and four 'monks' come in after him and sit down at the next table," says González, "everyone is going to know he owes money."

The agencies may be a blessing for small businesses that can't afford to let credit go unpaid, but they garner little sympathy from their targets. Mr. Camacho heads a legal service – Defender of the Debtor – that helps clients mount legal challenges for the presumed harassment they have suffered. "These companies exist on the border between the legal and the illicit," he claims. "But they use intimidation, and that's illegal."

Some courts have agreed. In 2005, a judge in Valencia found one agency guilty of coercion for threatening to send six collectors dressed as bullfighters to the debtor's wedding. The agency was fined 90 euros ($120), an amount that, like most fines in these cases, is hardly high enough to seem punishing. One political party, the Catalan Convergence and Union, introduced a nonbinding proposal in parliament in March proposing stiffer penalties and norms for collection agencies where there currently are none.

In the meantime, business is only getting better for Spanish collection agencies. Spain may have one of the fastest-growing economies in Europe, but much of that prosperity rests on a thick layer of debt. Some of that is personal debt: Mortgage debts increased 24 percent in 2006 over the previous year, and the ratio of debt to income now stands at 120 percent (up from 45 percent in 1995). But much of it is corporate. Indeed, the construction industry, which makes up almost 8 percent of the GNP, significantly higher than the European average of 5 percent, provides most of the targets of the Zorro agency.

"They're shameless," says Romero. "The heads of these construction companies drive luxury cars, eat in expensive restaurants, have nice apartments, but they're not paying the plumbers in the houses they're building, or the small company making the windows." In fact, he adds, that's where the idea arose for dressing eight of his 72 collectors like the swashbuckling bandit.

"You've seen the movie with Antonio Banderas? That's what we're like: We force the rich to give back to the poor."