‘Buyers’ give old debts new life

Uncollected debts used to die away, victims of time and creditors’ ability to write them off. But with a new breed of debt buyers, the past may haunt you.

By SCOTT BARANCIK, Times Staff Writer
Published June 3, 2006

Used to be, banks didn’t waste much time chasing credit card deadbeats.

Their staffs would hound debtors by phone for six or seven months, then invite outside collection agencies to take a crack. Few debtors were sued. Those who hunkered down long enough could escape without paying.

Not anymore. In the brave new world of debt, unpaid bills never die. Today speculators are buying thousands of these aging accounts at a time and extracting payments the original lenders could not.

Some debt buyers are hauling consumers into court and getting permission to garnish their wages, empty their bank accounts or even seize their cars. Others are convincing debtors to pay down old bills that are no longer legally enforceable.

The amount of written-off credit card debt sold to debt buyers in 2004 $63-billion worth, according to the Nilson Report was 100 times the amount sold in 1993. This year, a Las Vegas convention hosted by the Debt Buyers’ Association trade group drew 1,400 debt buyers, sellers, brokers, resellers and lawyers.

Other credit issuers are selling their unpaid bills, too, including such retailers as Radio Shack, Wal-Mart and Bally Total Fitness, and hospitals, auto lenders and utilities.

Asset Acceptance, one of five publicly traded debt buyers, operates a 52,000-square-fbot collections center in Riverview. In 2000, the Michigan company sued 25 debtors across Pinellas, Hillsborough, Pasco, Hernando and Citrus counties. Last year, it sued 3,855.

Over the same period, the types of lawsuits debt buyers usually file small-claims breach of contract, monies due or accounts suits —— rose 56 percent across Pinellas, Hillsborough and Pasco counties.

A morning cattle call at the Tampa courthouse shows why.

Courtroom 306

Hillsborough County Judge Charlotte Anderson reviews small-claims lawsuits every Wednesday. This morning’s docket allots 150 minutes for 165 pretrial hearings, more than half involving debt buyers.

In every case, the debt buyer has a lawyer. Not a single accused debtor does. Only two put up a fight. Sandra A. Thompson, accused of stopping payment on a $2,003 credit-card debt in 2001, tells the judge the debt was erased in bankruptcy court. The plaintiff agrees to dismiss Thompson’s case on the spot.

Michael A. Johnson says he has “no recollection” of a 2001 credit card debt totaling $2,118. The answer earns him a trip to mediation.

Everyone else goes down without a punch. Each admits owing all or some of his alleged debt. Dozens more automatically lose because they didn’t bother coming.

Debt buyers say landslides like this January mornings prove their account records are accurate. But critics like Bud Hibbs, a consumer advocate in Texas who calls debt buyers “scavengers,” says more than 90 percent of all defendants would prevail if they could afford to hire a competent lawyer. Tampa lawyer Don Golden says many accused debtors would be better off filing for bankruptcy anyway, which can slay multiple debts at once for a fraction of the legal fees.
The consequences of losing in court are steep. A successful plaintiff in Florida is entitled to tap a debtor’s wages and assets for up to 20 years, with interest.

Athena Funding Group, a Tampa debt buyer, successfully sued Allen Pankow in 2004 over a $924 credit-card debt. When Pankow, then a 51-year-old Largo resident, ignored several court orders to disclose his income sources and assets, Athena asked that he be jailed for contempt, court records show.

He was. After his $500 bail was posted, Athena obtained the court’s permission to snag it.
“Some people arc only motivated by the stick” said Carol Freeland, who chairs the Asset Buyers Division at ACA International, a collections industry trade group.

Filing suit isn’t for everybody.

Freeland, a partner at PRM Financial Services in Texas, says her company primarily buys accounts that are near or beyond the statute of limitations (three to 15 years, depending on the state). PRM offers to discount the amount owed and transfer the balance to a new credit card.

With regular payments, the debtor can improve his credit rating and eventually use the card for limited new purchases. Despite the 18.9 percent interest rate, Freeland says, many debtors arc grateful.

What most debtors don’t realize is that a person is not legally obligated to repay a debt whose statute of limitations has expired. But transferring the balance to a new credit card resets the clock to zero.

Debt buying: the science

Companies pay just pennies on the dollar for unpaid debts. Last year, for example, Asset Acceptance paid $102-million for $4.2-billion of consumer debt, about 2.5 cents per $1.
The discount is steep because the debts are difficult to collect. Half the accounts Asset bought in 2005 stymied at least three prior collectors. Even after spending several cents more per $1 on legal fees or other collection costs, most buyers would be happy to recover 20 or 25 cents per $1.

“The vast majority of what they buy never gets collected,” says Charles Trafton, an industry analyst with America’s Growth Capital in Boston. “It’s old, they haven’t had payments in a long time, (and) and oftentimes you don’t get great addresses, known places of employment.”

“We’re buying somebody else’s discarded accounts,” said Jeffrey Bovarnick, a principal at Asset Recovery Management in Needham, Mass. “We take huge risks, and we’re entitled to make a return on our investment if we abide by the law.”

That’s why there’s a science to buying bad debt.

Debt buyers kick a portfolio’s tires before bidding on it. They obtain partial account data from the seller and dump the stats into a software program designed to assess value.

Key variables include the average account balance, length of delinquency, number of years remaining under the statute of limitations, number of previous collection attempts, whether Social Security numbers are available, and debtor characteristics such as ZIP code and credit score, according to ACA International’s Buying Receivables. Historical patterns show that middle-aged people and those living in more affluent ZIP codes are more likely to repay a debt.

A buyer who has had success collecting on auto loans may pay more for them at auction than someone skilled at medical collections. A buyer who expects to file many lawsuits may pay more for a portfolio that offers original account documentation.

After submitting the winning bid, a buyer typically scrubs his new portfolio of debtors who have died or otherwise are not worth chasing, such as those whose debts were erased in bankruptcy. The buyer informs the remaining debtors by mail that their account has been purchased and that they have certain legal rights, such as to end routine collection calls and letters. Most debt buyers piggyback a settlement offer onto the notice.

The next step is to assign each account a collection strategy. Every buyer handles this differently.

At Asset Recovery Management, the first priority is to quickly sue any debtor whose statute of limitations is nearly up. Others are given roughly six months to respond to the company’s initial letter and make a deal, most likely a monthly repayment plan. Those who don’t may be sued, too, though cost is an issue.

“That’s not my preferred course of action,” Bovarnick says

It’s what they do

What makes debt buyers better collectors?

A gentle touch, says Barbara Sinsley, legal compliance chief at Asset Acceptance, where debtors are called “customers” and 36 percent of all collections come via the courts.

“Our mantra is ‘Just be nice.”’ says Sinsley, who works at Asset’s Riverview office. “I mean, frankly, if you’re not working with a customer, they’re less likely to pay.”

Debt buyers can afford to be patient. Unlike creditors, most aren’t subject to accounting rules that require them to quickly write off defaulted loans as a loss. Some are willing to wait as long as 10 years for a debtor to recover from the drug habit, gambling problem, illness, divorce, job loss or jail sentence that knocked him off his financial feet. Because of their anonymity, debt buyers are freer to customize repayment plans.

“Citibank doesn’t want to he known for settling with debtors for 10 cents on the dollar, because then everybody would try to settle with them for 10 cents on the dollar,” says Gobind Sahney, chairman of Receivables Acquisition & Management Corp. in New York.

Debt buyers also are freer to turn the screws. A creditor, such as a retail chain, might soften its tactics for fear that an angry debtor will cease shopping at its stores and bad-mouth it. But the debt buyer’s primary constraint is the law, including the federal Fair Debt Collection Practices Act and Fair Credit Reporting Act.

In short, the lender’s core business is to lend. The debt buyer’s is to collect.

Times staff writer Matthew Waite and staff researcher Angie Drobnic Holan contributed to this report. Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751.

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41 credit advisors ‘poisoned industry
? IRS says many counseling firms are not nonprofits

Six months after the federal government began requiring consumers to get credit counseling before filing for bankruptcy, IRS audits revealed that the $1 billion nonprofit credit counseling industry is riddled with companies profiteering on those who can least afford it.

In a sweeping program to weed out organizations flouting laws governing nonprofits, the IRS on Monday said it has stripped or was in the process of stripping the tax-exempt status of 41 companies that claimed to provide educational and counseling services to consumers, but instead were in the business selling prepackaged debt management plans.

The IRS did not release the names of the companies.

Nonetheless, IRS Commissioner Mark Everson harshly rebuked the audited firms, which represent 40 percent of the industry’s revenues, calling the growing sector “the poster child of bad conduct” that has “poisoned the entire sector of the charitable community.”

Millions of Americans look to the agencies for credit counseling, debt management assistance and other financial advice.

Under the Bankruptcy Reform Act of 2005, which went into effect Oct. 15, consumers are required to seek financial counseling before filing for Chapter 7 bankruptcy.

The National Association of Consumer Bankruptcy Attorneys, which opposes the credit-counseling requirement because of the additional financial burden it places on those already distressed, said the report was cause for concern.

“We have to send our clients to these credit counseling agencies, and the IRS is pointing out that many of them have questionable business practices,” said Bradford Botes, executive director of the association.

Service fees charged
Typically, credit counseling agencies charge consumers a service fee averaging between $35 and $50, although some can receive advice for free, depending on need. If consumers enroll in a debt management plan, they also pay the agency a small percentage of their total debt to make payments to their creditors at reduced interest rates or balances negotiated by the agencies. Some agencies also collect a percentage of the recovered debt from the credit card companies.

Not everyone is taking advantage of the law.
Nick Jacobs, a spokesman for the National Foundation for Credit Counseling, defended the many agencies he said were legitimately trying to help people fix their lives, but said the IRS was right in its assessment of the industry’s problems.

Preying on consumers
“There are people out there who are preying on consumers and taking advantage. They’re casting the entire industry in a very black light, so any efforts towards weeding out those bad actors is very welcome from our point of view,” Jacobs said.

Companies that have not been audited are not out of the woods. Everson said the IRS will be sending compliance inquiries to each of the other 740 known tax-exempt credit counseling firms. The agency is also issuing expanded guidelines detailing the legal standards of exemption.

Everson recommended consumers pick one of the 150 consumer counseling organizations approved by groups like the Better Business Bureau. But bad actors may exist among them, too, he cautioned.

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Aggravated cardholder turns the tables

Article by: Loren Steffy – Houston Chronicle 10-19-2005

THIS is the story of one man who, in some small way, is fighting back. It’s the story of a man who, driven by the sarcasm of another, decided to take on the system.

His name is Hale Hilsabeck, and he owns a karate school in Denver. He’s part Howard Beale, part Don Quixote.

Last March, Hilsabeck was just an ordinary man with credit cards when he walked into the Red Robin restaurant in Lakewood, Colo., and used his MasterCard to pay the $12.21 tab for lunch. The lunch put him over the credit limit on the card by $1.91. When his bill arrived a few weeks later, he was charged a $35 “over-limit fee.”

Hilsabeck mailed in his minimum payment, which, according to his MasterCard statement, arrived on time in, early May.

He hadn’t used his card between the lunch at Red Robin and the time he mailed his payment because he didn’t want to incur another over-limit fee.

He assumed the minimum payment would put his balance below the credit limit. But Hilsabeck had entered the surreal netherworld of credit card finance, where fees are conjured from other fees. He’d soon learn he’d fallen into one of the credit card industry’s most dangerous traps: the fee spiral. In fact, because of the ‘over-limit fee,” he never brought his balance below his credit limit. So while he didn’t know it, the meter kept running.

Over-limit fee assessed on other fees

When Hilsabeck’s next statement arrived, he discovered he’d been socked with another $35 “over-limit fee.” He says he called his card issuer to complain and was told nothing could he done. A few weeks later, he received a letter apologizing for his inconvenience and suggesting he consider applying for a higher credit limit, Hilsabeck’s statements show the “over-limit fee” was assessed before his payment was received, meaning the fee itself contributed to him, exceeding the credit limit. It, other words, the penalty had become self-perpetuating. Hilsabeck paid the next bill but refused to pay the $35 ‘over-limit fee.

When his June bill arrived, it included you guessed it — a third “over-limit fee” for failing to pay the second one.

Fees of his own
Realizing there was only one way to break free from the undertow of fees, Hilsabeck decided to pay the entire balance of $799.19, more than $100 of which was over-limit fees,” and close his account.

But the story doesn’t end there. About that time, Hilsabeck saw a column I wrote this summer that appeared in the Rocky Mountain News. I wrote it as an open letter to MasterCard, saying I was going to assess the card company fees the same way it does us.

Spurred by my sarcasm, Hilsabeck wrote his own letter to his card issuer, HSBC. When he’d paid off his account, he’d written a check for a flat $800. He now demanded the bank return the difference of 81 cents.

“I’d prefer that you send a certified check or money order, since you have no credit history with me and I have no information in regard to your references,” he wrote.

He gave HSBC 25 days to make the payment, after which he would assess a late fee of $105.

A $252 tab
In mid-September, he called HASBC and was told that he would indeed get a refund for the 81 cents. HSBC also refunded $70 worth of “over-limit” fees. But it didn’t make his 25-day deadline, which is the same amount of time HSBC gives the cardholders to pay their bills

By this time Hilsabeck was. To quote Beale, the fictional newscaster from the 1976 film Network, mad as hell and not going to take it anymore.

He informed HSBC that he would assess additional late fees and finance charges of 20 percent for each month that HSBC is delinquent.

He figures HSBC now owes him $252, which will jump to $428.40 next month if the bank hasn’t paid.

Inspiration for others
An HSBC spokesman says the company can't discuss specific customers. Hilsabeck says a company representative told him HSBC has no intention of paying.

In fairness, HSBC didn’t have to refund the over-limit fees. Its convoluted and ever-changing credit agreement allows it to do pretty much whatever it wants.

Hilsabeck says he’ll continue to send HSBC a statement every month. If nothing else, he’s finding satisfaction in his quixotic effort. He figures he’ll let the balance run up for several years until it’s large enough that some bored lawyer might find it worth trying to collect.

“I don’t see why not,” he says. When Hilsabeck first contacted me, he said my column served as his inspiration, He’s got it backward. He’s the inspiration, His effort may prove futile, but he’s voicing the frustration of abused cardholders everywhere.

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20 sneaky credit card tricks

By Amy c. Fleitas * Bankrate.com

Credit card companies can be as slippery as a handful of greased Jell-O. They have all kinds of tricks to gouge your wallet and drive up your bill. While arguably unfair, all these tricks are legal, leaving you no alternative but to stay as informed as possible to protect yourself.

Read your statement, report any irregularities immediately and watch for these 20 sneaky credit card company tricks. Start saving on fees now.

1.The old bait and switch
So you’ve got this ingenious plan, You’re going to apply for a great credit card that gives you tons of frequent-flier miles, put all your shopping on it, and then head to the Bahamas in February. Stop -- the miles you earn, if any, might get you no farther than Hope, Ark. When and if you get that card, study the terms carefully. If you don’t qualify for the great card, the credit card company can send you a completely different card with different terms. If it’s not what you want don’t activate the card. Call the company and cancel the account.

2. Musical address
Want to play hide-and-seek with your credit card company? No? Too bad, Tag, you’re it. Here’s your late fee.
Credit card companies sometimes change their payment P.O. Box. If you send your payment to the wrong one, it may meander around the postal system or your credit card’s headquarters for a while before finding its way to the payments department. That means you’re responsible for the late fee and your interest rate could be raised. It will be raised if you have one of those super-doper low rates guaranteed. To avoid falling for this trick use the envelope provided in your statement. If you use a different envelope or use online banking, check the mailing address on your statement each month or call the company to verify the address. Always pay early to avoid last-minute mix-ups.

3. Late fees in minutes
If you’re five minutes late it could cost you $33. You see, even though your due date may be the 15th of the month, upon further inspection of your statement, you might see it’s actually due by 1 p.m. So if Harvey the letter carrier took a few minutes of shut-eye at the cul-de-sac, it will cost you a late fee and a possible rate increase. Check your statement to see what time and date your payment is due and send it in early.

4. Over-the-limit fees
This fee is a no-brainer -- don’t go over. But what you don’t know are the little tricks credit card companies use to push you over the limit. One Bankrate reader wrote us to describe how his brand new credit card pushed him over the limit.
He applied for a card with a high-credit limit and requested a balance transfer to pay off another card. He received his new credit card and was hit with an over-the-limit-fee the first time he used it. Apparently, the credit card company gave him a card with a much lower limit and transferred as much of his balance as the card could hold. So when he got his card, unbeknownst to him it was already maxed out.

5. Cash advance fees and rates
Don’t take cash out of your credit card. Read the fine print on your statement and you’ll see it’s a very bad idea. Your card might have a really low rate for purchases but if you take out a cash advance, get ready for a shock. The rate for cash advances is much higher. And there is no grace period --you start paying interest right away. Aside from paying a high rate on the cash you take out, you’re going to pay a fee, usually 2 percent to 4 percent of the amount advanced. And your payments will be applied to the lower-interest balance before they are applied to your cash advance.

6. Reverse the late payment, but up the rate
Credit card companies may forgive a late payment, but they could still punish you by raising your rate. Let’s say you fell for the ever-changing-mailing-address trick. You call and scream until they reverse the late-payment fee. But next month, when your bill arrives, you notice you’re now being charged a much higher interest rate because you were late on a payment. A Bankrate reader told us this happened to him.

7. Increasing the rate based on other accounts
Your credit card company may use your late auto loan payment to justify a rate increase. They frequently check your credit report and look for any late payments to justify raising your rate.

8. Fixed rates aren’t fixed
A fixed rate means the credit card company has to give you 15 days notice before raising your rate. You can call and ask them to lower it, but they don’t have to do it. Here’s how to ask for a lower rate.

9. Raising your rate for no reason
They don’t need a reason. They can just do it--it’s in the agreement. If they won’t give you a lower rate, get a new card and cancel the old one.

10. “Free gifts’ that cost a bundle
Did you really think they’d give you something for nothing? Throw away those offers that come in your credit card statement.

11. Selling credit card theft insurance
You don’t need theft insurance for your credit card. If it’s stolen, you are only liable for $50, at most.

12. Selling disability coverage
Credit card disability insurance will make debt worse, if it ever kicks in One Bankrate reader wrote in to say she developed cancer and her credit card company kept finding reasons not to activate her disability insurance even though she paid for it every month. But credit card disability insurance is a really bad idea anyway. Even though you don’t have to make payments, the debt piles up all along. And you can’t use the card during that time either.

13. Setting low minimum payments
It’ll take forever to payoff your balance if you only pay the minimum. Most credit card companies set the minimum payment at 2 percent of the debt. At that rate, you could be paying for life. To see how long it will take you to pay off your credit card, use our True cost of paying the minimum calculator.

14. Cards that cost more in fees than they give in credit
If you’ve got shaky credit, you could fall prey to a really bad credit card deal, like the card with $360 in fees that leaves you with a $19 credit limit.

15. Balance-transfer fees and disappearing low rates
If you’re not careful, you’ll get socked with unexpected fees and soaring rates when you transfer your balance. Before transferring a balance, ask if there is a fee. Also, ask how long the low rate lasts. Those low rates on credit card offers are usually only good for six months. If you are late on one payment, the low rate is immediately replaced with a much higher rate. Another note of caution: When you transfer a balance from one card to another, wait to see the balance appear on the new card before closing the old one.
Don’t be fooled.

16. Zero-percent offers -- with a big catch
Those zero-percent offers sound like a good idea until you miss a payment or the introductory period ends. After that, you can end up with a sky-high rate.

17. Charges for charging abroad
In addition to the 1 percent currency exchange fee on Visa and MasterCard, some major banks are charging a 2 percent fee on credit card and debit card purchases made outside the United States. After a vacation’s worth of spending, those fees will add up.

18. Shrinking grace periods
The grace period is the time between when you make a charge or, your credit card and when that amount starts building interest. Many credit card companies are shrinking that time down to 20 days, meaning that by the time you get your bill, you may already be paying interest.

19. Pre-paid gift credit cards worth less than you pay
The fees on these cards can make them worth less than they cost. And they can expire rapidly making them, worthless. You’d be better off giving cash.

20. Is anyone there?
If you want to talk to customer service, you better have a lot of time to kill. Credit card companies don’t want to save you money at their expense. So they will transfer you and put you on hold until you are blue in the face. The name of the game is Frustrate the Customer Until They Give Up and Go Away. This trick isn’t limited to the credit card industry, either. When I wanted to lower my bill, a certain cell phone company spent an hour and a half putting me on hold, transferring and “accidentally’ hanging upon me. Persistence pays off--but it’s exhausting.

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Credit Cards Raise Minimums Due
Move Aims to Control Debt But Might Hurt Consumers Already Strapped for Cash

By DIVA GULLAPALLI – THE WALL STREET JOURNAL December 17-18, 2005

CREDIT CARD COMPANIES are boosting their minimum monthly payment, amid a debate about whether the moves will benefit consumers or hurt them.

The Treasury Departments Office of the Comptroller of the Currency began urging credit-card companies to raise minimum payments in 2003 because they had dipped so low that cardholders were falling further into debt each month. Most credit-card companies are on track to fix the issue by the end of the year, meaning they have already tolled out new formulas and sent out change notices to customers.

Many banks now will require customcr5 to pay at least 1% of their balance each month on top of interest and fees, which is intended to help cardholders whittle down at least part of their principal. Previously, they were typically required to pay 2% of their balance, but that included interest and fees. If such costs were particularly high—because of a large balance—cardholders could pay the required minimum and still see their principal rise, a phenomenon known as negative amortization.

J.P. Morgan Chase & Co. will require a 1% minimum payment plus interest and fees by year-end. Wells Fargo & Co. will require the greater of 1% of the new balance plus fees and finance charges or $15 for a standard credit card, effective next month for existing customers. Bank of America Corp., which had required a minimum payment of $10 plus fees and finance charges, also switched to a minimum payment of 1% of the balance plus finance charges and late fees, effective Dec. 1.

Citigroup Inc. began notifying customers about the change in February and will require minimum payments of 1% of the balance, plus finance charges and late fees, by the end of the year. Under the old minimum, Citigroup generally asked for only 1/48th of the balance, according to a company spokesman. Capital One Financial Corp. meanwhile, is keeping its minimum-payment policy of the greater of 3% of the balance or $15.

The OCC sought to change such practices to help cardholders control debt, reduce interest expenses through faster pay down of balances and end the spiral of negative amortization. Yet the new approach is still generating controversy and confusion, partly because card companies found the government’s initial guidance vague.

Credit-card companies say the impact of such changes will be negligible as most of their customers already pay more than the minimum balance. A J.P. Morgan spokesman, for example, said 90% of its customers pay more than the minimum. The American Bankers Association says about 75% of consumers either pay off their credit-card balance in full or pay more than the minimum each month, with only 4% making the minimum payment each month.

But some consumer-advocacy groups say just the opposite. According to the Cambridge Consumer Credit Index, which measures credit behavior, those making just the minimum payment or no payment at all rose to 45% from 42% last year. “I’m confident that this will hurt a lot of consumers living on the threshold” of financial stability, says Chris Viale, president and chief executive of Cambridge Credit Counseling Corp. in Agawam, Mass., which compiles the credit index.

The minimum-payment increases, advocates say, could squeeze those already struggling to keep up with minimum payments, such as college students with big debts and those with fixed or low incomes. It could double monthly payments in some cases, which could add up, given that the average American family holds about a dozen cards, they say. Coupled with still-high gas prices, rising interest rates and recent changes that make it harder to file for bankruptcy, the effects of the higher minimums become even more worrisome, advocates say.

Regulators want people to “pay off their debt in a reasonable amount of time,” but “this could pose a problem, at least in the short term,” for some. Says Stuart Feldstein, president of SMR Research Corp. in Hackettstown, N.J.

To cushion the blow, some industry experts are advising cardholders to shop around for lower interest rates and consolidate balances onto a single card to pay off the most principal, although such transactions often involve fee.

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Once-Ignored Consumer Debts Are Focus of Booming Industry

Small Claims

Once-Ignored Consumer Debts Are Focus of Booming Industry

By SUEN HWANG
Staff Reporter of THE WALL STREET JOURNAL

Asset Acceptance, a New Type Of Collector, Hits Paydirt
Suing for Modest Sums
_______________
Some Fight Back – and Win
______________

In 1996, when Heather Scott’s marriage split up, she defaulted on $3,000 she owed on her Discover credit card. “It was either that or feed my kids,” the Phoenix woman says. Until recently, she probably could have walked away from her credit-card debt with little more than a damaged credit report. But an increasingly aggressive debt-collection industry is going after people, like Ms. Scott, who used to fly below the radar.

For six years, she heard nothing about her Discover debt. Then, in 2002, she was sued in small-claims court in Phoenix. A company called Asset Acceptance Capital Corp. had bought her Discover debt and wanted to collect. The 35-year-old single mother of two, who says she couldn’t afford a lawyer, didn’t show up in court. Asset won a default judgment of about $9,500, including more than $2,000 for the company’s legal fees. For the past year, the company has been taking about $100 out of the $625 paycheck she receives every two weeks as an administrative worker for the state of Arizona.

Speaking generally, Asset makes no apology for pursuing people who failed to pay their bills and says it treats them all fairly. The company has now agreed to settle with Ms. Scott. She will pay an additional $3,000, for a total of $6,111, or 36% less than the court judgment.

Asset’s hard-hitting strategy of going after consumers in small-claims courts has affected tens of thousands of people around the country. In the process, the company is helping reshape the burgeoning business of profiting from bad consumer debt.

Most home and car lenders have never hesitated to chase debtors who fall behind on payments. But many other consumer lenders, such as credit-card issuers and businesses ranging from health clubs to utilities, traditionally didn't tail debtors for more than a few months. These companies have feared bad publicity and have wanted to avoid the costs of pursuing what often are relatively small debts. As the number of these debts grew, a new breed of collector sprouted, eager to buy up consumer debt that creditors had given up on. Now, as more Americans are juggling more debt than ever before, the newcomers have grown into a multibillion-dollar industry that is scraping the bottom of the barrel to go after debtors who previously would have been left alone. Unlike old-fashioned collection agencies, which pursue debtors on behalf of a client company and keep a set percentage of what they gather, the newer debt-buying companies typically acquire large portfolios of bad debt at a discount The king of the debt buyers is Asset Acceptance, based in Warren, Mich. It scoops up the oldest, least-desirable debts that creditors have already charged off as losses. Sometimes, Asset chases debtors after as many as three previous collection firms have failed. Asset and its rivals can make a profit because they keep costs low, paying as little as two cents on the dollar for debt. Asset adds a legal component to the strategy, employing an army of outside lawyers to file thousands of small-claims suits each year. "These debts have already been through an arduous process - - they've had the kitchen sink thrown at them - - so we need to go beyond our predecessors to be successful," says Asset's chairman, Rufus H. ("Bud") Reitzel. Financially, Asset has been a huge success. It employs 1,600 people, up from 37 in 1996. It owns 16 million accounts, including $4.2 billion in debt bought just last year. Revenue has grown an average of 57% a year since 1999, topping $160 million last year. The company’s operating earnings, which reflect a reorganization related to Asset’s initial public offering in March, grew on average by 58% a year, to $54.8 million last year. A group led by Bear Stearns Cos. took Asset public on the Nasdaq Stock Market at $17 a share. It closed Friday afternoon at $18.90, down 24 cents. Asset’s rising fortunes reflect those of the booming debt-buying industry, as growing numbers of creditors - - from credit-card issuers to phone companies to hospitals and gyms – turn to selling their bad debts as a source of revenue. In 1993, $660 million of charged-off credit-card debt was sold, according to the Nilson Report, a trade publication. Last year, the number reached $57.3 billion. In the past two years, three debt buyers – Portfolio Recovery Associates Inc., Asta Funding Inc. and Asset – have issued shares to the public for the first time. Encore Capital Group Inc., a debt buyer in which Wall Street veteran Nelson Peltz has a major stake, moved from over-the-counter trading to the more prestigious Nasdaq Stock Market last year. Encore’s shares have soared to $18.52 as of Friday, compared with 30 cents in the beginning of 2002. Asset and other debt buyers say they frequently offer to resolve debts for far less than what they are owed, benefiting consumers. Asset further asserts that by buying old debt, it indirectly encourages new lending and the lowering of borrowing costs. “We are the good guys,” Mr. Reitzel says. His company’s new collectors go through four weeks of training that drills them in federal debt-collection laws, and executives say their employees are so sincere that some debtors send collectors gifts and cards for Christmas. Some attorneys who have represented consumers against Asset say the outside lawyers the company hires are generally professional in their dealings. Small Claims But there is more to the story. According to some lawyers and advocates for consumers, Asset uses the relaxed rules of small-claims and municipal courts to file suits that contain little documentation of the debts it seeks to collect. These courts typically allow for quick judgments when legally unsophisticated defendants fail to contest the suits, the critics say. Once it obtains judgments, Asset can use the full weight of the legal system to enforce its victories, primarily by seizing assets or garnishing wages. When individuals fight back against the company in court, consumer lawyers and advocates say, Asset often drops its suits, not wishing to engage in expensive legal skirmishing. The upshot is that poorer and less sophisticated debtors are more likely to face a judgment for Asset, these lawyers and advocates say. Asset counters that it tries to collect from all of its debtors before going to court. The company denies that its methods are harder on the unsophisticated. It says that all of its legal actions are backed by the “documentation necessary” and that it informs consumers quickly when they have been sued. “Frankly, a debtor is a debtor,” the firm said in a written response to questions. “If a person has the resources to pay their past obligations, we will pursue the matter to the fullest extent.” Collections that include filing suit generate roughly a third of the company’s revenues and have been important to its overall strategy, Asset said. But legal actions aren’t its “primary objective.” The company said it has assisted millions of consumers in resolving past financial obligations, adding, “We firmly believe that our corporate mission is to treat our customers respectfully – a critical component of our success.” What Asset has discovered – and what other debt collectors are realizing – is the power of small claims and municipal courts. Set up to help individuals quickly settle minor disputes, theses courts generally offer cheaper filing fees and often require plaintiffs to gather less evidence to get suits started. These courts also sometimes impose less onerous requirements for giving defendants notice that they are being sued. And judges overseeing small claims typically plow through dozens of cases a day – far more than conventional judges – making it more likely that a plaintiff will walk away with a quick default judgment. Judi Norwood received a call from an Asset attorney in July. Back in 1999, when she graduated from Arizona state university, she says she couldn’t find a good job and defaulted on what she owed on her MBNA credit card. She says she doesn’t remember the amount. Ms. Norwood fended off collectors for several months, and then, when she didn’t hear anything for a few years, she thought a bad period had ended. She married, had a son and now works as a waitress at a steakhouse near Florida’s Gulf Coast. Her husband is a surveyor. They lived with his parents to save money and had put aside $5,000 for a down payment on a small home of their own when the call came from Asset – less than a week before they were scheduled to close on their new home. She says the Asset attorney told her the company would sue unless she paid off the old MBNA debt, which Asset said had grown to nearly $7,000, including interest. That’s nearly twice the credit limit on her old MBNA card, Ms. Norwood says. She and her husband decided to go ahead with their home closing and fight Asset in court. She says she has retained an attorney who believes the four-year Arizona statue of limitations applies to her debt and has expired. Asset says the five-year Florida statue applies. Ms. Norwood says she refused a recent Asset offer to settle the case for $2,000 and that she received the company’s legal papers on Oct. 15. While Asset appears to be following the letter of the law, its practices concern some legal experts, who say small-claims court was never intended for this kind of litigation. “The consequences of small-claims court is the same as any other court, and now [a company] has the full panoply of remedies to collect,” says Richard Alderman, director of the Center of Consumer Law at University of Houston Law Center. Because conventional courts typically have more safeguards for defendants, he adds, debt-collecting companies should be forced to file their suits there, “before we start garnishing wages, taking away property, and doing things on a wholesale manufactured basis.” Asset says it goes to great lengths to keep track of and obey laws that vary greatly from state to state. It also says it doesn't always file suit in small-claims courts. In Michigan, for example, attorneys are barred from appearing in small-claims court, so Asset's lawyers use more traditional courts, a company spokesman says. Many veterans in the debt-buying industry say that other things being equal, women are more likely to repay than men. A former manager of one of Asset's regional branches says Asset's computer system flags accounts on which women are the primary debtors. Another category that gets highlighted is debtors who have previously promised to pay. But Asset denies focusing on women. The company says it doesn't know whether w omen repay more readily. Six years after her divorce and default on her credit-card debt, Ms. Scott of Phoenix heard from an Asset lawyer that she was about to be sued. Unable to pay for her own lawyer, she says she went to a free legal-services agency where a lawyer told her there was no point in showing up in small-claims court. That was bad advice, which Ms. Scott says she followed. Asset won a default judgment of $7,731 in February 2002, a sum that included interest costs and $2,035 for Asset’s legal expenses and court fees. Two months later, Asset offered to settle for $3,290. Ms. Scott says she didn’t have it. By August, Asset had withdrawn the offer, and the total bill had risen to $9,537. Then, last month, Ms. Scott offered to pay the company another $3,000 that a relative agreed to lend her. Asset accepted the settlement. “I had to get it behind me,” Ms. Scott says. Court Skirmishes Some former debtors and lawyers who have skirmished with Asset say Ms. Scott may not have had to pay the company anything if she had gone to court and contested its claims. Asset acknowledges that, when buying a pool of debt, it typically gets a bare-bones list of debtors’ names, their social security numbers, the amounts creditors were owed and the date of last activity. To acquire more information would require creditors to dig deep into their files, which would cost Asset dearly. In many instances, where debts have already changed hands, industry executives say it is very difficult to obtain definitive documentation. As a result, if a debtor can plausibly argue in court that the amount Asset is seeking may be incorrect, a judge may dismiss the case for lack of evidence, some consumer attorneys say. “They usually don’t have the documentation,” says Glen Chulsky, an attorney in Dover, N.J. who now represents individuals but previously did work for debt-collection firms. Jason David Fregeau, a lawyer in Longmeadow, Mass., says he has faced off against Asset seven times in recent years, and each time the company has settled because it lacked documentation. “I have yet to see them prove their case,” he says. Asked about these assertions, the company says it has acted appropriately. Asset confirms that it is often hard to prove old debts and that consumers are challenging its documentation more often. Asset executives say the vast majority of debtors know they owe money, and those complaining about court proceedings are merely trying to escape from paying. “If a person has a plausible or legitimate reason why they cannot pay, or if the debt is fraudulent, then we will work with them to resolve the issue,” the company said in its written statement. “However, from our experience, we find that most people accept their responsibility and pay their past obligations.” Paul Zecchino say Asset appeared out of the blue, suing him three years ago in connection with an old Citibank credit-card debt for $6,000. Astonished by the amount Asset was demanding, Mr. Zecchino, a freelance writer in Englewood, Fla., consulted with lawyers and responded to the court that he lacked knowledge of Asset’s claims. He asked that the company provide evidence. Asset never responded, Mr. Zecchino says, even when he offered to settle the case for a smaller amount. The suit was eventually dismissed. Idalberto de la Torre appeared in a Miami small-claims court in November 2003 to contest Asset’s suit against him. The company demanded $1,800 in old Providian Financial Corp. credit-card debt, plus another $900 in legal fees. Mr. de la Torre, an administrator for Delmonte Fresh Produce Inc., hired and attorney and was able to produce copies of credit reports that he says showed that Asset’s records were wrong. Asset agreed to drop its suit. Asset farms out legal cases to an army of lawyers who earn a percentage of everything they collect. The company is one of the few debt buyers to maintain a big in-house legal staff, as well. At its headquarters, one group of workers does nothing but manage lawsuits. "We're making sure the attorneys are getting things done," says President Brad Bradley, gesturing to workers typing busily in their cubicles. The company won't say how many suits it files, but industry veterans estimate that the figure reaches into the tens of thousands a year. Asset says the suits it files are only a fraction of the 16 million accounts it is currently processing. The company added in a written statement that it believes itself to be "at the low end of the industry when it comes to legal collections." The debt-buying industry suffered a big setback in the late 1990s, when then-biggest player Commercial Financial Services Inc., collapsed in an accounting scandal. But the industry bounced back as consumer debt continued to increase. A doctor’s son from Mount Clements, Mich., Asset’s Mr. Reitzel, 70, started a finance company in 1962 that loaned people money to buy carpets and vacuum cleaners. He visited borrowers’ homes every Friday for payments. In the 1970s, he began buying bad debts from other companies but struggled to find sellers. “We’d go around to karate schools, I’m not kidding you,” says the businessman. The savings-and-loan debacle of the late 1980s gave him his first big break. With his wife helping out in the portfolios and loading boxes of documents into a U-Haul truck. While today the company says it sues only recalcitrant debtors, Asset has internal quotas to encourage employees to refer cases to the lawyers. Newer collectors are expected to refer two or three debtors a month, while the quota for those with more than a year’s experience is 12, a former employee says. Asset said in a written statement that collectors are asked to turn over accounts because otherwise they would tend to continue working on them, decreasing the overall efficiency of Asset’s collection efforts. Asset’s success with lawsuits has inspired rivals to follow it into the courtroom. Portfolio Recovery Associates, a Richmond, Va., debt buyer whose shares skyrocketed after it went public in 2002, say 29% of its second-quarter revenues were generated by legal collections, up from 25% the year before. Asset employees say they pride themselves on their civility. One worker consoles a debtor, saying, “Oh I know, I know it. Welcome to the club.” “You catch more flies with honey than vinegar,” the Asset employee says later, “and we spread a lot of honey.” Go To Top

The New York Times

July 9, 2006 - Editorial

When a Stranger Calls

Sewell Chan reported in The Times last week that the number of complaints lodged against third-party debt collectors has soared, rising faster than those for any other industry. From 1999 to 2005 the number of complaints received by the Federal Trade Commission increased by a factor of six. Complaints to New York City officials have more than doubled just since 2003. With last years draconian new bankruptcy law pushing the last resort for the financially desperate farther out of reach, those numbers are only going to rise without stepped-up enforcement.

Third-party collectors are not the original lenders — the banks or credit-card companies that set the original terms with consumers. The collection agencies buy up debt for a fraction of its value and then try their hands at shaking loose payments. Most are law-abiding, and perform a legitimate service. Debts should be settled and someone has to track down deadbeats and absconders who make borrowing more expensive for the rest of us who pay our bills on time. But a growing number of financial bounty hunters can he extremely aggressive, not to mention indiscriminate.

According to the commission, some collectors call at all hours of the night, use obscene language, falsely threaten imprisonment or the seizure of property, and even humiliate their victims by contacting family members and employers. They sometimes seek a larger amount than the borrower actually owes — if indeed it was owed in the first place. Debt collectors have gone after people who have already paid their debts and even those who never had them to begin with. Sometimes that is a result of mistaken identity, but it is also increasingly due to identity theft.

Consumers should know that they are not powerless and that they do have rights. Collectors may not call late at night without permission. In most states family members or workplaces may be called only once, and then only to locate the borrower. It is up to the collection agency to furnish written proof that the debt is valid and it cannot bother a borrower in the meantime.

If harassment continues, consumers can call 1-877-FTC-HELP (1-877-382-4357) toll-free. Last year the commission won a judgment of $10.2 million against a company for use of illegal collection tactics. Once in a while the bullies are bullied back.

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By Bankrate.com

Every now and then you read about a retiree snookered in a Nigerian bank scam, or some nitwit marched off to jail while still insisting the income tax is illegal, and you just shake your head and wonder who could believe that guff.

Unfortunately, a lot of people.

Just ask Barbara Mikkeson, co-founder and researcher at Snopes.com, a Web site dedicated to the destruction of urban myths. Mikkelson spends a lot of time getting to the bottom of financial tall tales that she encounters.

So does Catherine Williams, vice president of financial literacy at the nonprofit credit counseling agency, Money Management International. Williams has a slew of oddball beliefs folks have shared with her during the company’s educational seminars.

“We get into situations where we can’t pay our bills, and we become like 3-year-olds: the ‘dog ate my homework’ routine,” she says of Americans’ willingness to latch onto urban legends. “We want to believe there is some excuse, and something will bail us out of still owing the money.”

Legends and tall tales

It doesn’t help that rooted in many myths is the tiniest grain of reality, she adds. The trick is extracting that truth. Check out this collection of legends:

Poppycock, says Williams. The color of ink makes no difference.
“However, gel ink doesn’t image well, which makes it difficult to verify the signature and the check,” say Tracy Mills, of the American Bankers Association. “As a result, the paying bank cannot authorize the transaction, and chances are the check will be returned to the creditor or merchant.”

Then, instead of getting some extra time on the float, you are socked with a returned-check fee.

Myth No. 2: You don’t have to pay income tax – it’s illegal. Only foreign income is subject to Uncle Sam’s cut, the story runs, and there’s a form you can file to exempt yourself. But no one will tell you about it.
The truth is, there is no form.

“I have this flat spot on my forehead because I’m constantly striking it with the palm of my hand,” Williams says. “Somebody has way too much time on his hands, usually because he’s either done something illegal or he hasn’t followed the rules of the game. So he looks for something that might get him off the hook for a period of time.”

Sorry, Charlie: You must fill out your IRS forms before April 15.

Myth No. 3: I’m under 18, so I can’t be held accountable for a debt. (Variation: Credit-card debts are wiped out when you turn 19.) Spring-breakers love to use this one to justify running up a cruise or resort-hotel bill on their credit cards.

This one is only partly myth, because it is true that people younger than 18 cannot sign a legally binding contract. So they can’t take out a loan or sign a credit-card agreement. “You are legally an infant until you are age 18,” Williams says. However, credit-card companies will allow a minor to have a card – if an adult has co-signed the agreement or added the minor to their account as an authorized user.

So someone will pay – the adult who signed on the dotted line.

Myth No. 4: My hotel key card has my credit-card information. The ramification is that you’d better clutch it tightly or a con will decode it and rack up a big bill.

The urban legend has an actual source: the police in Pasadena, Calif. A fraud-detection team had honed in on one such hotel key and notified each other before verifying whether it was standard practice in the industry. It wasn’t, but they didn’t find out until after the information leaked to the public and spread like wildfire.

The Pasadena Police Department now has devoted a page to this accidental myth at its Web site. Its says, “Detectives have contacted several large hotels and computer companies using plastic card key technology and they assure us that personal information, especially credit card information, is not included on their key cards. The one incident referred to appears to be several years old, and with today’s newer technology, it would appear that no hotels engage in the practice of storing personal information on key cards.”

Luckily, the news has risen only to the annoyance level throughout the hotel industry, says Joe McInerey, president and CEO of the American Hotel and Lodging Association. “It seems to crop up in 18-month cycles. But people are still staying in hotel rooms.”

The manufacturers who churn out these magnetic-strip room key cards employ three embedded and encrypted tracks. Mot hoteliers use track three, which contains locked information listing the guest’s room number and check in/out dates. The remaining tracks – if supplied by the hotel’s property-management system – provide additional, limited guest information like a folio number or name to identify guests at point-of-sale terminals located throughout the hotel.

“Worst that ever happens to me is the key stops working promptly at 12:01 and I have to go to the reception desk to get back in my room.” McInerney says.

Myth No 5: Boycotting a few gasoline brands brings gas prices down. Poor Exxon and Mobil. They often show up as the bad guys in a mass e-mail urging Americans to avoid their pumps on a particular day.

Its easy-to-understand language makes the plea plausible. The trouble lies in the fact it’s too simple – and economics don’t work that way. For starters, gasoline is what’s known as a fungible commodity – if one company has an oversupply, it sells it to a competitor. No matter who you buy from, the basic supply numbers remain the same.

Furthermore, prices at all the nonboycotted outlets would rise, thanks to the temporarily limited supply and increased demand, making the original prices look cheap by comparison, according to Snopes.com.

Besides, the industry is too large for a boycott of two companies to make a dent, says Stephen Ciccone, University of New Hampshire assistant professor of finance.

Unsigned credit-card danger

Myth No. 6: It’s better if you don’t sign the back of your card. Some well-meaning pigeon decided one day this would protect him from identity theft.

Unfortunately, in the real world, it only “protects” you from having the merchant accept your payment at the checkout counter, says Mills. Not to mention that an unsigned card in the hands of fraudsters is much easier to use for unauthorized purchases. They can just sign the card themselves. Then their signature will always match the receipt signature.

Myth No 7: You can make a pile of dough by helping a foreigner solve his money problems. “Hello, my name is unpronounceable, and I need to get money out of my country. Will you let me use your bank account?” is the gist of this e-mail plea.

It’s called the Nigerian bank scam, and it’s among Mikkelson’s favorites, mainly because the number of people asking about it is huge. “It is impossible for the average person to figure out what is going on unless they know there is such a thing as a Nigerian scam,” she says.

For one, the back-story changes constantly to reflect current events. Expect a new variation every time a foreign leader dies or is deposed. Presently, Yassar Arafat’s widow is supposedly seeking help moving his secret bank account out of enemy hands, and the sergeant who found Saddam Hussein’s hidden gold wants help keeping it out of insurgent hands.

Myth No 8: You can now opt out of having credit bureaus give your information to anyone who asks. Just call (888) 567-8688 and give them the Social Security numbers of everyone in the household in a single call, say the message. But hurry – you only have 60 days to take advantage of this ability.

The credit-reporting bureaus are working hard to debunk this one, if only to stop people from calling that number. It merely connects you to an operator who can help you opt out of receiving pre-approved credit offers. Keep in mind that if they weren’t allowed to give out credit information on you, they wouldn’t exist.

The grain of truth lies in the fact that companies are required by law to inform their customers of their privacy policies. (Remember the flood of confusing legalese that showed up in your mailbox from every department store credit card prior to July 1, 2000?) If you don’t want them to sell your personal information, you must call them directly – one by one – to halt the practice.

Myth No. 9: You can buy your way out of points on a speeding ticket. If you pay a bit more than your fine actually is the state will send you a refund check for the difference. Don’t cash it and they can’t assess points because the transaction isn’t complete.

Hmmm, sounds good – a way to circumvent rising insurance rates for a mere $5. But when Mikkelson checked into it, she discovered the popular e-mail advice originated in Australia. Maybe it works for Aussies, but Americans aren’t so lucky.

Myth No. 10: Hotel Bibles often have $100 bills tucked into them. Heard the one that Gideon’s leave $100 bills in their hotel Bibles to reward folks who turn to the Good Book?

Mikkelson rejoiced when she actually discovered such a treasure during her honeymoon – and found out a few hours later that her new husband was pretending to be God. The only thing Gideon’s leave behind is the book.

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MBNA Turns Up the Heat
Credit Card Giant Raises Rates, Plays Hardball with Clients

By Martin H. Bosworth
ConsumerAffairs.Com

April 26, 2005 MBNA’s
(http://www.consumeraffairs.com/../../credit_cards/mbna_america.htm)
Surging profits may make it popular with investors but its propensity for self-surging interest rates isn’t going over so well with its cardholders.

Consumers writing to ConsumerAffairs.Com complain that their MBNA interest rates
(htttp://www.consumeraffairs.com/../../credit_cards/mbna_rate_hikes.html) have jumped from a reasonable 5.99% fixed rate to a 15.99% variable rate, from 18.99% to 26.99% and even from 7.99% to 26.99%. That unlucky customer, Kevin M. from Hamden, CT, was outraged.

“Its just plain robbery. I went from being able to comfortably pay my bills to an overnight crisis situation,’ he said.

MBNA claims to offer written advance notice any time an interest rate changes for any reason, yet consumers repeatedly claim they received no notice about their rate changes. It’s only upon opening their monthly statement that they learn of the increase.

In July 2004, Jason M. of Ridgecrest California opened his MBNA bill to find his rate had increased from 7.9% to 17.98%, ‘claiming that the increase was the result of information gained from my credit report and was unrelated to my payment history with their company.’

When Jason contacted MBNA’s customer service department, he was told that written notification had been sent out to consumers, advising them of the potential rate increase.

‘I was told that the notification was mailed with my July statement. As luck would have it, my July statement was still unopened in the kitchen as I recently moved and paid my bill online. When I opened the statement there was no notification in it,” he said.

Asked to comment, MBNA representatives did not return calls and e-mails.

Dale B. of Minneapolis, Minnesota received MBNA’s Gold Option account, a personal installment loan with a fixed rate of five years, and a fixed payment amount. Although MBNA’s Gold Option website states that ‘Your APR is not guaranteed for any period of time and may be changed by MBNA,” Dale was nonetheless surprised to find his loan rate had jumped from 18.99% to 27.98% after applying for an auto loan.
“MBNA now sees me as a risk and has drastically increased my APR and extended the term of the loan,” he stated. “I have never been late with a payment, and have not defaulted in any way with this or any other credit account that I have ... MBNA claims I received a mailing telling me about the rate increase, and that it was due to me taking on additional credit. I do not recall such a mailing”

The MBNA representative offered Dale the chance to pay the loan off in full and close the account, which he was unable to do, leaving him saddled with a 72-month installment loan at a much higher rate.

Customer Service

MBNA is generally considered the leading credit card issuer. Most other companies follow its lead. But MBNA’s reputation for customer service appears to be in steep decline, judging by the complaints received by ConsumerAffairs.Com.

Dutch B., from Marana, Arizona, missed a payment on his MBNA card when he moved circa October 2004. He was shocked to find that his interest rate had jumped to 25 percent and that he owed MBNA another $112. He tried to dispute this charge but to no avail.

“In the meantime, they are phoning me all hours of the day and night, not showing up on the caller ID, then [when I call], I’m asked to wait for the next operator. The operators are very nasty, threatening, overbearing and extremely rude,” he said.

Other consumers have complained of continual calls at their workplace, MBNA representatives asking co-workers for customers’ cell phone numbers, and of offering deliberately false terms of rates and loans.

Jeff Stroman, of Norridgewock, Maine, a former MBNA call center employee, describes an atmosphere of constant pressure to push cards and “encouraging representatives to ‘bend’ the rules in order to make a sale.

“You are competing against your peers, constantly trying to outsell them. If your stats fall below a certain measure -- and they will when representatives don’t (bend the truth to make a sale) --you will be placed on probation and lose your incentive for a time no matter what your performance,” he said. “If you don’t improve your statistics, you will be let go.”
‘When the management ‘team’ at MBNA in Farmington was comfortable around you they joked about targeting the elderly and young adults,’ Stroman said in an interview.

Stroman noted the willingness of other employees to be less than truthful about interest rates in order to clear a sale and earn their incentive pay.

“It is amazing to me that I lasted there for nearly two years. I can only wonder how many hundreds of customers opened a credit card from MBNA believing the rate was 9.99%, because that’s what they were told, but in reality were stuck with 19.99% or higher.”

Universal Default

Even in a sluggish economy and amid reports of losses by other credit and financial companies, MBNA continues to turn a healthy profit. The company reported a gain of $432.5 million, or 33 cents per share, as its first quarter earnings this year. This was an increase from $369.9 million, or 28 cents per share, for the same period last year.

One analyst credited this to MBNA attracting “a higher class of consumer than the rest of the market,” and company spokespeople said that the average MBNA customer earned over $70,000 a year. MBNA has also backed away from offering zero-percent interest loans in order to attract consumers, whereas competitors such as Capital One and Citigroup have faced rising loan defaults.

Further improving profits, MBNA was also one of the first creditors to adopt the “universal default” policy, raising the interest rates on a consumer’s debt if they are late with any kind of payment on any bill, regardless of whether they pay their credit card balance on time every month.

In Jeff Stroman’s words, “MBNA is so big now, and in their minds they are such ‘fearless innovators,’ that they are willing to be the first to use such a dragnet as ‘universal default,’ while Citigroup and Capital One will wait and watch to make sure they get the green light in Washington.”

MBNA’s continued success has earned it unrivaled clout in the political arena. As has been widely reported, it was one of the biggest financial backers of President George W. Bush’s 2004 campaign, and a leading supporter of the recent tightening of bankruptcy laws.

ConsumerAffairs.Com’s special report (http://www.consurmeraffairs.corm/bankruptcy_act01.html) on the bankruptcy legislation details how high credit card debt and inability to pay back the rapidly ballooning interest and fees often leads consumers to bankruptcy. These are the circumstances facing many credit card users, even those who have never missed a payment or used their card irresponsibly, or-- as in the case of Teresa W. from Madison, Tennessee --never used at all.

Teresa’s husband had suffered many hospitalizations, was forced to declare bankruptcy, and died, leaving her with a $12,000 debt on an MBNA card she didn’t know he had. Evidently not MBNA’s preferred class of customer, she was forced to deal with abusive collection agents constantly, and had her formerly low interest rate increased to 27.9% after missing two payments.

“I was a widow, no money, tired, at the point of wishing for my last breath, and now I am sending them the last of my husband’s insurance death benefit of $6,000,” she said in a complaint to ConsumerAffairs.Com

In fact it is very possible that Teresa had no obligation to pay MBNA. If the credit card was in her husband’s name, she had no personal obligation to pay even one dime to MBNA. The proceeds from her husband’s life insurance policy were presumably hers, not his estate’s.

MBNA would have a legitimate claim against her husband’s estate but not against any of Teresa’s personal assets. Teresa should consult an attorney, as she may be able to recover some or all of the funds in court.

Unfortunately, credit card companies and other creditors routinely demand payment from the families of deceased debtors, knowing full well that in many cases the families have no obligation whatsoever to pay any of the deceased’s debts.

“It’s very sad that many have died fighting for freedom in this country, only to find they can never truly be free because the corporations that supply you with food, electricity, water, they can ruin your air if they wish, poison your water, take every penny you have and reduce you to nothing,” Teresa said.

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Did credit-card companies collude to force arbitration?

Thursday, September 01, 2005 By Carrick Mollenkamp, The Wall Street Journal

Many of the largest U.S. credit-card companies require customers to sign away their ability to take disputes to court and instead settle disagreements in arbitration.

Now that practice itself is under attack in court. A lawsuit filed recently in federal court in New York City alleges the credit-card companies held secret meetings where they colluded to promote arbitration, in violation of federal antitrust laws.

The complaint alleges that eight of the nation’s biggest card issuers -- Bank of
America Corp., Capital One Financial Corp., J.P. Morgan Chase & Co.,
Morgan Stanley’s Discover unit, Citigroup Inc., MBNA Corp., Providian Financial
Corp. and HSBC Holdings PLC of the United Kingdom—“combined, conspired and agreed to implement and/or maintain mandatory arbitration.”

Some of the banks named allegedly convened a group in 1999 called the “Arbitration Coalition” or “Arbitration Group,’ the complaint says.

The suit, which was filed last month and is seeking class-action status, claims that bank representatives spoke or met at least 20 times from 1999 to 2003 to share experiences from arbitration as well as advice on how to set up arbitration agreements with consumers that would withstand challenges in court.

In general, it is illegal under federal antitrust law for competitors in any industry to secretly collude to restrict trade or commerce.

A spokeswoman for Capital One said in a statement that the company doesn’t comment on pending litigation but added that its “arbitration clause allows either party involved in a dispute to have the case considered by an impartial arbitrator to determine a final and binding resolution to the problem.”

Representatives of the other banks either declined to comment or couldn’t be reached. The financial firms named in the case have yet to respond to the substance of the allegations in court.

The case, filed on behalf of seven plaintiffs who live in California, Pennsylvania, New York, Illinois and New Jersey, comes as mandatory arbitration clauses are becoming increasingly common in industries ranging from cable television to Wall Street brokerage firms.

Companies have argued that arbitration provides a speedy and fair alternative to litigation and prevents disputes from escalating into class-action complaints that can cost them and their shareholders dearly.

Consumer-rights advocates claim the practice unfairly removes consumers’ right to pursue a class-action complaint or a jury trial over such things as late-payment penalties while also allowing companies to settle claims with little publicity.

A recent study by Ernst & Young, citing criticism of arbitration, reported that while consumers often can opt out of mandatory arbitration clauses, they rarely know such an option exists and that it can be buried in a card agreements fine print. The study found consumers prevailed more often than businesses in an arbitration. Ernst & Young said it was engaged by the law firm Wilmer Cutler Pickering Hale and Dorr, which has worked with card companies.

The case against the credit-card companies also gives details on the practices of a Minneapolis-based group called National Arbitration Forum, one of several national arbitration panels that hear disputes between companies and customers across a wide range of industries.

According to the complaint, NAF billed itself in one solicitation as “the alternative to the million-dollar lawsuit.” The complaint doesn’t specify who the solicitation was aimed at, but says: “The clear implication of this appeal to corporate clients is that arbitration through NAF will effectively eliminate any significant remedy in a consumer dispute, whatever the underlying merits.”

The complaint also alleges the group said that its rules provided for “very little, if any, discovery” -- the legal term for fact-finding once a case has been filed. NAF isn’t named as a defendant in the suit.

Curtis Brown, the general counsel for NAF, said in an emailed response to questions: “Since we are not a party to the lawsuit, I would direct you to the parties and their lawyers for a comment.” He said NAF provides unbiased arbitrators and he cited past court decisions establishing that the NAF treated consumers fairly.

The central allegation in the case concerning arbitration clauses is that the defendant banks worked together to create or maintain mandatory arbitration clauses as a way to thwart class-action lawsuits brought by consumers. The plaintiffs, represented by Berger & Montague of Philadelphia and other firms, are seeking to have the mandatory arbitration provisions in the complaint declared void.

According to the complaint, two prominent law firms advised the banks in creating the arbitration group or attended meetings where strategies for discussing arbitration were discussed. Those firms, not named as defendants in the suit, are Wilmer Cutler, of Boston and Washington, D.C., and Ballard Spahr Andrews & Ingersoll of Philadelphia.

Representatives of Wilmer Cutler were unavailable for comment. Ballard Spahr declined to comment.

The complaint alleges that the banks began discussing the issue of mandatory arbitration clauses in the late 1990s, the same time that the clauses were introduced in the industry. The agenda for the first Arbitration Coalition meeting, held in the summer of 1999, outlined how the group could work together on promoting mandatory arbitration, the complaint alleges.

Among the proposed steps were “sharing best practices” and drafting enforceable arbitration clauses,’ the complaint alleges. Two additional groups were formed: the “Consumer Class Action Working Group” and the “In-House Counsel Working Group,” the complaint says.

For a conference call in the summer of 2001, bank representatives were given the access-code word, ‘arbitration,’ the complaint alleges. The agenda, according to the complaint, included seeking ways to protect the banks from plaintiff lawyers and ways to create an informal “’information please’ email network.”

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Consumer borrowing unexpectedly accelerated in June as Americans used credit cards to finance more of their purchases, Federal Reserve report showed Monday.

Consumer credit, or non-mortgage loans to individuals, rose $10.3 billion to $2.19 trillion following a revised $5.89-billion increase in May. The two-month gain was the biggest since September-October 2004.

Americans are relying more on credit-card debt because rising interest rates and a cooling housing market make it harder or them to take out home-equity loans. Higher prices at filling stations also are prompting consumers to borrow more, economists said.

The jump in consumer credit coming at a time when consumers are hard hit by soaring gasoline costs could indicate some financial woes on the part of borrowers,” said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ‘It looks as if consumers are relying more on credit cards now that other avenues of credit such as mortgage refinancing have been shut off to them.’

Consumer credit was expected to rise $3.6 billion in June following an originally reported $4.4 billion increase in May, according to the median forecast in a Bloomberg survey of 36 economists.

Revolving debt, such as credit cards, rose by $6.65 billion in June after rising $7.42 billion, Monday’s report showed. Non-revolving debt, such as loans to buy cars and mobile homes, rose by $3.62 billion in June after declining $1.54 billion a month earlier. Overall consumer debt rose at an annual rate of 5.7% in June.

The Fed’s campaign to quash inflation has driven up the cost of credit-card borrowing. The average rate on a credit card increased 13.14% in May 2006 from 12.76%ayear earlier, according to Federal Reserve statistics.

Fed policy makers, who are to meet today, will probably leave their benchmark interest rate at 5.25%, according to a Bloomberg survey of economists.

The economy expanded at a 2.5% annual pace in the second quarter, down from 5.6% in the previous three months.

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Debbie made a mistake when she was in college.

As a student in Fort Worth, Texas, she maxed out a Citibank credit card with a $300 limit and never paid the bill. Debbie said Citibank charged off the debt sometime between 1987 and 1989, and the liability has long since disappeared from her credit report.

Besides that, the statute of limitations -- the amount of time a creditor can sue over an old debt--expired in the early 1990s. Both her old home state of Texas and her current state of California generally prohibit creditors from suing once a debt is more than four years old.

That’s why she was stunned when a collection agency called her last summer, demanding she pay the 17-year old bill. The calls have continued off and on since then, along with monthly bills listing varying amounts that the collection agency wants her to pay.

“The last time [they called], I told them the statute of limitations had run out on the debt and to stop harassing me,” Debbie said. “They said it hadn’t. I finally had to hang upon the man.”

There’s money in old debt

A decade ago, most people who reneged on debts could rest easy after several years passed, since few creditors tried to collect on old bills, particularly for small amounts.

Today, however, collecting on old debts is a rapidly expanding industry. Aggressive companies can buy charged-off credit card accounts from the original lenders for pennies on the dollar. Then, they use credit scoring and other new technologies to identify which debtors are most likely to pay. The players in this “junk debt” market range from fly-by-night well established companies funded by Wall Street investors.

It’s a business that barely existed 10 years ago. In the last three years, it’s been growing at a 30% annual rate, according to credit industry analyst Sean McVity of Keefe, Bruyette & Woods. Among the signs of the industry’s maturity:

• Four debt-buying companies have gone public in recent years, including Asset Acceptance of Warren, its $150 million IPO in February.
• Some buyers have attracted major funding from investment banks such as Bear Stearns and Goldman Sachs.
• Last year, more than $75 billion in old debts were sold.

The biggest debt buyers

The amount that companies pay for bad debt depends on the type of account and its age. In general, McVity said:

• Debts that have recently been charged off: 6 to 7 cents on the dollar.
• Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5cents to 2 cents on the dollar.
• Years-old, out-of-statute debts: A penny or less.

A growing number of companies are discovering that these very old accounts, once thought to be uncollectible, are just the opposite. Squeezing even a small payment from these debtors can make collection activities worthwhile.

“The economics are pretty simple. For $100 of (old debt), you pay 25 basis points--a shiny quarter,” said McVity, whose investment banking firm tracks debt-buying trends. “If you get (the debtor) to pay you $1, you got your money and covered your costs.”

Opportunity frequently turns into abuse

Where some are finding profits, though, others are spotting abuses. Consumer attorneys say the explosive growth of this industry has led to widespread violations of the federal Fair Credit Reporting Act and the Fair Debt Collection Practices Act.

“I don’t advocate people not paying their bills,” said Shreveport, La., lawyer David Szwak who specializes in consumer law. “But there’s an element of the debt collections field that is rabid.” Some collectors, he said, “will go to any lengths to harass people and defraud them.”

Among the worst practices attorneys have seen:

• Suing or threatening to sue over debts even though the statute of limitations has long expired.
• Illegally 're-aging" debts on credit reports. The collectors tell credit bureaus that an old debt is, in fact, a new one. The goal: To extend the seven-year limit on reporting negative items and put more pressure on the consumer.
• Promising to delete a negative mark from the consumers credit report in exchange for a token payment. Not only does the collector fail to follow through, but the payment can revive the statute of limitations and lead to a lawsuit. Even if the collector does back off, the unpaid debt could be sold to another company that might renew collection activity.
• Bait-and-switch credit cards. Some credit card companies have offered borrowers low-rate credit cards and then tacked old, charged-off debts--often purchased from other lenders -- onto the balance. The card issuers typically insist they disclosed that the old debts would come with the cards, Szwak said, but the borrowers say no such disclosure was made.
• Verbally abusing and harassing consumers. My readers have reported being cursed, berated and called repeatedly despite requests to stop -- all violations of federal laws.

Mickey, a Virginia resident, said he was the target of “colorful words” when he told a collection agency to cease bothering him about an old debt. Mickey stopped paying on his $4,000 Discover card balance in 1994; the account no longer appears on his credit report and the statute of limitations ended years ago.

“They would usually start out with a normal tone. . . . It went downhill fast,” Mickey said. “They were calling a couple of times a day for awhile.”

Sometimes, it’s smarter just to hang up

Consumer advocates say this is exactly the kind of behavior Congress and state lawmakers were trying to prevent they put curbs on collection behaviors such as statutes of limitations, the seven-year credit reporting limit and prohibitions against abusive collection practices.

“We don’t have debtors’ prisons,” Szwak said. “We have laws to protect people from being harassed by debt the rest of their lives.”

In fact, paying these old debts -- or even talking to the collection agency about them -- can make a bad situation worse.

As mentioned above, the smallest payment can revive the statute of limitations in some states, leading to more aggressive collections and lawsuits. Even acknowledging that the debt is yours can restart the clock in some jurisdictions.

That’s why Robin Leonard, author of the “Money Troubles: Legal strategies to Cope with Your Debts,” advises consumers simply to put the phone down and walk away if collectors call about an out-of-statute debt. (This chart at Bankrate.com summarizes state statutes of limitations, but details can vary by state.)

Paying off can hurt your credit score

What’s more, paying an old debt potentially can wreak havoc on a consumer’s credit score, as I discussed in “When paying bills can hurt your credit.” Such a payment can update a delinquency so that it looks more recent and takes a heavier toll on a credit score.

Paying the debt is also no guarantee that the nightmare will stop. The collector may decide that if you’re willing to pay at all, you could be made to pay more. Settling a debt for a smaller amount than the collectors says you owe could result in another agency trying to collect the unpaid portion. Or the collector might inform the Internal Revenue Service you’ve received “income” in the form of forgiven debt. (Yes, there are tax consequences to forgiven debt. See my colleague Jeff Schnepper’s article “5 truly nasty tax surprises.”)

Even if you manage to wrangle written promises from the collector that none of the above will happen, you would have to be willing to go to court if the agency reneged -- and possibly face an unsympathetic judge or one who doesn’t about know much about collections law.

If you’re being contacted about an old debt, here’s what consumer attorneys advise:

Know the statute of limitations. If you racked up a debt in another state, you might want to check the statue of limitations there as well. But generally, it’s the statute of your current state that applies. If the statute has expired, the collection agencies’ legal remedies are limited.

Know your rights. Credit and debt collections can be an extremely complicated area of the law. Consider arming yourself with a book such as Leonard’s ‘Money Troubles” and -- if the amounts at stake are considerable or the level of harassment unbearable--consider contacting an attorney. The National Association of Consumer Advocates can provide referrals.

Consider ignoring the call. If the statute of limitations has expired, Szwak said, put the phone down and walk away. There’s little to gain and a lot to lose if you keep talking. You could inadvertently extend the statute of limitations or find yourself roped into a repayment agreement that might not be in your best interest. “The debt collector is a lot smarter than (consumers) are, a lot more savvy,” he said, “They don’t have any obligation to tell you your rights.”

Write them. If ignoring them isn’t working, consider writing a letter demanding the agency stop contacting you. Send it certified mail, return receipt requested. Federal law requires them to comply with your request. Make sure in the letter you specifically say that you aren’t acknowledging you owe the debt.

Negotiate carefully. If the statute of limitations hasn’t expired, you may want to negotiate a settlement rather than risk a lawsuit. (Again, a lawyer’s advice could come in handy here.) Read “12 tips for negotiating with debt collectors.”

Keep an eye on your credit report. If a collection agency tries to repost an old debt or lie about the date it went delinquent, you’ll need to fight back vigorously. Dispute the entry with the credit bureaus and with the collection agency.

If the collector persists in its deception, you can demand that the collector produce a copy of the documentation that created the debt, such as the credit card agreement you originally signed, along with an account history, said consumer attorney Daniel Edelman of Chicago. Chances are the collector won’t have this documentation, and continuing to report without providing proof that you owe the money is a violation of the Fair Debt Collection Practices Act, Edelman said.

Again, an attorney experienced in debt collection law might prove helpful in particularly difficult cases.

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Debtors’ Hell - Part I – The Boston Globe
No mercy for consumers
Firms’ tactics are one mark of system that penalizes those who owe
By The Boston Globe Spotlight Team - July 28, 2006

This stay was reported by Spotlight team members Michael Rezendes, Beth Healy, Francie Latour, Heather Allen, and editor Walter V. Robinson. It was written by Rezendes and Latour

It was just before 6 a.m. on a Saturday in the fall of 2002, when Marie-Colette Dimanche woke to a loud rapping at the door of her Mattapan duplex. With her night robe on and her two daughters still sleeping, she rushed down the stairs and peered out the window.

Outside, a tow truck blocked her driveway and her 1996 Chevy Blazer. A man and a woman with a court order told the single mother they had come to take her car for nonpayment of an old credit card debt. With interest and legal fees, the bill totaled more than $2,000, and it came from a company called Commonwealth Receivables. They gave her a choice: Pay the money now, in cash, or hand over the keys.

Dimanche had never heard of Commonwealth and believed the debt had been paid by a social services agency. “I just said, ‘You guys must be insane,” she recalled.

She had reason to be stunned: The debt was at least five years old. And shed never gotten notice of the lawsuit against her: When Commonwealth, a local debt collector, went after Dimanche, the address it supplied the court was one where she hadn’t lived for more than a decade.

But Dimanche didn’t have the paperwork to prove the debt had been paid off, and she didn’t have $2,000.

‘What could I do?” she said. “I gave them the key.”

Dimanche is one of thousands of Massachusetts residents who have had their cars seized and lives upended by a pair of debt collection companies, Commonwealth Receivables Inc. of Watertown and Norfolk Financial Corp. of West Roxbury. Run by two brothers, one of whom was disbarred this year for his business practices, Norfolk and Commonwealth have become two of the state’s most litigious and aggressive collectors, a Globe Spotlight Team investigation of the debt industry has found.

In America’s debt-saturated culture, Chad E. and Daniel W. Goldstone are among the clear winners. They are perhaps the most active local players in a nationwide debt collection industry that has exploded in size and profits, inundating court systems in Massachusetts and across the country with collection lawsuits seeking tens of billions of dollars in debts that are often purchased for collection by the Goldstones and hundreds of other firms for just pennies on the dollar.

The success of such firms is a measure of how dramatically the world of consumer debt in America has changed. It isn’t just that consumers lean too heavily on credit cards to get by. It is that, almost unnoticed by policy-makers, many millions of Americans have slid, or been pushed, into a debtors hell where bank accounts are drained, wages are attached, property confiscated, and threats of jail are an everyday occurrence.

A fate once reserved for the worst deadbeats has become commonplace. The losers are the friends, neighbors, or relatives of just about everyone - people who generally owe the money collectors are after but don’t deserve what comes next. People such as Ana R. Rios, a 40-year-old Maynard woman whose car was hooked near midnight even though her debts had been erased through bankruptcy. Or Thomas S. Jessamey, a 45-year-old Saugus man who spent six months struggling to get his car back after it was seized for an old credit card bill.

An estimated one of every 11 consumers has at least one credit card that is more than 90 days past due, according to nationwide data provided to the Globe by the credit-reporting agency Experian. Many are already being pursued by debt collectors, or someday will be. And it is a vast army coming after them: In the last decade, the ranks of debt collectors have doubled to 162,000, making debt collection among the fastest-growing sectors of the financial services industry.

In Massachusetts, a Spotlight review of records in all 70 district courts, and interviews with court officials and collection attorneys, found that professional collectors filed an estimated 575,000 lawsuits between 2000 and 2005 - about one lawsuit for every 11 Bay State residents. The vast bulk of those were filed as small-claims actions in the district courts, where debt collectors always have lawyers and the debtors almost never do.

At nearly every stage, the Globe found, the debt collection system in the state is stacked against the average consumer:

• Many small-claims courts have effectively become accomplices of collection firms, routinely giving them the upper hand in court cases while casually disregarding the rights and dignity of ordinary citizens.
  
• Collectors almost always win the lawsuits they file, without being asked for evidence that the debts they are chasing are actually owed.
  
• Like Dimanche, debtors frequently receive no notice of the lawsuits against them because debt collectors provide courts with outdated addresses for the people they are suing.
  
• The disabled, the elderly, and the working poor are often talked into repaying their debts from their monthly government checks, which by law are protected from legal judgments.
  
• And an obscure posse of law enforcement agents - constables and deputy sheriffs - operate freely as the blunt instrument of collection firms, with neither their steep fees nor their sometimes heavy-handed tactics regulated.

It is, in short, a system made safe - and very profitable - for Massachusetts collectors like such as Commonwealth and Norfolk, and for others like them across the country.

“The creditors are all repeat players. They know exactly how the game works said Elizabeth Warren, a Harvard Law School professor who studies consumer debt. “ Were watching a fight between two players, one a skilled repeat gladiator, and one who’s thrown into the ring for the first time and gets clubbed over the head before they even get a sense of what the rules are.

Commonwealth and Norfolk have built a reputation for operating at the hard edge of this increasingly aggressive and methodical trade.

It is a business with many reputable players; firms that collect money zealously but rarely cross the line of fairness. And then there are those that seem to live by another set of rules.

Commonwealth, owned by 41-year-old Chad Goldstone, and Norfolk, owned by his brother Daniel, who is 44, are among the most active users of the state’s small-claims courts, where lawsuits are limited to $2,000 or less. Together, the two firms have filed about 12,000 lawsuits in each of the last four years in all but two of the state’s 70 local courts, according to records examined by the Globe. That is more than 10 percent of the state’s small claims caseload.

And as for car seizures, a tactic many collectors consider harsh and unseemly, the Goldstones have made it an everyday practice.

“The way he handles cases offends us,” said Richard S. Daniels Jr., the owner of a large Boston collection law firm, speaking of Daniel Goldstone. “His practice is abusive.”

Seizing cars to collect old debts is lawful in Massachusetts. But time and again, those working on the Goldstones’ behalf have turned it into an excruciating ordeal for consumers, making dark-of-the-night collection visits, and holding cars hostage until debtors can scrounge up the cash to pay down a past-due amount.

Almost always, debtors who have their cars towed wind up paying far more than their original debt. Part of that is interest, of course. But it is also the result of hefty fees charged by the people who work on the Goldstones’ behalf, the kind of people Dimanche found knocking at her door just after dawn - locally appointed constables, deputy sheriffs, and tow lot operators.

And in cases where debtors are unable or unwilling to pay the debt, plus the high seizure, towing and storage fees, their cars are often auctioned for a fraction of their market value. Or they are junked, leaving the debtors without transportation and still liable for most, or all, of the debt.

The sight of a tow truck at the door is unsettling enough. But for some debtors chased by Norfolk and Commonwealth, it is literally the first they have heard that they are being sued. In several lawsuits examined by Globe reporters, Dimanche’s among them, the two companies provided incorrect addresses to the courts, with the result that judgments were issued without the knowledge of the debtors. But finding the right address is seldom a problem for the constables and sheriffs Norfolk and Commonwealth hire to seize debtors’ cars.

As Dimanche said in a hand-written plea to the court days after her car was taken: “I, Marie Dimanche, was never notified of any court hearing, and a judgment was passed without my presence to defend myself.”

But no court motion could fully describe what Dimanche had lost, The day she handed over her keys - her only means to get to work and her children to school - was the last day she would ever see her car.

Leaders in car seizures

How many others sued by the Goldstones have had their cars seized? The courts, which authorize the actions, don’t keep records that would allow such a tally.

But other official documents strongly suggest that the two firms have been seizing thousands of cars a year. For example, in affidavits filed in a lawsuit involving Norfolk Financial, Chad Goldstone and an employee of Daniel Goldstone estimated that, four years ago, a single constable company was hooking about 1,200 cars a year for the two brothers. In a two-year period, 2004-2005, deputy sheriffs in four counties - Plymouth, Norfolk, Bristol, and Worcester - seized 1,073 cars just for Norfolk Financial, a Globe review found.

That volume makes the two firms the dominant players in car seizures statewide.

Both brothers and their lawyer, John J. O’Connor of the Boston law firm of Peabody & Arnold, defend the propriety of their business practices. ‘We work hard to handle all mailers with courtesy and fairness, and in compliance with all legal requirements,” they said in a written statement.

Only Chad Goldstone spoke to the Globe at any length; Daniel Goldstone agreed to a sit-down interview, but then cancelled it, The Goldstones cited state privacy laws and federal statutes that protect debtors as justification for declining to answer most questions about their businesses, or to discuss lawsuits they have filed.

The Goldstone brothers run separate companies, but that wasn’t always the case. In 1992, Daniel Goldstone purchased a defunct collection law firm, renaming it Goldstone & Sudalter, and for several years Chad worked for Daniel, proving especially adept at managing computer systems that have made debt collection a highly efficient business. But in 1997 Chad Goldstone left the business to form Commonwealth Receivables. By then, Goldstone & Sudalter had been sued for bilking its largest client, Sears, Roebuck and Co. out of more than $800,000 - a case that would eventually lead to Daniel Goldstone’s disbarment. Daniel Goldstone established Norfolk Financial in 1999.

Even though they parted ways, the brothers remain alike in many respects as businessmen. Both buy delinquent credit card debt. Both employ similar collection tactics. Both work with small staffs from offices so poorly marked and out-of-the-way that they are difficult to find.

And though they are among the top filers of collection lawsuits in Massachusetts, neither company is registered as required by law with the state Division of Banks, which is charged with oversight of debt collection companies. Through their attorney, the Goldstones claim they are exempt because they purchase the debts they try to collect, and do not collect debts for other creditors, But David J. Cotney, chief operating officer for the Massachusetts Division of Banks, said every company in the state that collects defaulted debt, including Norfolk and Commonwealth, must be licensed. “I don’t know what basis they would use to exclude themselves,” he said.

The Goldstones, as debt buyers, are part of a growing trend that has transformed the collection industry. As the number of deeply indebted consumers has climbed, credit card companies and banks have become increasingly likely to sell off their uncollected accounts in bulk. Purchased by large debt-buying companies, the accounts are then repackaged and re-sold to smaller and smaller firms.

By the time local companies such as Commonwealth and Norfolk pick up this kind of “stale” debt, they are buying it on the cheap from firms that have tried and failed to collect. It is their opportunity to make a profit but it also presents a challenge. “How can [they] be successful where those who went before weren’t?” said Nicholas F. Ortiz, a consumer lawyer with a lawsuit pending against Norfolk Financial. “That’s where we come to seizing cars.”

Chad Goldstone said the debts he buys are typically one or two years old, although Commonwealth lawsuits examined by the Globe were often for credit card debt that was four or even five years old. Goldstone said he pays 6 or 7 cents on the dollar for the accounts he buys -$60 or so for a $1,000 debt - and generally collects 18-20 cents on the dollar.

Both brothers file nearly all their lawsuits in small claims because the filing fee is capped at $40 and judgments come with greater speed and ease. Chad Goldstone, with a staff of only six, estimated he sues as many as 7,800 people a year and almost always prevails - largely because more than 80 percent of the people he sues don’t show up in court. “People ignore the letters and the phone calls, and then we get a default judgment. That’s an ostrich mentality,” he said.

Or, he added, it’s a “game of chicken,” in which Commonwealth keeps up the pressure until the holdouts give in, scraping together a negotiated amount, to avoid having their cars taken, or to get a vehicle back.

Daniel Goldstone has filed nearly as many lawsuits as his brother - about 22,000 over the last four years. And he appears to have resorted to car seizures at least as often.

Daniel Goldstone did tell the Globe last year that he takes no pleasure in hooking cars: “I find it distasteful, seizing cars….It is an avenue of last resort,” he said.

That claim would come as a surprise to many of the debtors he has sued.

Driven to the brink

At 48, Joanne M. Johnson has been disabled with severe depression for five years. She gets by, barely, on a $739 disability payment. The one thing the Leominster resident owns of any monetary value is her midsize sedan, a 1996 Plymouth Breeze. It is her only means of transportation to medical appointments and to the thrift shops and food banks she visits when she can’t make ends meet.

In 2001, when Johnson became ill, she lost her job as a supervisor in the packing department of a local manufacturing firm, then defaulted on a credit card with a $500 limit. Norfolk stepped in, bought the debt, and in 2004 filed a lawsuit against her for $1,035- the debt plus three years’ interest.

That’s when the process went awry. When Norfolk sued, it supplied the Leominster District Court with an address where Johnson had never lived. The court put a hold on the suit when the notices came back undelivered. But for reasons court officials would not explain, the suit was then allowed to go forward after another notice was sent to Johnson - at the same wrong address. And when Johnson didn’t show up for her court date, Norfolk automatically won.

Then, with a judgment in hand, Norfolk phoned Johnson and told her to appear in court in early February 2005 to work out a payment schedule, according to Johnson. When she arrived, an attorney was there to answer questions. Johnson said she assumed he was a legal aid lawyer. In fact, he was a lawyer for Norfolk Financial who, Johnson said, never identified himself.

The lawyer asked her to fill out a financial statement and then, before she could figure out what was happening, she found herself before a judge.

“I told the judge that once my car was paid off, I could pay $10 a month,” she said. “All he said was, ‘OK.’ He stamped the paper and said, ‘You’re finished.’ Nobody looked at me and said, ‘We’re going to take your car.”

But that’s what happened. On April 1 2005, less than two months after her court hearing, Worcester County sheriffs deputies, who had no trouble finding Johnson’s correct address, appeared at her home at about 8 a.m. and took her car. To get it back, Johnson would have had to pay a sheriffs fee, towing, and storage charges and interest, in addition to the $1000 court judgment. The tally: $1,380.

With the help of a legal aid lawyer, Johnson filed for bankruptcy. But it was not until three months later, after a bankruptcy court judge threatened to jail the tow lot owner, that her car was returned - damaged, says Johnson.

The trauma of losing her car sent Johnson into a downward emotional spiral. Within a week, she became suicidal, and checked in at the emergency room at the Health Alliance hospital in Leominster. Then she was transferred by ambulance to a psychiatric ward, where she spent two nights under a suicide watch.

While the record is clear that court papers were not sent to Johnson’s correct address, Daniel Goldstone said that his company had met the legal requirements for serving notice. As for the seizure, he said: “Norfolk provided the court’s execution to the office of the county sheriff, who caused Ms. Johnson’s car to be seized.”

Left in humiliation

For Audrey E. Anderson, a 71-year-old retired Wellesley College teacher, dealing with Chad Goldstone’s company, Commonwealth Receivables, turned into an annual nightmare, with Commonwealth seizing her car three times - in 2001, 2002, and 2003.

But what the collection firm took from Anderson wasn’t just her 1995 Toyota Camry, she said, It was a retiree’s sense of independence. Because her car was seized, Anderson had to lean on her 85-year-old husband, Ezra, and friends, in ways she often found humiliating. “When you’re a strong person and you have your car taken, that’s like losing your right arm,” she said, ‘You can’t do anything.”

Unlike Joanne Johnson, Anderson did receive a notice from Framingham District Court to appear for her initial hearing, on a debt of $2,019. But she also received a letter from Commonwealth saying, “Our representatives are willing to work with you on this matter so that your appearance in court may not be necessary.” (Norfolk sends debtors letters with nearly identical language.)

Anderson said she called to negotiate, started making $50 monthly payments, and was again told she might not need to appear in court. But when she didn’t show, Commonwealth won its case against her by default. And when Anderson missed a payment several months later, Commonwealth, armed with its court judgment, sent constables and a tow truck for her car.

If Anderson couldn’t afford to pay off her remaining debt, she also couldn’t afford the $600 fee charged by the constable for taking her Camry, she said. To get the car off the tow lot, Anderson paid a $135 towing and storage fee, and entered into two monthly payment plans: One to Bay State Constable Service Inc. and another to Commonwealth, making an initial payment of $110 to each firm.

Anderson’s records show she made some of those monthly payments. But with a limited income based largely on Social Security benefits, Anderson said, she fell behind. And once again, Commonwealth had her car towed.

Anderson managed to retrieve her car a second time, scraping together a payment of $1,075 and entering into another agreement to make monthly payments to Commonwealth, But when she fell behind a third time, the company took her car for good - along with, she said, medication for her asthma, diabetes, and high blood pressure that she had left in the vehicle. “Can you re-seize this one?” the fax from Commonwealth to Bay State read. “You should have the original [documents]. Thanks!”

Even though Anderson shelled out a total of $2,741 in debt payments, constable fees, and other charges - more than the original debt - she would never see her car again. Three years later, she still doesn’t know what happened to it. When the Globe asked about its whereabouts, O’Connor, Commonwealth’s lawyer, would only say that the Camry had been lawfully seized.

Yvonne W. Rosmarin, an Arlington attorney who has sued both Goldstone brothers on behalf of other consumers, said she believes it is unfair and misleading for the Goldstones to suggest to debtors that they do not have to go to court, without telling them that they will automatically lose their cases if they do not appear.

“The debtors work out payment plans, then there are default judgments issued against them and their cars are hooked,” Rosmarin said. “It seems to me outrageous.” Rosmarin also said she believes the tactic is a violation of the federal Fair Debt Collection Practices Act.

O’Connor, the Goldstones’ lawyer, insisted that the letters are “in no way” deceptive and that they comply with federal law.

Lives disrupted

Losing a car is bad enough. But losing a car, a house, and a job was what faced Michaelyn S. Rackley and her husband, Raheem R. Weldon, in 2001, after Norfolk Financial filed a lawsuit against Rackley - and sent notice of the suit to the wrong address, She lives in Athol. Norfolk sued her at an address in Waltham.

Unlike Chad Goldstone, Daniel Goldstone often goes after debtors’ homes, as well as their cars. Real estate records examined by the Globe show that, over the last four years, Norfolk has put liens on more than 1,000 homes throughout the state, Once a lien is placed on a home, it cannot be sold or even refinanced unless the lien holder is paid.

Norfolk filed its lawsuit against Rackley on May 1,2001, for a $543 credit card debt, Court records show that the notice sent to Waltham was returned undelivered - which should have prompted the Waltham District Court to demand a correct address from the collector, or dismiss the lawsuit. Nonetheless, on Aug. 13, 2001, Norfolk won an automatic judgment against Rackley because Rackley did not appear for a hearing she knew nothing about.

Then last summer, Norfolk first came after Rackley’s car, and then her home.

The Worcester County deputy sheriffs and a tow truck hauled away her 1998 Subaru Forester in June. As a consequence, Rackley had to quit her job delivering newspapers for the Worcester Telegram & Gazette.

In July, Daniel Goldstone placed a lien on the couple’s Athol home. In October, Rackley had no choice but to pay off the debt - $1,038, with accumulated interest - when the couple went to refinance their home.

But Rackley never got her Subaru back. After it was seized, the storage charges mounted daily - all the way to $5,600 by October. In December, Direnzo Towing & Recovery of Millbury sold the vehicle to recoup its costs, according to the Worcester County Sheriffs office.

Rackley has since filed a federal lawsuit against Norfolk. And Norfolk has moved to have the suit dismissed, asserting that all of Rackley’s claims, “are merit less as a matter of law.”

Rackley said she’s found the experience frustrating. Norfolk, she said, is “very underhanded, It’s almost like they get a list of names and pick one out of a hat and say, ‘Okay, OK, were going after that one.’

And then there was the case of Marie Dimanche, the Mattapan mother who awoke to a 6 am, visit from constables working for Commonwealth Receivables.

Dimanche thought the debt Commonwealth was trying to collect had been paid by Travelers Aid Family Services, an agency for the homeless that had once helped Dimanche find a place to live. An official with the agency said it often provides financial assistance to clients, paying off old debts and restoring credit.

When Commonwealth rejected her explanation, Dimanche’s effort to keep her car off the auction block became a race against time. Scrambling to understand the legal actions that had been taken against her, she filed a motion in November 2002 in Boston Municipal Court, asking to have the court’s judgment against her lifted.

Dimanche, in her motion, said she never received notice of Commonwealth’s lawsuit because of the outdated address the firm provided to the court. She emphasized the urgency of her case: her car was to be auctioned on Nov. 22.

The court responded by scheduling a hearing for Dec. 5- more than a week after the scheduled auction. And on Nov. 22, her car was sold for $2,197 -about a third of the vehicle’s market value, according to the National Auto Dealer’s Association Used Car Guide.

Days later, on Dec. 5, a judge lifted the judgment against Dimanche. But by then it was too late. Dimanche resigned herself to bumming rides and using the MBTA to get to work and take her daughters to school. It was two years before she could afford to buy another car.

But a reliable means of transportation wasn’t the only thing Dimanche and her children lost: Without her car, Dimanche was unable to make use of a City of Boston scholarship for computer training courses in Quincy - training that Dimanche said would have qualified her for a better-paying job at Sears, her employer.

‘They don’t understand that they’re altering people’s lives,” Dimanche said of Commonwealth. “It’s not like you can just catch a ride and go on like normal.”

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Debtors’ Hell Part 2 -- A court system compromised - Boston.com
Dignity faces a steamroller
Small-claims proceedings ignore rights, tilt to collectors
By The Globe Spotlight Team l July 30, 2006

The line for the metal detector crept slowly at Brockton District Court on the morning of April 12, 2005. Peter Damon waited anxiously. He didn’t want to be late.

Finally, he hoped to face down for good the debt collector who had been hounding him and his mother for more than two years over a $980 credit card bill. He’d had to miss his first scheduled hearing in small-claims court a year earlier, and a note in his file explained why: “Phone call from defendant - he is in the Walter Reed Army Medical Center in Washington, D.C., upon return from Iraq and losing both arms.”

A lot of things could have gone Damon’s way in the wake of that phone call. None did.

The clerk who took the call could have advised Damon that, under federal law, he could delay the case while he recovered.

The court could have challenged the debt collector, Norfolk Financial Corp., about the claim in its lawsuit that Damon was not a soldier - a claim made under penalties of perjury.

And a clerk should have simply dismissed the case when Damon, having recovered sufficiently to take a $400 flight home from the hospital, arrived for a hearing in September of 2004, only to find the collection lawyer unprepared.

But such simple justice was denied Damon, as it is thousands of other debtors when they come up against the lowest level of the state court system.

The “people’s court’ has become the collectors’ court, a Globe Spotlight Team investigation has found, It is a de facto arm of a fast-growing and aggressive industry that has swamped court dockets with lawsuits - cases that often lead to threats of jail for debtors.

Created to provide a low-cost, level playing field for citizens with disputes of $2,000 or less, the small-claims courts have mutated into a system that often ignores individual rights and shows favoritism toward collectors and their lawyers. On some days, indeed, collection lawyers appear to be in charge - with no oversight by judicial officials.

Debtors often feel intimidated in this arena, and with reason. The system is tilted against them. And 150 years after the state’s last debtors prison was shuttered, some, even now, find themselves locked up for failing to pay. A Brockton man, for example, was imprisoned for four weeks over last Christmas.

More commonly, the threat of jail is a scare tactic, another way to force quick results in this rubber-stamp system, where the supreme priority in many courts is to move the flood of collection cases along - with little regard for the merits, or the dignity of individual defendants.

Peter Damon is one whose dignity took a considerable beating.

As he reached the head of the security line that April day, Damon’s new prosthetic arms, clearly visible in his Johnny Damon baseball shirt, set off the metal detector. By the time the 33-year-old veteran got to the hearing room, he was two minutes late. Tentatively, he approached the desk of the assistant clerk-magistrate.

“Yes?” said the clerk, William J. Martin 3d. Damon stammered out his name, at which Martin snapped, “This is not the time for that,’ and then scolded, “Have a seat. I don’t know what possessed you to do that,”

Damon ultimately won that day, when Norfolk’s lawyer suddenly offered to dismiss the case. Martin obliged: “Dismissed,” he said, never glancing up from his desk.

In his victory, Damon was one of the lucky ones. A Globe review of proceedings and records in 20 of the states 70 small-claims courts found that court officials and collection lawyers routinely break court rules, almost always to the detriment of the defendant. Collectors are almost never asked to prove the debts they claim; defendants are rarely informed of their rights. And debtors, usually too strapped to afford a lawyer, must contend with this legal mismatch alone.

Russell Engler, a professor at the New England School of Law who studies the way people are treated in civil court, said unrepresented parties often get steamrolled. While it can be tricky for clerk-magistrates and judges when only one side has a lawyer, he said, those are precisely the cases in which court officials should act to redress the imbalance.

You have a system that is supposed to be accessible to ordinary people, Engler said. “Instead, its operating as a swift tool for corporations with power and with lawyers.”

The chief justice of the district court system, Lynda M. Connolly, expressed surprise, during a February interview with the Globe, at the extent to which corporate debt collectors have come to dominate small-claims sessions. Some of the abuses described to her by the Globe were, she said later, “horrific.”

Diane Albertson’s experience in court was nothing short of humiliating.

A 50-year-old mother and nursing student, Albertson stood before Judge Thomas Barrett in Brockton District Court on Feb. 7, called to account for a $438 oil bill which she believed, mistakenly, she had paid. She admits she had been sloppy about the matter, missing court dates twice, in the crush of family and school obligations. And after an initial court judgment against her, she sent a check to satisfy the debt, but stopped payment on it.

That made the plaintiff, Stanley Litchfield of Scudder Fuel, angry - and understandably so. The firm had waited more than a year to be paid. But even he was shocked at what the judge did that day.

‘Take your rings off,” Barrett said, according to the court’s audio transcript of the hearing.
“All of my jewelry?” Albertson replied in dismay. “I can’t give you my wedding ring.”

‘Let me see it,” Barrett said, ordering her to approach the bench and splay her hands before him. He then told her sternly to remove the other rings, including her diamond and amethyst engagement ring, and her earrings.

“Are you serious?” Albertson asked, near tears.

‘We’ll hold them until the debt’s paid,” Barrett said. “Either that or I’ll incarcerate you. Do you want me to incarcerate you?”

Albertson handed over her jewelry, keeping only the thin gold band on her left ring finger. A bailiff sealed them in a plastic bag, where they would stay for a month.

Engler, the law professor, called Barrett’s behavior “outrageous.”

“Litigants are supposed to be able to be heard and be treated with respect, Engler said. “The judge sets the tone for everything.”

Barrett declined to be interviewed.

Humbling experiences

Humiliations large and small are an everyday reality in many Massachusetts small-claims courts. Often, debtors are treated with less courtesy than the accused felons in the criminal court across the hall, and their rights are less respected. Examples abound:

• In Quincy District Court, a clerk-magistrate barks at defendants packed into a cramped room if they don’t reply loudly enough to the call of their names. In New Bedford, collection lawyer Martin Odstrchel calls the name of an older woman who has been waiting in line for two hours; as she hobbled toward him, leaning on her cane, he admonishes, “Hurry up.”
  
• In Worcester, more than 60 people summoned for civil debt collection cases sit in a large courtroom that says “Criminal” over the door. The noise from the adjacent lockup is so loud it drowns out the magistrate as she calls out the list of lawsuits. Angrily, she shouts for quiet, not realizing the noise is coming from the prisoners; the cowed debtors on the benches before her are silent.
  
• And in Lowell District Court, on the Tuesday before Christmas, an assistant clerk-magistrate calls debtors up to her desk, one by one, to review their promises to pay. She then warns every one: “If you don’t pay, you could be found in contempt, and you could go to jail.”
  

Connolly, the district court chief, said it’s reasonable for court officials to inform debtors of the worst-case scenario. But pressed as to whether the courts ought to issue jail threats, Connolly said, “Let’s be very clear: It is not appropriate for anybody to threaten anybody, in small claims or any place else.”

Yet such threats are a common tool, both in small-claims court and in the district court civil sessions, which handle debt cases between $2,000 and $25,000.

Last year, Jack Fraioli, the owner of a small, struggling cleaning enterprise, was called before a judge in Dedham District Court after falling behind on payments he’d promised to make to a vendor. His $9,000 debt had ballooned to nearly $12,000, with interest and fees. Fraioli’s wife was ill and the family’s cars had been towed three times by debt collectors. After being badgered in the court corridor by a collection lawyer, Hindell S. Grossman, he agreed to pay $250 a month, even though he knew that would be a stretch.

In the courtroom, Judge Sarah B. Singer reviewed the agreement and warned Fraioli of the serious import of his promise to pay.

“It’s not a promise to get this lady off your back,’ she said, referring to Grossman. “Pay the money or go to jail.” She added, “That’s a result no one in this room wants to see.”

Judges regularly hear debt cases in civil court, but in 1993, the responsibility for small-claims cases was turned over to clerk-magistrates. Today, judges get involved in small claims mainly when people ignore judgments against them. That can make cases sent to judges more highly charged, observed Jason David Fregeau, a consumer lawyer in Longmeadow. Some judges, he said, “tend to treat people who owe debts like criminals.”

The sheer volume of cases seems to encourage rough or dismissive treatment of defendants, the Globe found. There were nearly 122,000 small claims filed in 2005 in Massachusetts, marking an 11 percent rise over the past decade. Meanwhile, court budgets have been slashed and court staff reduced by 14 percent since 2000. Officials say there’s barely time to get through the docket, much less attend to the considerations behind each claim.

“It is not unusual, given the extraordinary number of cases before our district courts, that the urgent overwhelms the important,” Connolly said. “We can do better.”

Connolly, after the February interview with the Globe, appointed a panel to review the small-claims courts, convened a training session for clerks and judges, and is studying ways to make defendants more aware of their rights and to curb the influence of collection lawyers. One early change: Court officials have been told to be sure debtors do not agree to make payments out of their government assistance checks.

‘If we see areas that we can improve, then we will make those improvements,” said Connolly, who became chief justice two years ago. “I am committed to doing that.”

A bargain for big collectors

The courts don’t track the number of cases filed by debt collectors. But the Globe, after hand-counting cases in the state’s computer system, interviewing numerous clerks and judges, and attending dozens of hearings, determined that at least 60 percent of all cases funneled through the civil courts are brought by professional collectors. One credit card firm, Capital One Financial Corp., filed more than 38,000 small-claims lawsuits against Massachusetts consumers in the last four years.

At Boston Municipal Court, the state’s busiest small-claims court, roughly 85 percent of the lawsuits are brought by companies collecting old debts, according to Kevin F. Callahan, first assistant clerk-magistrate for the civil division. The downtown court has handled 40,000 small claims in five years; it gets so many suits from Norfolk Financial, Commonwealth Receivables Inc., Filene’s, and NStar that it had ink stamps made for each one.

At a cost of just $40 to file a lawsuit for any amount up to $2,000, debt collectors find a bargain in Massachusetts small claims. A victory in court lets them pursue a debt for up to 20 years, and earn 12 percent annual interest on it - a rate that’s matched or exceeded in only five states. The Legislature hasn’t adjusted that rate since the 1980s.

“We’re sophisticated collection agencies for these people,” Callahan said. “This is a lucrative business for some…...I hate it.”

It isn’t just the indulgence of court officials that makes winning these cases so easy for debt collectors. The defendants also do their part: About 80 percent of people sued for debts in Massachusetts courts fail to show up at all, according to the estimates of clerks and lawyers and the Globes observation.

There are many reasons for that. Some people ignore letters from collectors and the court, the sort of carelessness that got them in trouble in the first place. Others know they owe money, but can’t easily get time off work.

Still others never receive notice of the court date. In Massachusetts, notices of lawsuits are sent by first-class mail to the address supplied by collectors. Often these addresses are out of date, yet the courts assume the defendant was notified unless the letter is returned. This is a flawed system, the Globe found in a test: Of 100 letters sent to the same person at incorrect addresses across the state, just 52 came back marked “return to sender” by the post office; the other 48 simply went missing. A backup requirement that debtors receive notice by certified mail was dropped two years ago as a cost-saving measure.

Even when properly delivered, the notice sent to defendants would confuse almost anyone. The debtor’s instructions are listed in tiny, faint type on the back of the form, and are in many ways misleading. For example, they say that plaintiffs must prove their claims - something that never occurred during the many hearings attended by the Globe. They also fail to warn defendants of the serious consequences of failing to appear: The collector automatically wins, gaining the right to seize property, garnish wages, put a lien on a home, or get a civil arrest warrant to have the defendant hauled into court.

Even defendants who do show up tend to lose most of the time, and for a simple reason - they owe the money, or at least part of it. But many cases that could be contested are not. With a little information, and pluck, lawyers say, many defendants could turn the tables against the collectors by demanding that they produce evidence of the debt.

“You have rights, too. It’s not just the creditor,” said Joseph B. McIntyre, a collection lawyer in New Bedford. “But you’ve got to be brave enough to vindicate your rights.”
Most people simply settle, he said, and the work flow of the court system is built on that assumption. “They’d have a problem if everybody wanted a trial,” he said.

Margaret A. Donnelly, an 85-year-old widow from Duxbury, is one who fought back.

Living on Social Security and suffering from congestive heart disease, Donnelly was barely making ends meet in the summer of 2004. Struggling to cover the cost of her medications and her electric bills, she said she was stunned when a Plymouth County deputy sheriff appeared at her door with a warrant for her arrest. He said she had been sued for $1,471 and had missed her court date.

It was an old fight with Chase Manhattan Bank over a Visa card coming back to haunt her, one she thought had long since been resolved. Determined to set the matter straight, she went to Plymouth District Court on June 1, 2004, and, on her own, filed a motion to remove the judgment against her, despite pressure from court officials to get it over with and pay.

“It’s absolutely appalling,” Donnelly said. “The people who tell you to ‘Just pay it.’

At a July hearing, the collection law firm Lustig, Glaser & Wilson asked the court for more time to gather evidence to support its claim — a common request as debt collectors often start with limited information about the debt owed. In the meantime, the court allowed the firm to put a lien on Donnelly’s condominium.

Nearly a year and two trips to court later, Donnelly was still demanding proof and Lustig, Glaser could produce none- Finally, in June 2005 the law firm threw in the towel and the case was dismissed.

The managing partner of the law firm, Kenneth C. Wilson, said he could not comment on the Donnelly matter because federal and state laws bar discussion of debt cases with outside parties.

Clerks routinely give plaintiffs the benefit of the doubt. And basic questions of fact are rarely asked or answered: Might the plaintiffs claim be false or overstated? Might they be after the wrong person?

Yes, they might. George Rodrigues of New Bedford twice had to go to court over a $1,665 NStar bill that was not his. Both times, the DHL driver had to take time off work, costing him $200 a day, to convince the court it had the wrong guy.

The NStar debt belonged to a different George Rodriguez - ending with a z. The fellow NStar was after was 21; Rodrigues is twice his age. But in court, it was Rodrigues who faced the burden of proving he was innocent. ‘How many times can I show them my information?” Rodrigues asked.

The clerk would not accept Rodrigues’s proof of his identity; he insisted on a hearing, at which NStar’s lawyer finally dropped the case.

A tipped scale

This is the way it was meant to be in small-claims courts: two people without lawyers facing one another. But reality has outstripped that notion. Defendants hardly ever have lawyers, while the corporate plaintiffs always do.

And the collection lawyers sometimes seem to direct the sessions.

In Framingham District Court last Sept. 14, the clerk’s chair sat empty for 15 minutes after the scheduled 1:30 start of the session. Two collection attorneys moved to fill the gap, starting at 1:20. With clipboards and stacks of paperwork, they stood at the front of the courtroom, calling out defendants’ names and asking them to come forward, They negotiated some cases and scheduled others for future dates, with no clerk present.

One defendant, Loretta Jenkins, was there on her lunch break. She discussed her debt with a lawyer, who she thought was a district attorney. The lawyer told her not to bother waiting for the magistrate, but to “get this over with and get back to work.” So she signed a payment agreement and left.

By the time clerk-magistrate Thomas J. Begley entered the courtroom, the majority of the cases had been dispensed with. There was no one to ensure that the defendants had not been pressured into payments they could ill afford.

Judge Connolly, speaking generally, defended the right of litigants at any level of the court system to settle their differences without the supervision of a clerk or judge.

But Engler, the New England School of Law professor, said lawyers too often take advantage of debtors in such unsupervised conversations. It is, he said, ethically improper for plaintiff lawyers to advise debtors what to do. And it’s up to the courts to monitor this behavior. “The court has to give it something other than a rubber stamp,” he said.

Begley, in an interview, said he didn’t know that defendants were confused about the role of the lawyers. Subsequently, on April 25, he posted a letter to attorneys in his court, telling them not to speak to defendants before the start of hearings and requiring all parties to stay until their payment deals are reviewed. “We won’t accept any further agreements until we see both parties,” he said.

But when it comes to specifically informing debtors of their rights, most clerks say they want to avoid any appearance of advocacy. They therefore feel its not proper to tell debtors they can dispute a debtor demand documentation of it. Or that if they are on public assistance, they can’t be forced to use that money to satisfy a judgment.

Only at the Boston Municipal Court did the Globe observe a clerk carefully questioning defendants about their ability to pay. At one session, assistant clerk-magistrate Patrick F. Mullaney asked each debtor whether he or she had a job and could truly afford the payments they were agreeing to make. He asked if they were on any kind of public assistance, and if so, told them the case would be dropped for a year.

“One part of the government is giving them something to get by,” Mullaney said. “It doesn’t seem to make sense that another part of the government is ordering them to pay money.”

Even the plaintiffs’ lawyers at Boston Municipal ask defendants if they have the means to pay, because Mullaney requires them to do so.

Connolly said the courts must rely on the “good faith” of the lawyers who appear before them to uphold the rules. But, with so many unrepresented debtors going up against lawyers, she acknowledged, “There’s an imbalance there. There’s no ifs, ands or buts about it.”

That imbalance is exacerbated by another widespread practice in debt cases - the use of “covering” attorneys.

These are legal practitioners who are paid small sums by collection firms to raise their hand and say “here” when a case is called. They appear at courts around the state, often representing as many as a dozen plaintiffs in a single session. And they typically know only the barebones facts of a given case, a name and the sum that’s supposedly owed,

Covering lawyers usually don’t need to know more; they’re simply there to collect default judgments against people who don’t show up. On a busy day last September in Lowell, for instance, a handful of covering lawyers had only to say “plaintiff’ for the record 132 times. Their work was done in 90 of those cases, because the defendants did not appear.

In a system where defaults are rampant, and where debtors in many courts are presumed to owe the money, some clerks make it part of their job to assist plaintiffs - even those who skip hearings — in ways that flout court rules.

It is a common scene in the windowless, basement room in New Bedford District Court, where assistant clerk-magistrate Thomas W. Alfonse often runs overflowing small-claims sessions. When a plaintiff fails to respond to the call of a lawsuit. Alfonse routinely prompts Joseph McIntyre, New Bedford’s lead covering lawyer, to pick up the case - even though, under the rules, such cases should be dismissed.

During one busy session last fall, Alfonse asked, “Anyone want to answer for Mr. Bakst?” referring to a lawyer not present that day. McIntyre said he would pick up the case. When no one spoke up to cover a Sovereign Bank lawsuit, McIntyre jumped in: “I’ll answer for them.” Similarly, on a Bank of America case, Alfonse coached, “That’s Daniels’s office.” Again, McIntyre obliged. And when a lesser-known firm, Natco, had its suit called, and no one responded, Alfonse asked McIntyre to represent the no-show plaintiff.

“My incentive is volume,” said McIntyre, a former state legislator, in an interview. He answers for up to 10 plaintiffs a day and makes $15 to $20 per case.

The Natco case illustrates two common abuses of the system. First, the case should have been dismissed when the plaintiff did not appear. Second, Alfonse violated court rules when he granted McIntyre a postponement, because the lawyer was, not surprisingly, unprepared to try the case.

Clerks routinely grant these delays, called continuances, when plaintiff lawyers say they need time to prepare. Defendants are almost never shown such deference.

Kiriakos Stergiotis and his wife, Phyllis, owners of a pizza shop, who had been sued by Natco, were outraged that the case was postponed: “If they want to bring you to court and they expect you to be there, they should be here too,” Phyllis Stergiotis said.

Asked in an interview why he didn’t dismiss cases when neither the plaintiff nor its lawyer appeared, Alfonse said, “It’s more paper, more court dates. It’s better if we work it out today, for everybody.”

In the case of Damon, the Iraq veteran, the court allowed Norfolk’s covering lawyer a continuance even after Damon had flown home from Washington for the 2004 hearing. When the Globe asked Martin, the clerk in the case, why he allowed the delay, he said, “If Peter Damon had no idea that he could object to a continuance, it’s not the clerk’s responsibility to tell him.”

Judge Connolly, in a letter to the Globe, pointed to the text of the state standards for small-claims proceedings, which strongly discourage such continuances. It says; ‘If the attorney isn’t prepared to prove his or her case, the matter should be dismissed...unless there is a showing of good cause.”

Martin also said it was not his job to question why Norfolk had, under oath, indicated to the court that Damon was not in military service.

Norfolk President Daniel WY Goldstone, in a letter to the Globe, said he did not know Damon was in the Army. But Damon and his mother say they told Norfolk debt collectors many times that he was deployed to Iraq and then in a military hospital.

Paying with freedom

The ultimate threat in debt cases is jail time for failure to pay. It is a threat routinely used by court officials, lawyers, and constables to force compliance by defendants.

At New Bedford District court last November, a constable who had brought debtors in under threat of arrest was haranguing several of them in the hallway. One woman, Deborah Medeiros, owed $700 to an auto salvage company. The constable, Trent Roderick, told her to come up with the money, or he’d send her before a judge who might lock her up.

“I’m going to jail,” Medeiros sobbed, tears flowing down her face. In a panic, she called her father, who came to court with the cash.

Paul A. Fournier, a covering lawyer in several western Massachusetts courts, warns debtors in the hallway in Springfield District Court that they’ll be incarcerated if they lie on court forms. And, he said, jail threats can be effective. Some judges, if they have trouble with debtors, he said, “will put the cuffs on them and make a big show of it, and the money comes out from everywhere. The relatives come out and everything.”

Marc Marcelin, a 53-year-old Haitian immigrant, didn’t get to his relatives in time.

On the morning of Dec. 13, two constables arrived at Marcelin’s home in Brockton. They handcuffed him and drove him to Ouincy District Court, where he sat in the lock-up of one of the state’s dingiest courthouses for nearly six hours. About 3p.m., he was called before Judge Mark S. Coven.

“So, you haven’t come up with the money?” Coven asked.

Marcelin was being sued by Madeline Cordon of Randolph, for failing to do a contracting job. She had paid him $2,000 to put vinyl siding on her house. He did two days’ work but then didn’t return her calls for six days - facts that Marcelin, in an interview, did not dispute. Cordon sued him, and Marcelin twice failed to show up for court.

Marcelin was no stranger to the court system, having faced charges years earlier for using drugs. But that was not the matter before the court on this day. Indeed, he had no idea how high the stakes were when he left home that morning. Standing before Coven, Marcelin told the judge his sister was supposed to be coming to court with money.

“Is she coming today?” Coven asked twice, according to an audiotape of the session. Marcelin was not sure. Coven told him he was being found in contempt of court and ordered, “that you be held at the Dedham House of Correction to be released upon payment of $2,300.” including fees and interest.

After a long silence, Coven asked, “Do you understand that?”

Under the law, a judge can fine a debtor $200 for contempt, or put him in jail for up to 30 days. Coven did not give Marcelin a chance to contact a lawyer, as the Massachusetts court standards recommend. There is no constitutional right to a lawyer in civil cases.

When Marcelin’s sister called the court that day to arrange payment to free him, she said, a clerk told her “not to bother,” because he also owed money in Brockton District Court. The clerk made the same comment about Marcelin’s situation to a Globe reporter that day.

Marcelin was locked up for 28 days.

Coven defended his ruling. “He had the keys to the jail cell,” Coven said. “All I was trying to do was get a court order satisfied.”

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The Boston Globe
Debtors Hell Part 3 -- Behind the badge
Enforcers’ might goes unchecked
By The Globe Spotlight Team l July 31, 2006

They have the power to take your car, your money, and sometimes your freedom. And they bring some uncommon credentials to the job.

Consider these resume highlights:

Kenneth J. Dorsey: Manager of a Jamaica Plain gin mill. Ran illegal gaming operation. Busted by Boston Police. Rifle and shotgun confiscated. Guilty plea, 1994.

Kevin J. Dalton: Plymouth County deputy sheriff until 2001. Fired after State Police probe into alleged shakedown of a company seeking a contract with the sheriffs department, an accusation he denies.

Constance M. Sorenson: Filed for bankruptcy in 2003 with $47,000 in delinquent credit card debt. Fined for punching a woman in the mouth outside a bar. Arrest warrant pending for failure to pay $100 fine in another case. Along with that baggage, Sorenson, Dalton, and Dorsey also carry badges - as officers in the murkiest backwater of the Massachusetts law enforcement community. They earn their keep as constables, independent operators appointed by cities and towns to serve court papers and execute court orders.

In Boston alone there are 186 of them, and Mayor Thomas M. Menino has given arrest powers to every one, including Dorsey and 87 others with criminal arrest records for offenses including firearms violations, indecent assault and battery on a child, and impersonating a police officer. Seven have been appointed in spite of guilty verdicts, among them one convicted twice in the last four years of beating his wife.

Constables are an odd, anachronistic leftover from colonial days. No training is required, no oversight is provided, and no state agency keeps track of their identities, much less their numbers - an estimated 1,500 to 2,000 statewide.

Yet many among them, including Dorsey, Dalton, and Sorenson, are foot soldiers for the most aggressive debt collectors in Massachusetts. They make their money by night, or at first light, with a frightening thump on the door, seizing cars by the thousands from intimidated debtors who have missed, or ignored, court orders to pay their creditors.

Most constables prefer to knock politely during daylight hours to deliver subpoenas and the like for their $35 or $40 fee.

But their more aggressive colleagues do much, much better than that, thanks to a 1990 amendment to state law that allows them to charge whatever they like for auto seizures. The result is price gouging: Constables charge debtors between $600 and $900 to accompany the tow truck that arrives to hook a car. The fee used to be capped at $25.

When debtors cannot raise the cash to pay the debt and the seizure fees, their cars are sold at auction. Here again the constables are part of the game: Proceeds of the auction are split among the constable, the tow lot, and the creditor. Almost always ignored, the Globe found, is a state law requiring that the first $700 of the sale proceeds be returned to debtors.

In this obscure trade, constables have some well-armed competitors; the county deputy sheriffs, who sit one short rung up the law enforcement ladder and have grabbed an increasing share of the business. For sheriffs, too, the pursuit of a payout can sometimes take precedence over fairness. In one case earlier this year, two deputy sheriffs in Worcester County threatened to arrest a woman who stood between them and her car - waving bankruptcy papers that should have exempted it from seizure. Nonetheless, she lost her car for 10 weeks.

Since 2001, sheriffs departments in just five counties - Worcester, Norfolk, Bristol, Plymouth, and Middlesex - have seized about 2,500 cars for debt collectors, most often for a fee of $600 per car. And like constables, they rarely tell debtors they are entitled to the first $700 from the sale of a seized auto.

‘Don’t argue with us’

Marie LoConte had her close encounter with constables shortly after midnight on July 28, 2004, when her doorbell rang. LoConte, 41, made her way down the stairs from her second-floor apartment and found three men wearing blue uniforms and badges- “They looked like police officers. I thought they were,” LoConte said. One of them, she recalls, was tapping his nightstick in the palm of his hand while another informed her they were there to seize her 1997 Ford Thunderbird for an unpaid credit card debt.

‘Don’t argue with us,” she heard him say.

Terrified, Loconte said, she called Taunton police, who offered little sympathy. The constable brandishing the nightstick was playing by the rules, she says she was told, as long as he didn’t hit her with it. “I didn’t sleep all that night. I couldn’t stop crying. I was shaking,” Loconte said.

Loconte is disabled as a result of lupus and Crohn’s Disease. She lost her cleaning business more than a decade ago, and, by 2000, had stopped making payments on a $430 Providian credit card balance. She wound up paying $1,758, draining her savings and borrowing from a friend, to erase the debt and get her car back.

Of that, $158 went to the tow lot, which kept her car for a day, and $800 to the constables, dispatched by Sorenson’s firm. To ransom the car, Loconte had to drive 70 miles to Sorenson’s office in Chelmsford to pay her bill, then another 55 miles to a Bridgewater tow lot.

For Jeanmarie Fitzpatrick, the constable’s visit was even more costly. An $800 constable’s fee would have seemed a bargain to her.

When Dorsey, the former bar manager turned constable, arrived at her door last Dec. 14, he demanded $1,250 in fees for seizing her 2000 Dodge Neon.

Fitzpatrick, a 37-year-old single mother who lives in South Boston’s D Street public housing project, was about to drive her three children to school when Dorsey drove up and blocked her car. Fitzpatrick figured it must be something to do with unpaid parking tickets; she said she had no idea there were court judgments against her for two delinquent credit card accounts, totaling $3,800. That’s because Norfolk Financial Corp., the debt collector who sued Fitzpatrick, had given the court the wrong address. She says she was never notified of the lawsuit, and a Globe check of court and public records shows she’s right.

“They went out of their way to find my car but they didn’t go through the trouble to find my address” to notify me about the lawsuit, Fitzpatrick said. “That’s what kills me.”

Dorsey, she said, turned aside her tearful plea that he wait to take her car until she could drop the children at school.

Dorsey’s fee for having her car hauled away: $625. But since he was holding two pieces of legal paper for taking just one car, he demanded $1,250. The car was sold at auction for just $1,000, even though it had a resale value of about $4,000. ‘It’s a week before Christmas. I have three kids,” Fitzpatrick said. “These people have absolutely no heart.”

Dorsey asked in an interview why he demanded twice the normal $625 fee, said: “It was two different cases,” If he had handled them separately, Dorsey contended, he would have been justified in seizing her car twice.

“I explained everything to her,” Dorsey said. “I’m not out to screw people.”

A badge without scrutiny

The office of constable is as ancient as it is obscure, governed in Massachusetts by laws that date back to the 1600s, One power of the office - never repealed - is to “take due notice of and prosecute all violations of law respecting the observance of the Lord’s day, profane swearing and gambling.”

Nowadays, constables, and the deputy sheriffs who perform parallel work, busy themselves delivering subpoenas and other court papers, placing liens on real estate, and seizing personal property to satisfy court judgments - in the case of constables, judgments of no more than $2,500.

Where they differ is in accountability. Constables, for example, can legally operate only in the communities that license them. But that restriction, the Globe found, is often ignored.

Constables also largely operate in secret. There is no requirement for them to keep, or submit to scrutiny, records of their seizures. When the Globe set out to determine how many cars constables across the state have seized from debtors, almost all those asked refused to say. Records held by county sheriffs, by contrast, are public.

But what is clear, by the account of sheriffs, debt collectors, and constables themselves, is that it is constables who handle the bulk of the car seizures. Court records suggest their total runs to several thousand cars a year, across the state.

Sorenson’s firm alone was seizing between 80 and 100 cars a month for two debt collection companies, according to affidavits filed in a court case involving the companies. And Dalton, who owns South Coast Legal Services, told the Globe he uses constables around the state as subcontractors to seize vehicles, though he refused to say how many cars they hook for him. One of his subcontractors, Dorsey - who took away Fitzpatrick’s car - said he seizes between 12 and 30 cars a month.

And no one monitors their work. So little scrutinized are constables that some work with impunity in communities where they have no jurisdiction.

Sorenson, for example, represents herself as a constable, but her license, in Salem, expired in 2003. In an interview, Sorenson, 37, claimed to be a constable in Lynn and Medford, in addition to Salem, But officials in Lynn and Medford said they have no record she has ever been licensed to serve in either city. Sorenson has also been embroiled in legal disputes for dispatching constables to do seizures in communities where they are unlicensed.

And some constables who worked for her have been criticized for over-the-top tactics. One allegedly identified himself as a State Police officer, according to court papers filed in a 2001 lawsuit against a debt collector. Another constable allegedly threatened a debtor with criminal sanctions, even though debt collection is a civil matter.

“There’s not one heavy-handed constable that I’ve ever worked with,” Sorenson insisted. She reached a confidential settlement in the 2001 case, which she declined to discuss with the Globe.

She said she’s now stopped seizing cars altogether. But in June, Sorenson identified herself as a constable when she seized two cars from a Grafton businessman.

Sorenson defended the work of constables. She said consumers who ignore court orders to pay their debts have no right to complain when the constables come calling, no matter the hour. She described her own workday as “nine-to-five”, meaning 9 at night until 5 in the morning.

“I think you should pay those debts - especially consumer debt. You can’t take a credit card and go buy yourself a new television and expect to never have to pay for it, but people do,” Sorenson said. “I think everyone should be responsible - I do. I’m responsible.”

Not quite. A Globe review of federal bankruptcy files showed that Sorenson has twice filed for bankruptcy, most recently in 2003, when her credit card debts alone exceeded $47,000. After that, her lawyer sued her for not paying his fee and won a court judgment - along with authorization to have her car seized. But he decided against taking that step.

Sorenson sidestepped questions about her own financial problems, except to say: “Defendants aren’t all bad. They’re like me and you.”

Checkered pasts

Dalton, who owns the South Coast Legal Services constable business, changed careers in 2001 after 16 years as a Plymouth County deputy sheriff. But he didn’t go willingly.

He and two other cashiered deputies filed a federal lawsuit claiming they had been unjustly fired. At the trial, the county introduced evidence from a State Police investigation in 2000 that Dalton had allegedly sought cash payments from a Brockton moving company trying to obtain county work in court-ordered eviction cases.

The federal jury upheld the dismissals. In an interview, the 60-year-old Dalton said the allegations were false but refused to discuss the issue further. He was never charged criminally in the case,

As for the $625 fee he charges for each car seizure, Dalton was hardly defensive about his price; he said he is considering an increase to offset the higher cost of gasoline. “I have a lot of guys burning up gas, looking for cars,” he said.

State law requires cities and towns to “investigate the reputation and character “of all constable applicants, as well as their fitness for office. But the law sets no specific criteria. In some communities, a police criminal background check is required. But in some cases the background checks appear to be cursory.

In Boston, police do background checks before Menino appoints constables. But Dorsey, the constable who demanded $1,250 for seizing Fitzpatrick’s car, was appointed by Menino even though he listed his criminal record on his application. On Super Bowl Sunday in 1994, according to court records, Boston police raided the Old Stag Tavern in Jamaica Plain, which Dorsey managed, arrested Dorsey for running a betting operation and confiscated the two firearms. He was found guilty of a misdemeanor for possessing gaming materials and was fined $300. Dorsey, who is 50, also had a prior arrest for failure to make child support payments.

Boston Police Sergeant Raymond Mosher, who oversees criminal background checks for prospective constables, said he could not discuss Dorsey’s case because of privacy restrictions.

Like Sorenson, both Dalton and Dorsey have had financial struggles not unlike those of some of the debtors whose cars they seize. A decade ago, Dalton had one small-claims judgment and two federal tax liens against him, according to court records reviewed by the Globe. And Dorsey says his own struggles help him empathize with the people who are his quarry.

“I’ve hid from bill collectors. I’ll be honest,” he said.

Restraint among sheriffs

Unlike constables, for whom no one sets standards, Massachusetts’s county sheriffs have to face the voters every six years. That can work as a check on overzealous collection work.

“We do not want people saying, ‘The elected sheriff took my car and then junked it,’” said Jeffrey R. Turco, the chief deputy to Worcester Sheriff Guy W. Glodis. After receiving inquiries from the Globe, the Massachusetts Sheriffs Association is reviewing the fees they charge hooking cars for debt collectors.

No sheriffs department has seized more autos than Worcester County’s - more than 1,000 since January 2002. And for Glodis, who took office in 2005, some of those seizures could prove to be politically embarrassing.

Take the case of Marlene Cote, of Leominster, who last December filed for bankruptcy - a step that legally protects assets from seizure. Or so Cote thought, until the evening of Jan. 13, when two of Glodis’s deputy sheriffs banged on her door at 8:30 p.m. and said they were seizing her 11-year-old Jeep.

By Cote’s account, the deputies were undeterred when she showed them her bankruptcy filing. They even threatened to arrest her when she stood between the tow truck and her vehicle.

Gate’s debt, an old $300 bill from a local dentist, barely topped $600 with accumulated interest. The fee charged by the deputies added another $600. And the towing company wanted $310. The total - for a car that could not legally be seized -was $1,530.56.

When the Globe first raised Cote’s case with Deputy Turco in mid-March, he acknowledged that the deputy sheriffs should have checked with his office when they were presented with the bankruptcy documents. According to his office records, Cote’s car was returned within a few days when the error was discovered.

In fact, the car was still being held, two months after it was towed away, by Direnzo Towing & Recovery, which had added another $1,200 in storage fees in the interim.

Finally, at the end of March, Cote’s car was returned and all the charges were waived. But Cote paid dearly for the episode as she struggled to regain her financial footing.

During the 10 weeks she had to get by without her Jeep, Cote said, she spent between $600 and $800 to commute by taxi to her $8-an-hourjob as a cashier at Kohl’s department store in Leominster. During that period, she also had to abandon a second job, caring for mental health patient’s in-group homes in Athol and Gardner.

It felt to her, as to many who lose their cars to unpaid debts, like a prison term for a traffic offense. And such penalties are far from rare: A review of Worcester sheriffs office records released by Turco showed numerous instances of debt collectors engaging deputy sheriffs to seize cars from people with small unpaid debts, Often, the fees associated with seizure doubled or even tripled the amount of the original debt.

Uxbridge collection lawyer Richard R. Hubbard is the source of many of those cases. He has had hundreds of cars hauled away, mostly by the Worcester County Sheriffs Department, from families whose unpaid - or disputed - debts to dentists, doctors, and local heating oil companies were just a few hundred dollars.

For its part, the Worcester Sheriffs Department has made one change in the wake of Globe inquiries: They had been charging $600 for all car seizures, whether the car is towed or the debtor pays the amount owed on the spot. Now, those who pay their debt to avoid a tow are charged $300.

In some other jurisdictions, sheriffs and constables have gone even further. In fact, most decline to seize autos. And the vast majority of debt collectors likewise frown on the practice.

In Suffolk and Barnstable counties, for example, the sheriffs departments rarely seize automobiles. And in the few instances when Barnstable deputies seize a car, they charge just $40 an hour for a deputy’s time, according to Barnstable Chief Deputy Sheriff Brad Parker. When asked about constables who charge between $600 and $900 to seize a car, Parker said, “That’s gouging.” As for his peers in other sheriff departments, who charge up to $600, Parker chose his words carefully: “That sounds high.”

Parker said his office was approached two years ago by Norfolk Financial Corp. and Commonwealth Receivables Inc., two collection agencies that have seized thousands of cars, and asked to do their seizure work on Cape Cod, but he refused.

Too often, Parker said, such cases “are against a single mother with kids and a beat-up old car, and no other transportation.”

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The Boston Globe
Debtors’ Hell – Part 4
Regulators, policy makers seldom intervene
By The Globe Spotlight Team I August 1, 2006

LAS VEGAS - For their annual industry gatherings, those who sell, buy, and collect on bad debts are drawn to this glittering mecca for fortune seekers, with its sparkling pools, lush golf courses, and round-the-clock entertainment. It’s always an upbeat crowd - the odds, after all, are in their favor.

The debt business, as Donald Friedman, the chief operating officer of debt-buyer Liberty Point Corp., told hundreds of his assembled peers at their March 2005 gathering, is “one of the sexiest, one of the most financially lucrative businesses you can get into.”

Boastful? Yes. Overstated? Hardly.

That year, businesses that specialize in debt for collection would purchase $66 billion in delinquent bank credit card accounts alone, paying just pennies on the dollar for the right to press consumers to pay up. That $66 billion represented a golden opportunity for them, and sudden vulnerability for an estimated 8 million card holders - all of them earmarked for repeated phone calls, dunning letters, lawsuits, wage garnishment, property seizure, and sometimes even arrest.

They generally owe the money but seldom anticipate the consequences. A Spotlight Team investigation, which concludes today, found a system where debt collectors have a lopsided advantage; where debtors frequently face high-handed treatment; and where excessive fees can swiftly turn a small delinquency into a life-upending financial crisis.

Yet, in spite of all this, there is an eerie silence among regulators, policy makers, and legislators. Those who could intervene to right the balance between collectors and consumers are either unaware of the debt collection free-for-all, and the tens of millions of consumers caught up in it. Or they are simply unwilling to act.

In Massachusetts, for example, almost 600 complaints about debt collectors flow each year into the office of Attorney General Thomas F. Reilly, whose state website declares that he is on the front line working for consumers. Yet since Reilly took office in 1999, he has initiated legal action against just one collection agency, a Danvers company that paid a $100,000 fine two years ago.

When Reilly’s office announced that settlement with Schreiber & Associates, it called it just the start. “This investigation is part of a larger initiative aimed at protecting consumers from unfair debt collecting practices.’

No legal actions have been announced since then, though a spokesman for Reilly said last night that five investigations of debt collectors are underway.

Similarly passive is the Massachusetts Division of Banks, which also has regulatory authority over collectors. The banking regulators do little more than warehouse required annual filings by 410 debt collection companies - haphazardly, as the Globe discovered when it sought access to the divisions records.

Meanwhile, the Federal Trade Commission, which is charged with enforcing a federal law that regulates the behavior of debt collectors, has done little in the face of an explosion of consumer outrage. From 1998 to 2005, the number of consumer complaints about debt collectors soared tenfold, from 6678 to 66,627. Yet, in the last six years, the FTC has taken enforcement action against just 10 companies.

This year, an estimated 20 million Americans are three months or more past due on credit card accounts alone, according to data given to the Globe by Experian, one of three national credit reporting agencies. Yet it appears no one in government is keeping track of this alarming trend, not even the Federal Reserve Board, which in June assured Congress that bank credit card delinquency rates are “not high by historical standards.” But omitted from that calculation are the tens of billions of dollars that are ‘written off’ the books by the credit card giants and sold to debt buyers for collection.

Court administrators who are most likely to be aware of the tidal wave of lawsuits against debtors have not, for the most part, raised concerns about credit caseloads that have turned many courtrooms into de facto subsidiaries of the collection business.

Meanwhile, Congress and many state legislatures have acquiesced to the politically powerful banking industry, which issues much of the credit that goes sour, The laws regulating debt collection predate, by a generation, the current boom for debt collectors. Their ranks have doubled in the last decade.

Frustrated regulators say the result is that many of the roughhouse tactics employed by collectors are legal.

Jesse Caplan, the chief of Reilly’s Consumer Protection and Antitrust Division, said the vast bulk of complaints to his office about debt collectors are “not actionable,” but amount to a misunderstanding of what consumer laws protect against. Caplan said his office informs consumers of their rights, and sometimes mediates disputes between consumers and debt collectors.

That would come as a surprise to Roberta Andresen of Raynham.

She felt she had nowhere to turn but the attorney general after a debt collector sued her in 2003 for a credit card debt she says she had long since settled. Reilly’s office, she said, seemed uninterested in her complaint:

“They said they couldn’t do anything for me, and told me to post a complaint on the Internet,” Andresen said.

At the Division of Banks, the authority to audit debt collection firms is infrequently used because the law doesn’t require it. “We’re not under any statutory requirement to examine debt collectors,” David J. Cotney, chief operating officer for the division of banks, said.

And at the Federal Trade Commission, the senior enforcement official acknowledged that the agency has not kept pace with consumer complaints, even though debt collection generates far more complaints than any other activity in the marketplace. “Clearly, the trend is not good, and we’re quite concerned about that” said Peggy Twohig, the associate director of the Federal Trade Commission’s Division of Financial Practices.

Twohig said her agency is planning to increase its enforcement of federal debt collection laws. Asked about the tenfold increase in complaints, and the tiny number of FTC enforcement actions, Twohig replied, “It’s a fair point. The record is what it is.”

Becoming a target

This government inaction has left millions of people feeling they have nowhere to turn, and no one on their side, when debt collectors come calling.

Manuela Cormier is one among the millions. Waiting with 100 other forlorn debtors in a three-hour queue at the New Bedford District Court last Nov. 30, Cormier stood convicted of misfortune: Five years ago, the 45-year-old single mother lost her job, and had no money to make payments on a $1,000 credit card bill. The combination of a 29 percent interest rate, penalty fees, and court-imposed costs have since pushed the bill close to $4,000. Cormier was told she would be jailed if she did not pay.

She agreed to pay $25a month from her $10.25-an-hour salary as a home health aide - not even enough to cover the $36 monthly interest on the debt. “I’ll be paying until the day I die,’ Cormier lamented.

Her’s is the grim face of a growing crisis for Americas middle- and working-class families - a crisis that has hardly entered the national conversation.

The 20 million consumers seriously behind on credit card payments were delinquent on some 36 million individual accounts, as of January. And there were an estimated 40 million people three months or more behind on other kinds of accounts, according to Samah Haggag, manager of analytics at Experian. Those include home, car, and student loans, utility and medical bills, and, increasingly, bills from cell phone carriers and health clubs.

People with accounts that far in arrears almost always end up in default and become potential targets for debt collectors.

And they feel like targets. A survey of 1,300 consumers released last December by the National Opinion Research Center at the University of Chicago found that 15.8 percent say they had “been pressured” during the prior 12 months by stores, creditors, and debt collectors to pay past due bills.

“The great American middle class is fighting a battle for survival - and losing,” said Elizabeth Warren, a Harvard Law professor who specializes in consumer law. “Millions are in financial free fall, wondering whether every ring of the phone or knock on the door will bring more bad news,”

Even leaders in the debt collection industry find it remarkable that the scope of the problem remains largely unseen. Rozanne Andersen, the general counsel for ACA International, the trade association for most debt collectors, says reliable information on the number of consumers in serious debt “is horribly deficient.”

Often what follows for debtors in such straits is a date in court. The Spotlight investigation found that between 2000 and 2005, there was one debt collection lawsuit for every five Massachusetts households. Numbers provided to the Globe by debt collectors show that eight of the busiest firms file 90,000 debt collection lawsuits a year in Massachusetts district courts - most of those in small-claims sessions, where consumers are pitted against collection lawyers.

And the pattern appears to hold nationwide.

In states where records are available, such as Iowa, Michigan, Maryland, Indiana, South Dakota, and Florida, the caseload of debt collection lawsuits is as high or higher. In Allen County, Ind., which includes Fort Wayne, debt collectors filed 20,000 lawsuits in 2004- one for every six households, In Maryland, judges in the Baltimore City District Court approve an estimated 300 judgments against debtors each day, on the say-so of debt collectors who are almost never asked - in Maryland or any other state - to provide evidence that the debt is owed or that they have the right to collect.

Even in some affluent counties, court dockets are crowded with debt collection lawsuits,

In Montgomery County, Maryland, where per capita income is among the highest in the nation, the courts are swamped with such cases. In 2005, debt collection firms filed about 21,000 lawsuits, according to Bonnie Bell, the county court’s civil clerk, Bell said her court grants debt collectors attachments on wages or bank accounts at the rate of 1,000 a month. To keep the caseload under control, Bell segregates mass filings by debt collectors for hearings in a separate court session, where judges speedily process the claims. They call that session the “rocket docket” - for the way it speeds judgments against debtors,

Thanks to the proliferation of debt collection cases, Bell said wryly, “We’ll never be out of a job here,”

In next-door Prince Georges County the courts have been so inundated with suits against debtors that it also channels large volume debt collectors into one special court session. “We handle 600 cases in one court in one day,” Kathleen Schnobrich, the civil clerk, said.

To be sure, creditors have the legal right to collect what is due. And consumers generally owe what collectors are after, though they often dispute the exorbitant fees and interest that have been added on. Among the scores of debtors interviewed for this series, all but a handful admitted as much. Often, too, they acknowledged spending beyond their means - out of carelessness, misplaced optimism about how much debt they could carry, or dire need.

But most often, their debts became overwhelming after one of life’s unanticipated setbacks: the death of a family member, a divorce, an illness, unanticipated medical bills or the loss of a job. Some debtors paid the rent and heat and ignored the credit card bill. Others used the cards for food and gasoline until their credit was cut off.

“Ninety-nine percent of the debtors I dealt with are good people. They just ran into a spell of bad luck,” says Tony Clawson, a Connecticut attorney who pursued credit card collection cases for two years for Lindner & Associates, a debt collection law firm in Needham, “Too many of them got into trouble because they were gullible to offers from credit card companies who give out cards too easily.”

Cormier, whose $1,000 debt became a $4,000 millstone, is Exhibit A. Eight years ago, she was a part-time nanny, struggling to support her developmentally disabled daughter with government assistance, and scraping by without a credit card. Then came the enticement from card issuer Discover, which is now owned by Morgan Stanley, the investment banking powerhouse. “I got the [credit card] offer in the mail. It said I was pre-approved,” Cormier recalls. “Getting that card was the stupidest thing I ever did.”

Low income, high profits

And Cormier did not get that card by accident. Since the 1990s, credit card vendors have aggressively courted customers among lower-income, higher-risk consumers. It is the industry equivalent of tobacco companies marketing to minors.

In 2005 alone, credit card issuers blanketed the country with 6 billion offers for new credit cards, with most of those aimed at people of modest means and modest credit ratings - people most likely to carry balances at high interest rates that generate enormous profits for banks.

With profits so high, card issuers consider it an acceptable cost of business that about 5 percent of those customers, unable to keep up with minimum payments, will tumble into default.

“The higher-risk customers are actually more profitable, especially if you can get them to pay,” said Matthew S. Melius, the former chief of operations at Metris Cos., the former parent company of Direct Merchant Credit Card Bank.

But, speaking at a debt collection conference in Orlando last year, Melius said pushing credit on higher-risk customers can backfire. The granting of credit, he said, is “a drug, if you will….If we give it to them, they’re going to use it.”

He laid the blame for the practice at the industry’s doorstep.

Furthermore, boosting interest rates to 30 percent or more and slapping those who make late payments with hefty penalties is “probably the worst thing you can do to a customer who is struggling,” he said.

It is the explosion of credit card availability, combined with the need of companies like Metris to swiftly off-load customers who fall into delinquency, that has fueled the astonishing growth of the debt buying business. Since 1995, bank credit card issuers have sold off $390 billion in past due debt. The annual sales have grown from $4.4 billion in 1995 to $66.4 billion in 2005.

Debt buyers - many of whom also collect debt - work in different ways. The largest purchase huge portfolios of debt written off the books by major credit card companies. They then break up the debt into smaller blocks for resale. Companies that buy this debt first try to collect the money, then re-sell uncollectible accounts to others further down the collection food chain.

Evidence of the untrammeled nationwide growth of the business is hard to mistake. Recent press releases tout the expanding fortunes of debt collectors across the country: a new 21,000-square-foot facility in Chicago for collectors to make calls demanding payment; 300 new positions in Mobile, Ala.; official congratulations from New York Governor George E. Pataki for the creation of 450 jobs for debt collectors in Batavia, N.Y.

On Wall Street, debt-buying firms have become coveted investment targets. One publicly traded company in Norfolk, Va., Portfolio Recovery Associates Inc., collected $10.9 million from debtors as recently as 1998. Last year, it took in $191.4 million - annual revenue growth of 55 percent. Portfolio Recovery’s profits, which were $402,000 in 1998, soared to $36.8 million in 2005.

The firm’s results also illustrate how the industry turns pennies into millions.

In its first decade of operation, Portfolio Recovery purchased 658 debt portfolios with a face value of $16.4 billion - at a cost of only $415.4 million. That’s about 2.5 cents for each dollar of debt purchased. It collects, on average, 7.5 cents per dollar.

The extraordinary expansion of the debt sold off for collection is one powerful force behind some of the collection abuses documented in the Spotlight investigation.

As debt is sold and re-sold, companies that buy the right to collect it often know little about the debtor: name, last known address, card issuer and account number, and amount due. That limited picture can cause problems for everyone involved,

Sean McVity, managing partner at Garnet Capital Advisors, a New York investment banking firm that brokers the sale of debt portfolios, said many large banks selling off debt have a “buy-it-as-is” attitude, providing only minimal data when they sell accounts, and charging buyers hefty fees if they come back for more documentation. He called it a “dangerous” practice.

Sparse data makes for major miscues: Outdated addresses mean that many consumers get no notice that they have been sued. And, with increasing frequency, the wrong person is targeted.

Collectors, too, are disadvantaged. Often, they have little evidence to support their claim on a past-due amount.

Michelle A. Weinberg, a legal aid lawyer in Chicago noted that, in Illinois as in Massachusetts, debt collectors have to file an affidavit with their lawsuits attesting to the legitimacy of their claims. “But the affidavits are plainly false,” Weinberg said. “If the plaintiff has anything, it is only a computer printout.” In every case she has taken, Weinberg said, she has challenged the veracity of the affidavit, and ‘in every instance, the debt collector has dropped the case.

Federal banking regulators have set no rules for how much data the banks should provide when they sell a customer’s debt.

Some states, however, have moved to fill the void. Maine, West Virginia, and Minnesota, for instance, are developing reputations for aggressively regulating debt collection agencies that mistreat consumers.
And judges in a handful of states, including New Jersey, Maryland and Michigan, have found the imbalance between collectors and debtors so troubling that they are looking for change.

In Michigan, the three justices of the Southfield District Court in suburban Detroit, citing widespread abuses by debt buyers, want to update court rules to curb what they describe as “predatory” practices, “particularly for the majority of defendants who are not familiar with the court system and who cannot afford an attorney.”

The judges complain about numerous practices, many of which, the Globe found, are also commonplace in Massachusetts courts. In Michigan, the judges wrote:

• The sale and resale of uncollected debts often leads to cases involving outdated addresses, so debtors receive no notification they have been sued,
  
• Suits are mistakenly filed against the wrong consumers, or against people who have already repaid a debt.
  
• Debt collectors seldom have evidence of the original debts they are claiming.
  
• Debt collectors often misrepresent the amount owed by adding unwarranted interest charges

Even consumers who pay off their debts have no guarantee the matter ends there. In Massachusetts and other states, collectors who win court judgments are required to notify the court when a judgment is paid. But many do not - leaving consumers powerless to erase black marks on their credit reports when they go to buy a car or refinance a home. They are often forced to take on higher interest rates, and with them larger payments and a greater likelihood they will slip back into financial trouble,

Cheryl[ Cook, a clerk in civil court in Orange County, Calif., said her court spends a lot of time fielding calls from people who are trying to clear up an old judgment that they paid. ‘It’s just crazy,” Cook said. “It’s an extremely frustrating thing for anybody to go through.”

And among those who collect debts, some express growing unease about the way debtors are treated,

One is Richard S Daniels Jr., a Boston lawyer whose firm has been collecting debts on behalf of clients for nearly 30 years and files about 20,000 small-claims lawsuits a year - more than any other debt collector in the state. And yet Daniels said the current practices of the credit card industry have left a sour taste in his mouth.

“Any system that puts people’s backs up against the wall doesn’t work,” he said in an interview. Daniels described the penalties and fees that credit card companies tack onto consumer bills as “usurious” and “totally unconscionable,” making it impossible for people to get out of debt. Such charges, Daniels declared, amount to “classic abuse I wish to hell Congress would do away with,”

“This used to be an honorable business,” Daniels said, when discussing collections for credit card companies- “Now, the guys on the other side are thieves.”

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The New York Times
An Outcry Rises as Debt Collectors Play Rough
By SEWELL CHAN
July 5, 2006

The rise in American consumer debt has been accompanied by a sharp increase in complaints about aggressive and sometimes unscrupulous tactics by debt collection agencies, a phenomenon that has government regulators increasingly concerned.

In April, the Federal Trade Commission, which enforces the federal law that governs debt collection practices, reported that it received 66,627 complaints against third-party debt collectors last year — more than against any other industry, and nearly six times the number in 1999.

The agencies often buy the debt from more established companies for pennies on the dollar and seek to collect even if the debt has been paid or was never valid to begin with. Sometimes, consumers pay up simply because they are worn down by threats from the companies and fear damage to their credit rating.

One New York City victim, Judith Guillet, complained and filed a police report in 2003 after receiving a Chase credit card bill for $2,300, including five charges from Amoco gasoline stations in the Bronx. She has never owned a car or had a driver’s license.

The bank agreed that the charges were not valid, but the debt case hung on because the bank turned it over to a collection agency. Last November, that agency obtained a court order allowing it to freeze Ms. Guillet’s bank account even though it could not demonstrate that the debt was valid.

“I felt helpless, said Ms. Guillet, a nurse who is retired on full disability. “I couldn’t pay my rent, buy food or pay my electricity bills.”

Officials in New York City, which has some of the most stringent consumer protection laws in the country, said the number of local complaints about debt collectors more than doubled in three years — to 900 in the 2006 fiscal year, which ended on Friday, from 774 in 2005, 509 in 2004 and 422 in 2003.

The city’s Department of Consumer Affairs recently subpoenaed records from eight companies with the most complaints and is considering whether to propose tougher regulations. And last month, New York’s attorney general, Eliot Spitzer, sued a national debt collection company, accusing it of trying in thousands of cases to collect on debts that could not be verified.

The Federal Trade Commission enforces the Fair Debt Collection Practices Act, the 1977 law that prohibits abusive, deceptive and unfair tactics by collection agencies. Last July, the commission won 10.2 million — its biggest judgment for illegal collection practices in a case against National Check Control of Secaucus, N.J. The company, now out of business, overstated the amounts consumers owed and threatened them with arrest and prosecution.

‘We’re very concerned about the increase in complaints about debt collection, and we are stepping up our enforcement against the debt collection industry,’ said Peggy L. Twohig, who directs the F.T.C’s Division of Financial Practices.

In its most recent annual report on the act, the commission identified tactics that have become particularly common: misrepresenting the nature, size and status of a debt; making constant harassing and abusive phone calls at all hours; contacting a debtor’s relatives, employers and neighbors; failing to investigate claims by consumers that a debt is paid, expired or fraudulent; and threatening to sue or seek prosecution. (Such threats are illegal unless the collector has both the legal basis and the intent to take such action.)

In addition to filing complaints with regulators, a growing number of consumers are suing over debt collection abuses, according to the National Association of Consumer Advocates

Stephanie M. Clark, 36, and her husband sued the Triad Financial Corporation of Huntington Beach, Calif., and Verizon Wireless in Federal District Court in Santa Ana, Calif., in August 2004. After they fell behind on their car payments, the suit alleged, Triad hired a collector who threatened them with arrest, posed as a Verizon Wireless employee, changed the password on their cellphone account and obtained their cellphone records. According to the suit, the collector called dozens of the couple’s relatives, friends and business associates, posing as a law enforcement officer and telling them that there was an arrest warrant for the Clarks.

“They contacted former and future employers,” said Ms. Clark, who now lives in Healdsburg, Calif. “It was very stressful. We felt completely violated. Humiliated.” In June 2005, before the case was to go to trial, the companies settled with the Clarks for an undisclosed sum. (Both companies said they could not discuss the settlement, which also resolved the original debt, because of a confidentiality agreement.)

Last July, Leigh A. Feist, 39, of Minneapolis, took out a cash-advance loan of around $570. From September to April, a collection agency, Riscuity, called Ms. Feist constantly on her cellphone and at her job at a health insurer, according to a suit that her lawyer, Peter F. Barry, filed on May 25. The calls were so frequent, Ms. Feist said, that her supervisor examined the record of incoming calls and reprimanded her.

Edward Chen, president of Riscuity, based in Marietta, Ga., said that he was not aware of the suit but that the company stops calling debtors at work at their request.

Regulators and consumer advocates say many creditors prefer to hire collection agencies or sell bundled debts to debt buyers because of the expense of litigation.

Robert J. Hobbs, the deputy director of the National Consumer Law Center, an advocacy organization based in Boston, attributed the rise in complaints about abusive collection practices to three broad trends: the rapid growth in the number of collection agencies, the tightening of bankruptcy-protection laws last year and the record level of consumer debt, now totaling $2.2 trillion, complicated by rising interest rates and stagnant personal incomes. Identity theft and Internet fraud are also cited as factors.

Rozanne M. Andersen, the general counsel at ACA International, which represents 3,6oo debt collection agencies, more than half of the estimated 6,ooo to 7,000 such companies in the United States, said its members adhere to a rigorous code of ethics. “To the extent there are abusive practices taking place in the industry, ACA International absolutely denounces those practices that fall outside of the law,” she said.

Eric M. Berman, a lawyer in Babylon, N.Y., and an officer of the National Association of Retail Collection Attorneys, whose members represent creditors, said complaints filed with the government were not always legitimate. For example, he said, some debtors complain when debt collectors will not accept partial payments on the same installment terms that the original lender provided, a practice that may be frustrating to the debtor but is legal.

“People need to get much more education about credit accounts and what they’re getting into,” Mr. Berman said. “In addition, there are a small minority who are scammers — people who will run up credit with no intent of paying it and then try to negotiate their way out of it.”

While consumer advocates say that abusive collection practices have a disproportionate effect on poor people, the elderly, immigrants and people with limited English, the rise in complaints seems to span the social and economic spectrum.

Mary H. Monroe, 71, a retiree in Williamsburg, Brooklyn, received repeated calls last year from Diversified Collection Services, part of the Performant Financial Corporation of Livermore, Calif., insisting that she owed more than $8,000 in tuition and fees at a beauty school that she had never attended. “I thought they had to be kidding,” she said.

She said the calls continued, despite her protests that the collectors had the wrong person. “I finally got a lawyer to write to them, and they haven’t bothered me since,” she said.

Maria Perrin, a senior vice president at Performant, said the company halts its efforts when it learns of cases of mistaken identity. “Honestly, we don’t want to spend time with the wrong person,” she said.

James M. Rhodes, 65, was not as lucky as Ms. Monroe. In November, Mr. Rhodes, a commercial lawyer and arbitrator on the Upper East Side of Manhattan, received the first of three letters from Midland Credit Management, part of the Encore Capital Group of San Diego. The company insisted that he pay 82,800 on a MasterCard he never had.

Mr. Rhodes repeatedly insisted that the debt was not his, and then wrote to state and city officials. In April, the city’s Department of Consumer Affairs got Midland to acknowledge that the debt was erroneous. But that was not the end of it, because in the meantime, in March, Mr. Rhodes heard from a second collection agency, Phillips & Cohen Associates of Westhampton, N.J., demanding payment on the same account, this time for $1,900. Mr. Rhodes sent letters of protest and contacted the city again.

J. Brandon Black, the chief executive of Encore, said, “The vast majority of fraud or mistaken-identity complaints and concerns are taken care of at the level of the issuer.” Matthew A. Saperstein, a vice president at Phillips & Cohen, said it closed the account on May 12 after receiving a letter from Mr. Rhodes.

Ms. Guillet, the Bronx woman with the gasoline charges, spent two years insisting that her credit card charges were not valid. Finally, lawyers for New Century Financial Services of Cedar Knolls, N.J., which had bought the debt, obtained a judgment in New York City Civil Court that led Emigrant Savings Bank to freeze her account. Ms. Guillet, who has fibromyalgia, a muscle pain and fatigue disorder, lives on $1,324 a month in Social Security Disability Insurance.

Although companies must serve notice before getting permission to freeze a bank account, such notices are often misdirected or, as in Ms. Guillet’s case, ignored by people who are fearful or confused.

A nonprofit legal clinic, MFY Legal Services, got the account unfrozen in January and, after providing extensive documentation that Ms. Guillet had saved over two years, reached a settlement with New Century, which agreed to stop contacting her and dropped the case. (A company official, Jeff Esposito, said he could not discuss the case.)

“It stressed me out so bad,” Ms. Guillet said of being pursued for a debt she did not incur. “I wondered what else might be out there that I don’t know about.”

Karen James contributed reporting for this article.

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White Plains â“ Middletown real estate attorney Jacquelynn Vance-Pauls has filed a federal lawsuit against a debt collector, a credit reporting agency and a hospital, alleging they violated her rights under federal law.
In her lawsuit, Vance-Pauls claims that her good credit rating was damaged by “an unscrupulousâ Monticello debt collecting law firm, Michael Zager, P.C., and “the negligenceâ of the Experian credit reporting service. She is being represented by civil rights attorney Michael Sussman of Goshen.

In May 2006, Zagerâ™s firm mistakenly reported to Experian that Vance-Pauls owed Arden Hill Hospital $62. The bill had actually been paid by her insurance company five years earlier. Vance-Pauls first learned of her alleged debt over the summer when she had trouble refinancing her mortgage and received a copy of her Experian credit report. When she protested to Zager and Experian, her troubles worsened. According to her complaint, rather than fix the error, Zagerâ™s office pressured her to sign a release of claims and pay money she did not owe. When Vance-Pauls refused, Zager again falsely reported to Experian that Vance-Pauls owed the Arden Hill bill. As a result, her credit was further damaged. Because Vance-Pauls owns her law practice, Zager’s negative report also affected her business credit.

According to Sussman, both Zager and Experian violated federal laws protecting consumers. “Zagerâ™s firm appears to have acted with utter contempt for the law. Under federal law, debt collectors are prohibited from this type of abuse of power. Consumers need to know they are not powerless in the face of deceptive practices and misconduct. Experian also dropped the ball. When Ms. Vance-Pauls protested her report, it failed to do any due diligence and ignored her proof that Zagerâ™s report of a debt was in error. Unfortunately, this type of experience is not an isolated one. Consumers must know that if they find mistaken items on their credit reports and those mistakes are not corrected, they have rights under the law.

Because Zager was acting on behalf of Arden Hill Hospital, the Orange Regional Medical Center is also named as a defendant. Vance-Pauls is seeking both punitive and compensatory damages from Zager and compensatory damages from Experian and the Medical Center.

Class Action Lawsuits to Allow Cardholders to Recover Foreign Transaction Fees

Filed under: Financial News, Foreign Transaction Fees, Credit Cards, Lawsuits

The Washington Post reports that card holders will likely be allowed to reclaim foreign transaction fees collected by credit card companies.

Consumers will share in a $336 million settlement of a lawsuit accusing several banks and credit card groups of conspiring to charge excessive fees on foreign currency transactions, a federal judge ruled on Wednesday.

The settlement covers holders of U.S.-issued MasterCard or Visa credit cards or debit cards, and Diners Club credit cards who made foreign transactions from February 1, 1996 to the present. Tens of thousands of cardholders, including companies whose employees travel internationally, may recover money.

Elsewhere in the article:

Coughlin said one benefit of the litigation was that card issuers now break out currency charges as a separate item on customer bills. âThis makes banks competitive in setting those charges,â he said.

Lawyers for the plaintiffs had announced a pending settlement in July. Pauley’s approval is preliminary, and carries several conditions. A hearing to enter a final judgment was set for November 2, 2007.