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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 Globe's 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 Often these addresses are out of date, yet the courts assume the defendant was notified unless the letter is returned.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. (See some of the returned envelopes here.) 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. (See the debtors' instructions with notes here.)
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.