According to anthropologist David Graeber, debt has involved some sort of institution throughout history. Whether it was the Mesopotamian kingship or Canon Law, some type of established authority controlled debt and ensured that there were social consequences for not paying.
As long as there has been currency, people have been borrowing and lending it. The beginnings of debt collection history involved enforced punishments upon those who were unable to pay their debts, and debts have even been paid with life itself.
If you look at the big picture, debt collectors and agencies are relatively new entities. Before their inception, it was the sole responsibility of the creditor to collect on the debt, and the law was typically on their side. In the past, many religious organizations discouraged their followers from lending and creditors from charging interest. Creditors could take consumers to court, and if they were found guilty, the consumers could be sent to debtors’ prison until his or her family could pay their debt in full. Collateral associated with the debt was a popular form of repayment (and still is in regards to car loans or home mortgages), and personal property was a popular consolation for creditors.
Debtors’ prisons were abolished by the federal government in 1833. The image above is from a debtors’ prison in Accomack County, Virginia, where it was not outlawed until 1849.
Indentured servitude was a common form of debt repayment, even in early America. Debtors worked off their debts with unpaid labor for their creditor, and their service sometimes lasted years. This coupled with the tense early history of bank-based lending led to the negative reputations of both lenders and collectors. In this series, we will explore in more depth the historical timeline that led to today’s collections environment.