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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 $25 a month from her $10.25-an-hour salary as a home health aide - not even enough to cover the $38 monthly interest on the debt. ''I'll be paying until the day I die,'' Cormier lamented.
Hers is the grim face of a growing crisis for America's 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.''