WSJ: Once-Ignored Consumer Debts Are Focus of Booming Industry

[question everything]

Small Claims

Once-Ignored Consumer Debts Are Focus of Booming Industry

Asset Acceptance, a New Type Of Collector, Hits Paydirt Suing for Modest Sums

Some Fight Back -- and Win

By SUEIN HWANG
Staff Reporter of THE WALL STREET JOURNAL
October 25, 2004; Page A1


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.

(snip)


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.

(snip)

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, these 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.

(snip)

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 has the full panoply of remedies to collect," says Richard Alderman, director of the Center of Consumer Law at the 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."

(snip)

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... 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.

(snip)

Write to Suein Hwang at [e-mail]


URL for this article:
http://online.wsj.com/article/0,,SB109865776922954118,00.html

[On the Road]

1. Great Article

and great potential for abuse. Especially by those with money and lawyers. Donald Trump abuses the court system more than anyone.

I do have to admit it's tempting to use these firms. I have three contractors who cheated me a total of about $2,000, but going through court is not likely to result in any payments. Call me a predator.

[question everything]

2. Some years back, there was a woman who lived in Huntington Beach, CA

and lived like a pig. And she was a college professor of something. The neighbors tried everything and finally each sued her in small claims court and I think eventually she had to leave. Was very strange.

But, as the article said: Small Claims court is not for pitting a large corporation against little people.

[On the Road]

5. That's Right -- That's What Trump Takes Advantage of

When he buys something on contract, he just short pays by 10-20% and refuses to pay the difference, citing some imaginary dispute. He then threatens to have his lawyers tie it up in court interminably, and most creditors just pack it in and go home.

I've heard this from several sources, including Colin Quinn, who said he did a stand-up routine at a Trump Casino and only got paid half. That's using your financial power to abuse the legal system.

The case you cited is a good use of small-claims court.

But in collecting debts, even if you win in court, it may still be difficult to collect from people who don't care what their credit record looks like. And if the person does not have a regular paycheck or changes jobs frequently, garnishing their wages is not an option.

In my case, I had hired handymen to do renovation work, and paid upfront for materials like roofing materials and a load of concrete. I had this happen three times before finding more reliable people and insisting on pay-as-you-go.

It was very frustrating being unable to take any action. Maybe now I can go back and pursue them. Live and learn is one thing, but it's still galling to be cheated.

[DavidFL]

3. I don't have a subscription, so I can't read the whole article...

and I don't want to pay for the WSJ and support the neocons that run its editorial board. But yes, bad debt buyers are a growing industry and they're hoping that from the few pennies on each dollar they spend in purchasing the debt from the original creditor, they will find a debtor who will pay the full amount without question. However, as these businesses are also run on the cheap, 99% of the time they will fail to have any documentation of the original contract that legally obligated the debtor to the orginal creditor.

If anyone gets a dunn (collection) letter from one of these bad debt buyers, dispute it in writing immediately and send it certified mail, return receipt requested. In the letter, make them prove you owe the debt by asking them to identify the name of the original creditor, ask them to provide legible and complete copies of the contract you signed with the original creditor, write out step by step how they calculated the amount they claim you owe, as well as their state license numbers, if debt collectors are required to be licensed in your state. A good deal of the time, the collector will not have the documents required to substatiate its claims because having to pay for the storage of them would cut into their profits. And if they can't prove you owe the debt, by law they must stop collection activities against you.

Sometimes these bad debt buyers will claim they're not covered by the Fair Debt Collection Practices Act, the Federal statutes that govern debt collectors, and they don't have to follow the Act's procedures. But they are since they're a third party trying to collect on a past due debt. Don't let them get away with anything.

[puddycat]

4. link for the article for those without subscription to WSJ

http://www.azcentral.com/php-bin/clicktrack/print.php?referer=http://www.azcentral.com/business/articles/1025wsj-asset25-ON.html

[depakid]

6. A lot of these claims are beyond the statute

and if you show up and assert your rights, they can't recover anything and may even have to pay your costs.

In fact, my guess is that in some states, a clever person could countersue for big damages under an unfair or deceptive trade practices act.