Economics

The Return of Debtor's Prison

Collection agencies use the criminal justice system to pocket credit card debts.

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According to Michael Klozotsky, managing editor of the trade publication insideARM.com, debt collectors contact consumers approximately four billion times a year. With so many contacts, there are bound to be complaints. In 2009, the Federal Trade Commission (FTC) received 88,190 consumer complaints about third-party debt collectors. More than 2,500 of these involved collectors who used threats of violence, or actual violence, while plying their trade. Another 11,505 involved false threats of arrest or property seizure. Approximately zero involved one of the more egregious aspects of debt collection: the way the industry outsources collection efforts to the civil court system, using taxpayer money and government force to strong-arm nickels from low-level deadbeats.

"In 2007, third party collection agencies returned over $40 billion to original creditors via collection efforts," Klozotsky tells me. He's making a case for the virtues of debt collection, and this is his most persuasive talking point: Those recovered billions increase the availability of credit to all consumers and help keep interest rates in check.

But the persistent phone calls and dunning letters that collection agencies deploy on debtors only pack so much punch. More and more, creditors are retaining the services of attorneys to file lawsuits on their behalf in civil court. At an FTC roundtable in 2009, Ira Leibsker, a Chicago collection attorney, estimated that there were "probably tens of millions of lawsuits" underway at that time. That same year, a single company, Encore Capital Group, filed 375,000 suits in the United States. According to "Debt Deception," a report published by the Legal Aid Society and several other advocacy organizations in May 2010, the 26 largest debt buyers in New York City filed 457,322 lawsuits from January 2006 through July 2008.

This huge infusion of cases exposes thousands of individuals to a process that overwhelmingly favors plaintiffs. Indeed, in debt collection cases, you're basically guilty until proven innocent.

Part of the problem stems from the way the debt buying industry has evolved over the last 20 years. As recently as the early 1990s, many credit card issuers made little effort to collect on their past-due accounts. If a cardholder missed a payment or two, in-house collection efforts would generally follow. But when a cardholder hadn't made a payment in 180 days, issuers tended to "charge off" the delinquent account against earnings, settle for the tax break, and pursue collection efforts no further.

Now there are companies that purchase portfolios of delinquent debt for pennies on the dollar, then attempt to collect. According to "Debt Machine," a report produced by the National Consumer Law Center, debt buyers bought receivables worth $6 billion in face value in 1993. By 2005, that number had grown to $110 billion. Debts migrate from seller to buyer, often with very little information attached to them. "What they're buying is a spreadsheet full of data: names, addresses, account numbers, and balances," says Fred W. Schwinn, an attorney at Consumer Law Center, Inc. in San Jose, California. Applications, original contracts, transaction histories—plaintiffs don't need any of these documents to file a lawsuit. "You don't have to attach assignment documents of any kind," says Schwinn. "You just say, 'I bought an account [with a balance of] $10,000. This person owes me the money.' You file the complaint, you get service on the defendant, and the courts will grant a judgement on that."

In the bulk of these cases, defendants don't show up and the judge simply issues default judgments against them. In many instances, they fail to show because they're hoping haplessly to avoid paying debts they owe. In others, they simply don't know they're being sued. "I get people in our office every week who say, 'My paycheck just got garnished and I've never been served for anything,'" says Schwinn. "Come to find out, they were substitute-served at an address they haven't lived at in three or four years. The processor knocks on the door and asks for So-and-So, and the person says, 'I never heard of that person.' And the processor just drops the paperwork on the porch and walks away."

In the early years of America, "debt was an inescapable fact of life," the historian Bruce H. Mann writes in Republic of Debtors, his 2002 account of how the new nation reconciled its ideals of "republican independence" with the pervasive indebtedness that plagued its citizens. Over time, he shows, insolvency shifted in meaning "from sin to risk, from moral failure to economic failure," and bankruptcy laws and the eventual abolition of debtor's prisons offered the insolvent a chance to free themselves from past failures and misfortunes.

While this shift in meaning applied more to commercial debts than personal ones, we see its echo in today's statutes of limitations on credit card debts. Simply put, America doesn't want you to stay in debt forever. While statutes of limitations differ from state to state, more than half give creditors just three to five years to sue debtors for non-payment. If they miss that window, a debtor is under no legal obligation to repay
his debt.

If a creditor sues and obtains a judgment, however, any ideals of republican independence, fresh starts, and forgiveness quickly go out the window. In California, for example, judgments are enforceable for 10 years, then renewable for another 10 years, then renewable after that under certain conditions. Interest accrues at 10 percent per annum, wages can be garnished, bank accounts frozen, property seized. A debt originally incurred by someone whose name is similar to yours can become a lifelong commitment, simply because you ignored a few letters from a company whose name you didn't recognize that said you owed it money. That's a worst-case scenario, but as cases get rubber-stamped by judges and clerks auto-piloting their way through the daily deluge of lawsuits, it happens.

Then there's an unfortunate fellow in Kenney, Illinois. In January, a judge sentenced him to "indefinite incarceration" until he paid $300 toward a debt he owed to a lumber yard. Originally reported in the Minneapolis Star Tribune, the case is an extreme example of a practice that, while rare, is apparently happening more frequently—the Star Tribune reports that the "use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases [in Minnesota] in 2009."

When a judge issues a judgment against a debtor, the debtor is supposed to complete a financial disclosure form that will provide the information a creditor needs to collect his debt. If the debtor fails to do this, the creditor can obtain a court order compelling the debtor to show up in court to explain why he hasn't. If the debtor fails to show up for this hearing, a judge can issue a contempt of court order and a warrant for the person's arrest.

It's the same process the court system uses to imprison individuals who fall behind on child support. In the mid-1990s, a hospital in Illinois started employing the tactic as well. Over the last decade, at least four people around the country have actually been arrested and at least briefly detained for their failure to pay library fines. Debtors have also been arrested and jailed in Arkansas, Arizona, Illinois, Indiana, Massachusetts, Washington, Florida, and New Jersey. 

While the official charge is contempt of court, judges sometimes set the bail to the exact amount the debtor owes. When he pays it, it can go straight to the creditor's coffers. At a time when the federal government has spent hundreds of billions of dollars to bail out big business, it's a travesty that state and local governments are using the full force of their power to shake down private citizens on behalf of debt collectors—especially when many of those debts have been acquired for less than it costs to incarcerate a small-time deadbeat for a long afternoon, much less indefinitely. 

Contributing Editor Greg Beato (gbeato@soundbitten.com) writes from San Francisco. Follow him on Twitter @GregBeato.

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  1. Good morning reason!

    1. Suki meets his payment-schedule again.

      Thank you, Suki.

  2. Wait, debt collectors are using the court system in an attempt to enforce their rights?

    1. Not fair. Using the law to collect debts from people who owe money isn’t fair. They should be allowed to get off scot free from paying up.

      /sarc off

      1. That name sounds familiar. Don’t I know you from somewhere?

    2. They don’t have a right to the money they claimed they are owed.

    3. That’s not news, what is news is that the debt collection firms are using more aggressive tactics, including obtaining arrest warrants for people who don’t cooperate with a judgment, and do so after filing suit without any real evidence of the actual account and using dishonest process service.

  3. Asshole cops fine student bros $86k for having a kegger:

    http://www.channel3000.com/new…..etail.html

    1. Anyone using the term “bro” deserves to be fined. And doubly so if that “person” is a spambot.

  4. The official charge is contempt of court — why not theft? Isn’t that what a bad debtor is doing to his creditors, taking the creditor’s money, promising to pay it back, and then deadbeating on the repayment?

    I think it is a waste of taxpayer resources to use civil/criminal court to go after a measly $300 dollars, but bad debtors have not lived up to their contractual obligations. What is a creditor to do when other private means fail?

    I do agree, as Beato notes, that it is irritating to see small debts being chased down by a government that spent billions to bail out failing banks. It brings me back to the idea that it would have been better to spread TARP/stimulus funds to the generally indebted populace to discharge all or some of their debts rather than prop up a failing banking system.

    1. private means of debt collection, I mean.

    2. It brings me back to the idea that it would have been better to spread TARP/stimulus funds to the generally indebted populace to discharge all or some of their debts rather than prop up a failing banking system.

      First – insert standard libertarian disclaimer here and elsewhere where necessary – understand I oppose everything Im about to post.

      However, if we were going to spend that money, I too thought there was a better way. Here was my proposal:

      Each adult (18+) american citizen on Jan 1, 2009 gets a credit for there share of TARP. The credit must be used in the following order:

      1. Catch up on mortgage if behind (or enter voluntary foreclosure if its too far gone)

      2. Pay down principle on mortgage (or enter voluntary foreclosure)

      3. Pay down any Sallie Mae debt.

      4. Pay any other consumer debt (or enter bankruptcy, Sallie Mae isnt bakruptible, hence that step above)

      5. Get a check for anything left over.

      For most people, this credit gets used in step 2. And where does the money end up? With the banks. Only instead of a loan, this actually makes there balance sheet better.

      Would it have saved a lot of mortgages? Not really, but it helps for the edge conditions (family can make mortgage payment now, but are two months behind and cant catch up. Mortgage is just under water and cant get bank to approve a short sale, this knocks the equity owned down to point where it isnt a short sale any more, etc).

      I wouldnt have minded knocking a few years off my mortgage. Some just out of school young renters could have knocked down Sallie Mae or credit card debt. My parents would have appreciated the check in step 5 (they paid off their house before I was born).

      1. I see what you’re saying here, but most people’s balance sheets would be more improved by paying down the revolving debt first. That should really be #2. It’s at higher rates and shorter amortization and clearing it frees up more cash flow.

        Paying down principal on your mortgage doesn’t really benefit you until you pay the whole nut or sell the property.

        1. I agree, it wasnt designed to maximize benefit for the individual. It was designed to still get the money to the banks. Solve the same “problem” TARP was trying to solve, only bailing out everyone, not just the banks.

          1. It’s kind of funny that the total amount of revolving debt in the US in 2010 was around $850 billion.

            They spent almost double that on the stimulus and on TARP. They would have gotten better results from just paying off everyone’s credit cards.

            NOT THAT I WANT THE GOVERNMENT TO DO THAT! DISCLAIMER DISCLAIMER DISCLAIMER

            1. Heh. Yeah. Actually, if they were going to do it, just cut everyone a check and let people use it as they see fit.

              Would have been as “successful” as Bush’s rebate check, only larger.

              1. IF your know your Austrian economics, you know that the benefit of “new money” goes to the people who get it first. That’s all you need to know about why TARP was handled the way it was instead of your way.

                1. The money went to the bankster elite. Remember that and ignore all the other propaganda.

        2. Also, considering the number of people jingle-mailing or having problems getting short sales, #2 helps more than you would think.

          Although, in most of those cases, the credit wouldnt have been large enough to help.

      2. robc, I should also state for the record that I wouldn’t have bailed out either banks or the average citizen with TARP/stimulus money – but since the money was being spent anyway…why not maximize its utility?

        1. It was a suggestion as a replacement for TARP, maximizing its utility wouldnt have been seen as an “in-kind” replacement. My suggestion would probably best be described as a populist* replacement for TARP. Money still ends up in banks, but regular people feel like they were bailed out instead of banks.

          Maximizing utility would have been to use the money to hire hit men to take out congress. But I doubt that passes.

          *Hence the needs for the disclaimers.

    3. “I think it is a waste of taxpayer resources to use civil/criminal court to go after a measly $300 dollars, but bad debtors have not lived up to their contractual obligations.”

      Not true. The contract contains clear language spelling out what steps will be taken if payments are not made.

      Corporations (especially holding companies) use bankruptcy to wash away debt all of the time. It’s simply a leagle financial tool.

      1. leagle???

        1. The Leagle Beagle was a laywer bar in the late 70s.

          1. Not to be confused with the Regal Beagle, right Chrissy, Janet?

      2. > The contract contains clear language

        I don’t know if I’d refer to the legaleze that most “contracts” are written in as “clear.”

    4. Wow man you don’t have to pay your debt. Soon to have all drugs legal…if only free. And open borders for everyone. This could be a great country again!

      1. I agree. I am almost proud of MY country!

    5. Perhaps the blame can at least partly be placed on those who lend the money to high risk borrowers? There have been many reports of credit card offers being sent to people that have been dead for years, pets, children, and elderly in nursing homes. If you don’t take time out to actually research the credit worthiness of the person to whom you will extend unsecured credit, the blame is at least partially on you when they don’t pay the amounts that you say they owe.

      The FICO score is a horrible method of judging financial health and the ability to repay, but that’s all that’s used, even in the mortgage industry with rare exceptions. The debt industry is still making profit, even with all the default, which is why they will not change the system. People think they’ve accomplished something by having a high credit score, but all it means is that they’ve spent a bunch of time borrowing money. It has nothing at all to do with net worth or financial health.

      Of course, those who do business with such an industry are also to blame. We’ve been sold on how smart it is to use the easy credit that is offered to us on a daily basis, just like we’ve been sold on how great a thing public schools are, how fair the income tax is, and so on. If I share with someone that I haven’t had a credit card in well over ten years, I get looked at like I’m crazy.

      I used to be a financial planner, but it doesn’t take an MBA, just someone who can run a calculator, to determine that constantly paying interest and fees to someone else, particularly on an item which does not accrue value, makes them rich, not you.

  5. What is the problem? People enter into contracts, they breach the contracts, and the other parties enforce their contractual rights or sell their rights to someone else.

    We already have laws about what constitutes proper service. If you were never properly served, you can get a default judgment dismissed. Or you can just pay the judgment, if you actually owe it.

    1. The ability to challenge a default judgment is not open-ended.

  6. The use of courts to collect debts is consistent with libertarian minarchism. I appreciate the issues with service, and the rules of those states need to be tightened, but this “problem” is the primary purpose of courts, even in “Libertopia”.

    1. Indeed, theft by fraud is still fraud. And someone complaining that they are suddenly finding their wages garnished? Well, sounds like you can afford to pay your debts now. Too bad you didn’t keep those to whom you owed money aware of your whereabouts so they could serve you legally. In these cases, though, one wonders how hard it would have been to serve the person at the job where the wages to be garnished were being earned. Perhaps once the employer has been notified to engage in withholding there could be some appeal period for default judgements for the obligee to appeal the judgement.

      1. Of course you may never have owed the money. The debt collector may have sued the wrong person. They may have no proof of the debt in the first place, but once the judgment is decreed, then it’s up to you to prove that you don’t owe it or you will have to pay, even if it’s a debt for which you were not responsible. Ever hear of identity theft? If I have just a few pieces of information about you, I could accumulate a string of debts that you would spend years trying to prove you didn’t owe. Perhaps some of them would sue you.

        1. And after that parade of horribles passes by, you still haven’t come up with a cogent argument of why it’s inappropriate, in principle, for a creditor to sell his rights to a third party who’ll enlist the courts to assist him in collecting on a debt.

          1. in brief, if it’s ok as an individual to sue … it’s ok for a corporation.

            fwiw, i speak from a position of bias. i sued somebody last year in small claims and got the max judgment. the judge actually told the respondent that he was lucky i hadn’t filed in superior court and the judgment was a lot higher. i decided i’d rather go the small claims route and get my 5k cause it’s quick (2 months from file till court and about an hour to adjudicate), no lawyers are allowed to be involved, etc.

  7. A man who is helping the alleged debtors exercise their rights in NYC is up for an award. Vote for him here.

    Night Elf: Having seen some of this in action, I’d suggest that they’re trying to enforce “rights” that they do not have (e.g. imposing fees, etc. that are contracted; pursuing debts that may or may not in fact have been incurred), by brute legal force, relying on large numbers of “targets.” Amazingly enough, sometimes businesses and businessmen behave like a bunch of jackasses and try to not only screw the little guy, but to pick the little guy’s pocket when the little guy does not actually owe them anything.

    1. The existence of mistakes does not validate this completely confused screed.

      1. So as long as X has the resources to sue Y, whether Y is innocent or guilty, Y should pay X if Y does not have the financial and legal resources to fend off a law suit.

        And I thought we were supposed to be for tort reform around here.

    2. That could be.

      Where else would you suggest that this determination of facts and/or law take place?

    3. > sometimes businesses and businessmen behave like a
      > bunch of jackasses and try to not only screw the little guy,
      > but to pick the little guy’s pocket when the little guy
      > does not actually owe them anything.

      Turn in your libertarian credentials at the door.

      But seriously, what amazes me about the various responses in this forum is that most people don’t realize that words like “contract” and “debt” don’t necessarily mean what they think they do. And that is why, sadly, libertarianism fails.

  8. it’s a travesty that state and local governments are using the full force of their power to shake down private citizens on behalf of debt collectors?especially when many of those debts have been acquired for less than it costs to incarcerate a small-time deadbeat for a long afternoon, much less indefinitely.

    For a magazine called Reason (ha!), this sure is emotive, loaded language. First of all, what does the acquisition price of the debt have to do with the justice of said debt? What is owed is owed – the reason the debt is so cheap to acquire is because the original owners do not have the wherewithal to collect, and the purchasers do. Secondly, contract enforcement is not a “shakedown”. I can guarantee that if Greg Beato had a valid contract for a freelance article that his employer failed to fulfill, he would want the full force of the state to “shake down” his employer.

    Let’s rid ourselves of the class-warfare language, please. And next time, do some thinking about what economic freedom requires – a contract-enforcement agency is a necessary, though not sufficient, factor.

    1. In Beato’s defense, this appears to focus only on the practice of incarcerating debtors, and not the civil court process in its entirety.

      Civil court should give creditors the ability to file judgments, seize property they discover, and garnish wages. What it should not do is allow creditors to imprison people who go out of their way to make themselves judgment-proof and won’t supply voluntary testimony to assist the creditor in enforcing their judgment.

      1. I think this is the correct takeaway here. It’s not that the courts are being used to collect debts, its that a civil matter is being criminalized at the whim of judges.

      2. “Civil court should give creditors the ability to file judgments, seize property they discover, and garnish wages.”

        I agree they should go no further. I’d be interested in those who say they should explaining how that view fits within the classic “no initiatory force” principle of libertarianism. As long as you had no intent to defraud me how does the fact that you cannot repay you on a contract (that you amittedly voluntarily made) justify the use of coercion against you?

        1. Basically the issue is one of involuntary disclosure.

          Creditors troll public records looking for real property their debtors owe, so they can file liens. Or they look for bank accounts they can seize. Or they try to determine who the debtor’s employer is, so they can garnish wages.

          Their problem is that a lot of debtors own no real property, have no bank accounts in their own name, and work under the table. So their judgment isn’t worth much unless the debtor voluntarily comes in and says, “Yeah, I buried my money in the bank yard and I work for Joe Blow, but we don’t tell the government.”

          Basically the contempt of court citation here is being used because some people don’t comply with the vast apparatus of record-keeping and control the state has set up. And so it’s hard for private creditors to work on those people, too.

          And yeah, deadbeats are dicks, but I am still rooting for the people who refuse to allow their every action to be tracked and taxed. I’m on their side in their “lawbreaking”, the same way I’m on the side of income tax evaders and money launderers. The state wants everyone to conduct their affairs in a manner conducive to allowing the state to collect its taxes, enforce its contraband laws, perform its regulatory supervision, etc. This is just one more aspect of that. And some people don’t cooperate.

          I have a minor problem with all compulsory testimony not arising from the subpoenas of defendants, anyway. But when the testimony in question being compelled basically amounts to saying “Tell us all about how you’re hiding your assets and income from the government” I have a specific problem with that.

          1. This. Very much so.

          2. “Their problem is that a lot of debtors own no real property, have no bank accounts in their own name, and work under the table.”

            So what about that story made them a worthy borrower? Why would you ever lend money to such a person? Wouldn’t you tell me that it’s my own fault if I “loaned” twenty dollars to a guy with a will work for food sign and he never paid me back? Sure, he’s wrong for having lied to me, but I would say there would be few that would offer me any sympathy.

      3. It is also important to note that Beato is saying that, in defraying the costs of debt collection, the government has shifted power to the creditors over the debtors. Note the shift from insurance write-offs to selling the debts to collectors.

        Of course, this is just another symptom of a consumer credit bubble.

  9. This is definitely an unusual “Reason” piece. Seriously, Greg, marijuana isn’t legal yet. Slow down!

    1. Say, Alan, shouldn’t you be at home writing your next Pink Panther comedy / thriller?

      1. Just what do you gobble???

      2. Are they finally gonna have a real panther and will he be properly moist?

  10. The worst practitioners of this are state governments, because [of course] they wait the process in their own favor.

    The state of Virginia contacted me to say that I owed them $40,000 for tax due from the year 2000. I pointed out to them that I didn’t live in their state in the year 2000. I lived in MA then and only moved to VA in 2001.

    They demanded I prove I paid income tax in MA for that tax year, even though neither MA nor VA require you to maintain copies of your tax return for that long.

    Luckily, I was able to obtain a copy of my return and file it with them. But I’m sure there are some poor assholes out there getting shaken down by Virginia who aren’t as fortunate in their choice of accountants as me.

    Researching online, I discovered that the states aren’t even required to prove that you lived there or owe tax to them in order to file judgments based on claims like this one. A printout from their own computer showing that you owe them money is considered sufficient proof of the debt in every court in the US.

    So basically states can just make shit up, print it out, and get courts to seize your property or garnish your wages.

    That makes what private debt collectors do seem absolutely benign by comparison.

    1. I was stationed in Virginia with the Navy from May 1999 to January 2005. Every year, I had to prove to the Commonwealth that I was not a resident and was only stationed their. For 3 of those tax years, I had to submit documentation more than twice because they kept losing it.
      I was threatened with legal action for not paying Virginia taxes in 4 of the years.
      God I hate that fucking (non)state.
      Even after leaving, I kept receiving notices of owing back taxes. In 2006, I received a letter instructing me to prove that I didn not owe 1998 taxes.
      Did I mention that I hate that fucking (non)state

      1. Yet one more reason to hate Virginia, along with the state-wide 65 mph speed limit.

        1. Shit, it’s still 55 in much of Ohio

      2. I was stationed in California between 2004-2008. I went through the same bullshit with their state income taxes, even though I’m a Texas resident (no state income taxes). I lost count of the times I faxed and mailed them copies of my papers.

    2. Researching online, I discovered that the states aren’t even required to prove that you lived there or owe tax to them in order to file judgments based on claims like this one. A printout from their own computer showing that you owe them money is considered sufficient proof of the debt in every court in the US.

      I recently got a letter from the Glorious Democratic People’s Commune of New Haven, CT about a parking ticket I supposedly got. The licence plate matched my car, but the vehicle did not match (it was a Jeep Cherokee and I drive a Toyota sedan). The simplest database query with the DMV would have told them that the plate the wrote down did not belong to a Jeep, but try telling that to the chimpanzee I was on the phone with. I need to go through an 8 week long appeal process (which I hear can possibly be invalidated because I missed the contest date – which is conveniently before they send out a letter). They can also deny me for “insufficient proof” that my car isn’t a Jeep, even though I sent in copies of my registration. You are guilty until you prove beyond a reasonable doubt that you are innocent.

      Seriously, where do these government thugs get off?

      1. They get off all over the citizens they are supposed to work for… and there’s not a tissue in sight.

      2. you do realize that in NO civil court of any sort (and traffic INFRACTIONS are civil) is the issue “proof beyond a reasonable doubt” nor is there a presumption of innocence as in criminal court.

        ALL civil courts use the “preponderance of the evidence” standard. that’s true if you sue somebody else, it’s true if you get a traffic ticket (note also that civil hearings have different rules regarding hearsay, etc.), or sue somebody, or get sued.

        the state has no more power in civil court than you do. in ANY civil proceeding what needs to be proved only needs to be proved by a preponderance. GENERALLY speaking, unrebutted evidence that can establish “preponderance” of the evidence is all that’s needed.

        i’m not saying it’s a great thing. i am saying this is not some special power that states, cities, or credit card corps have. that’s how civil court WORKS. for EVERYBODY

  11. Oops. They “weight” the process in their favor, of course.

    Coffee.

  12. I imagine debtors prison is where the right-leaning libertarian’s committment to liberty meets and gets raped by their stronger committment to “responsibility.”

    1. Beato would have been better off focusing on the child support issue.

      Because in that fight, while commitment to liberty and commitment to responsibility are wrestling, misogyny sneaks up and whacks commitment to responsibility in the head with a chair, and the crowd around here goes wild.

      Never turn your back on misogyny.

      1. Agreed there.

      2. “Never turn your back on misogyny women.”

        FTFY

      3. Resentment of mysandry isn’t misogyny.

    2. Not exactly. It isn’t responsibility but upholding the rights of both parties. The problem here is that right-leaning libertarians consistently like to pretend that creditor and debtor are on equal playing fields here in terms of negotiating and legal power.

      1. The problem here is that right-leaning libertarians consistently like to pretend that creditor and debtor are on equal playing fields here in terms of negotiating and legal power.

        Sorry, but “equal playing fields in terms of power” is usually Leftist euphemism for a supposed need for “Social Equality” pursued though the coercive power of the State.

        How, is the playing field not equal? Individual abuses of the system are a certainty of all human activity, and I don’t deny they exist, but why shouldn’t a person have legal recourse to collect a debt? Someone owes you money but because they fly below the radar you are shit out of luck? If you made the debt in the full knowledge of this condition you don’t deserve recourse but otherwise why should hiding out absolve someone of a debt they freely made?

        1. “How, is the playing field not equal?”

          Er, one side has more money?

          1. Oh, of course. I can’t really enter into a contract with an individual unless we have exactly duplicate finances. If one person “has more money” they hold power over the other and it amounts to “coercion”.

            D-trolling, dude, you don’t even believe that shit.

            1. > I can’t really enter into a contract with an individual unless
              > we have exactly duplicate finances.

              In the real world, parties to a “contract” do not have equal negotiating power.

              > If one person “has more money” they hold power over the other
              > and it amounts to “coercion”.

              In the real world, yes.

              > You know, Lady Justice blindfolded and all. She really has a hidden
              > calculator, figuring bottom lines and numbers of suits?

              In the real world, yes.

              And like communists, libertarians fail to see past their theories into the real world. Which is why libertarianism fails.

        2. An industrial scale operation that files 1000 lawsuits a week is unequal with an individual.

          1. Is 1000 the magic number? Would 100 still be unequal? Would 10?

            So, “equality” is some bizarro world where everyone is exactly identical?

            What if the collection company has less assets then the individual in debt? Does this imbalance of “who has more money” mean that a collection agency with less assets than the debtor is unequal? Unless they file a certain number of lawsuits? Science, what if they fill thousands of suits but have less assets? Who wins the equality lottery then?

            Strange how individual or corporate status determines if a person is “equal”. All this time I thought it was treating individuals the same regardless of the “wealth inequality”. You know, Lady Justice blindfolded and all. She really has a hidden calculator, figuring bottom lines and numbers of suits?

            Does their “having power over me” mean that I don’t have to repay them? Simply find out their bottom line or the number of suits filed and if these numbers are large enough our situation is “unequal” and I can tell him to fuck off? Even though when I borrowed the money I signed my name like 100 times? Since we were not on an equal playing field I have no obligation to repay him? I had my fingers crossed so it doesn’t count?

            Perhaps one of you could provide this equality equation that you use. Is $10 enough to deprive a person of being equal or does it take $1000? How many lawsuits place you in this category? Anything over 1?

    3. So if I’m against debtors prisons, I’m not a right-leaning libertarian? Good to know.

  13. more than half [the states] give creditors just three to five years to sue debtors for non-payment. If they miss that window, a debtor is under no legal obligation to repay his debt.

    I think I see a way out of our National Debt Problem …

  14. I’m digging the Mike Ness pic from one of their best albums, Prisonbound.

  15. I’m in a similar situation like this with a student loan right now.

    I had a verbal agreement with the loan’s originator to pay them once a year, in a lump sum, and that they would then spread that payment out over the course of the year to cover my quarterly bills. This worked out fine and dandy until Obama and crew took control of the student loans in this country.

    At that point, my loan was sold (or something, I can’t find out any details) to another company, one that didn’t have the agreement on file. I paid at the start of the year, as usual, then six months later I got a call from a collection agency demanding the full balance of the loan and a fee that doubled the remaining balance of the loan (I owe $300, they’re charging a $600 fee).

    There is literally NOTHING you can do to defend yourself in a case like this. The fact that I had 95% of the loan paid off in 1/3 of my scheduled repayment time doesn’t matter. The fact that I had never been considered late on a payment before the loan was shifted doesn’t matter. No one cares what the arraingment was before the loan was shifted to the new company, they just want their money and they’re willing to do anything to get it. They will lie to you. They will harass you. They will file cases against you. And there is nothing short of an act of Congress that will get that stain removed from your credit record.

    It sucks.

    1. I got into a similar situation like that with a student loan as well that had gotten all mixed up with the various forebearances and consolidation opportunities that come with those types of things and ended up being unpaid for a couple of months.

      Long story short, I received a threatening letter from an attorney I had never heard of one day and in the time it took me to write a letter to try and clear up what was going on, I was served with papers and sued for something like $2000.

      He settled for $250 + a $75 “fee” to pay for his process server.

      One of the sleaziest bastard I have ever dealt with.

      Not saying that people shouldn’t pay their debts or that courts shouldn’t be used to settle civil disputes… the purpose of my anecdote is just to say that things can snowball fast from paperwork mixups and confused customer service reps to getting served papers at the front door, and there’s a whole industry that has sprung up (like my sleazy attorney nemesis) to take advantage of that and pocket easy money from poor people who aren’t necessarily out to be deadbeats, which I think is (part of) what the article is trying to say.

    2. Anything this important, be sure to get verbal agreements confirmed in writing by the creditor.

      1. Yeah, I know that now. The $600 fee is tuition in the School of Hard Knocks.

    3. I would offer them $350 but only in exchange for a letter from them stating that my account was never in arrears and was always paid satisfactorily.

      And you know what? They’d give it to me.

      Then I would take that letter and provide it to the three credit bureaus.

      1. I offered to pay them $400 and they turned me down. Said they refused to deal with, I had to negotiate with the credit agency.

      2. No they wouldn’t, not on a student loan, that is a whole nother big brother nightmare.

  16. I don’t see the problem here.

    If I take someone’s money, promise to repay it, and fail to do so, the result is no different from that of theft or fraud.

    If I don’t have the means to repay the debt, I can ask the courts for bankruptcy protection. Absent bankruptcy, my creditor(s) can seek a judgment ordering me to repay what I owe.

    If I fail to abide by a court order, that constitutes contempt. Contempt of court lands me in jail.

    What’s the problem again with civil courts and debt collection?

    1. The problem is if you didn’t take money from anyone, and the process server threw your notice in the sewer, and now your wages are garnished and the burden of proof is on you.

  17. “If I take someone’s money, promise to repay it, and fail to do so, the result is no different from that of theft or fraud.”

    The result maybe, but the matter of intent has long been thought a critical element of fraud.

    1. Yes. Hence the existence of torts like conversion, which cover the case where you didn’t necessarily begin with the intent to defraud your creditor, but later choose to renege on the debt and in effect convert the creditor’s property to your own use.

  18. “low-level deadbeats”

    Stereotype much?

    1. That name is racist!

  19. And libertarians wonder why other people think they’re hard-hearted, money-obsessed and anti-poor people.

    Generally speaking, the issuer of your Visa, MasterCard, Discover etc. does not sue anyone. They give up after a while, charge off the debt and take the tax break. They sell the debt, as the article stated, to debt collectors for pennies on the dollar. At this point, it is no longer Visa, MC or Discover’s debt and they will not be getting any of the money paid back after this point. The debtor is not allowed to settle for pennies on the dollar, of course, but generally the debt collectors are willing to make a deal – which would be fine, but unfortunately most debt collectors are crooks, even beyond violating the laws and practices of the Fair Credit Reporting Act. They will take your money and not tell the credit reporting agencies that they have done so, then turn around and sell your debt to someone else so they can get in on the action. In point of fact, debt collectors don’t expect most of the debtors they contact to pay. It’s like an investment: from a small outlay to buy a wide debt portfolio they expect to make a certain amount back, but certainly not all of it. And they can take the non-payers, create a new portfolio and sell it to a different debt collector. And for most people, it’s your word against theirs, and they can afford better lawyers.

    It’s possible for a person’s debt to be traded from collector to collector for the years that it is valid and for nothing to come of it – unless it is bought by a debt collector law firm. There are law firms whose only purpose is buying debt and filing lawsuits, usually in the name of the original issuer even though they have nothing to do with it. It’s a legal fiction that everyone involved just seems to accept. The best thing a person can do at this point is get a lawyer of their own and try to cut a deal, which since the debt collector law firm just wants a payoff they will generally do. I personally think this is better than going ahead and paying some agency because it’s now a matter of legal record that you have made a settlement. Make no mistake, though: it’s clogging up the civil courts in this country.

    As for bankruptcy, it was made more difficult to obtain several years ago, not to mention totally ruining your credit – it can be better to be a deadbeat and have some credit history than to have to totally start over.

    1. As I said, I was in the collection business for 20 years, and mgmt was always harping on the Fair Debt Collection Practices Act, and staying on the right side of it. If someone has had their debt sold, it’s because they made little or no effort to pay it. You gamble, you lose. Lawyers covet their law license, and are stupid if they bend/break the laws to collect a debt.

    2. Because they run articles decrying the abuse of the debt collection system in a way that hurts the weakest and poorest members of society?

  20. What it should not do is allow creditors to imprison people who go out of their way to make themselves judgment-proof and won’t supply voluntary testimony to assist the creditor in enforcing their judgment.

    Refusing to provide voluntary testimony under oath is a species of perjury (deception by omission, violation of the oath to tell the whole truth).*

    Hiding assets from people you owe money to is a species of fraud, after all.

    I am still rooting for the people who refuse to allow their every action to be tracked and taxed.

    That’s all well and good, up to the point where they are violating the private contractual arrangements that they made.

    I’m not terribly sympathetic.

    *Unless protected by the 5th Amendment, which would not be the case here.

    1. I have a problem with any compelled testimony. Should always be able to refuse to take an Oath. I realize the 5th ammendment specifies “criminal” cases, but if the judge can lock you in jail on a whim, that distinction is just a bunch of lawyer BS in my mind.

  21. I worked in the debt collection industry for 20 years, mostly for lawyers. I would never take out a student loan – the gov’t is the creditor, and has far more power than any bank, judgment or not. Bottom line, honor your contracts.

    1. It’d be nice if they would point this out to you when you first take the loans.

      Instead they seperate 18 year olds from their parents, herd them into a room like a bunch of cattle, tell them how safe and easy these student loans are, how everyone has them, how they’re a debt you take on with the prospect of making much more money in the future, yada yada yada.

      The Universities, the government, the credit agencies, everyone is in on this deal.

      1. You mean to tell me that university students are not the smartest asses of all time, that they’re little more than adolescents????? WTF???

  22. As Patriot Mike noted above, the third party debt collection industry that buys “charged off debt for pennies on the dollar” is most likely the source of 99% of these complaints to the FTC. The unscrupulous tactics of these agencies and their blatant disregard for the Fair Debt Collections Practices Act and the Fair Credit Reporting Act is inexcusable. The AG offices across the country are usually the people responsible for regulating and and enforcing the laws in the cases where these debt collection companies break the law, but it’s obvious that they haven’t done enough.

    One positive example is the work done by Attorney General Andrew M. Cuomo in New York who in 2009 who sued 35 law firms and two debt collectors in New York State in order to throw out an estimated 100,000 default judgments improperly obtained against New York consumers. This is a start, but in a $40 billion dollar a year industry it isn’t close to enough.

    The AG’s across the country need to go after these garbage default judgements more consistently to make it clear to third party debt collectors that violating consumers rights under the FDCPA and the FCRA will not be tolerated. As it stands today, many of thes companies simply include these counter AG lawsuits as a cost of doing business. Until it becomes more than just a “cost” this problem isn’t going away.

    1. Easy chief. We cut the “ooor” and the “disadvantaged” a hellova lot more slack then they deserve. A little pressure and drama in their deadbeat life seems a small price to pay for weaseling out on a debt.

      1. Easy chief. We cut the “ooor” and the “disadvantaged” a hellova lot more slack then they deserve.

        Debatable, depending upon which sob story you’re telling, but I agree that if you a debt you shouldn’t be able to weasel out of it.

        A little pressure and drama in their deadbeat life seems a small price to pay for weaseling out on a debt.

        The problem is that these third party collection companies don’t always go after the deadbeats. In a lot of cases they don’t have any proof of the debt so they harrass anyone close enough in to paying. The problems associated with these lowlifes are beyond just deadbeats trying to weasel out of bill.

  23. Some of these debt collectors have watched too many episodes of The Sopranos.

  24. I believe the biggest issue here, as it is in many cases involving suing individuals, is that the cost of defending a lawsuit, even one for $300, is enough to cause bankruptcy in its own right.

    Well, aside from the obvious chink in the service laws.

  25. Being familar with the collection industry, I can tell you this article avoids two major points.

    1. There are huge fines for collection agencies which violate the rather strict State and Federal laws. These can only be enforced when the victim complains, and often a victim wins many times his debt in a lawsuit against the agency. There are plenty of lawyers who specialize in this field.

    2. There is a huge amount of fraud in the form of “Won’t pay” versus “can’t pay”. I’ve seen many cases of deadbeats driving BMWs and wearing Rolex watches to their hearings. The U.S. Attorney once determined that 2/3 of all bankruptcies filed in Los Angeles had elements of fraud.

    1. There are huge fines for collection agencies which violate the rather strict State and Federal laws.

      According to the FDCPA and the FCRA fines are $1000 per violation plus court costs. Some people do win larger settlements based on the degree of violation, but the fact is that these penalties and lawsuits are considered “operating expenses” by many of these fly-by-night collection companies. The law does not go far enough in deterring law breaking collection companies from repeatedly violating these federal laws.

      1. There can be larger State fines, and in most States the company can have it license taken away–the death penalty for the business.

        A California State agency, the CRLA, can take the debtor’s case at no charge-the taxpayer pays.

        1. California definitely has some good laws on the books for protecting consumers from collection companies violating their rights to compliment the FDCPA/FCRA federal end. The problem is when the consumer lives in California but the collection company is based out of another state, and it’s usually a state that doesn’t require a “collection license” which can then be revoked (*cough*Buffalo/upstate New York*cough*). The other problem is that the AG offices that deal with collection agencies that violate these laws are woefully understaffed, which leads to delays that allows the problem to fester in to a much larger financial and legal disaster.

          When someone who is unfamiliar with the law (and doesn’t have the money to hire their own attorney) gets harassed by these scumbag collectors, they have no idea how to file a complaint with the AG office, or how to exercise their rights (such as requesting validation of the debt in writing). And collectors know that 95% of the public has never even heard of the FDCPA before.

          I agree with Contrarian below that increasing the fines isn’t necessarily the answer, but like with most things if the government would actually enforce the existing laws there would be a lot less of the agencies.

        2. The collection firms fly by night. Your description of the terror of the penalties is overblown.

    2. It’s difficult to prove a violation of the act. If they threaten you with prison time, impersonate law enforcement officials, or call your extended family to attempt to collect the debt (all of which happened to clients of mine) it’s pretty much your word against theirs. You need a recording of the call, which in many states requires their express permission, or you yourself can then be liable. On the plus side, if you ever want to get rid of a collector on the phone, tell them you’re going to record their call.

      1. It’s difficult to prove a violation of the act.

        Not only that, but how many people have the time and money to actually want to hire a lawyer and go to court to fight these things? For many people it just isn’t worth the hassle as long as they leave you alone and the situation gets resolved. Sometimes people will just pay the debt even if it isn’t theirs just so the collection company goes away. Say for instance you’re closing on a house and that one derogatory collection account for $100 on your credit report is the difference between a good interest rate and a not-so-good rate. Most people just pay it so it goes away. And considering the collection company probably paid about $5 for said account they’ve just made a ridiculous profit despite the fact that the person who paid doesn’t actually owe the debt.

        Again, the problem is the deterrent. Until there are stiffer penalties for violating consumers rights, the collection companies aren’t going to change.

        1. I agree wholeheartedly. I don’t know, though, that the solution lies in increasing penalties. Abuse is already illegal. I would contend that a shift in borrowing practice will be what would ultimately begin to slow down these abuses. Manual underwriting, which makes all kinds of sense, needs to make a comeback versus FICO driven mortgage lending. Still, I believe this problem is going to continue in perpetuity, given how addicted we are to credit.

  26. Is Beato suggesting that the courts not be available to enforce debts below a certain threshold? That would make them unenforceable.

    If the creditor does get a judgment, the next step is a judgment debtor exam, where the debtor is placed under oath and asked about his assets that might be available to satisfy the judgment. Because it’s a court order, you obey or go to jail. You can’t be jailed for the debt, but you can be jailed for refusing to obey a court order. Is he suggesting that court orders be made optional? That would pretty much make judgments unenforceable.

    One of the government functions that I believe is truly legitimate and necessary is the enforcement of contracts. Without that, everything has to be on a cash basis, and no one will enter into a contract that promises a future benefit unless they personally know and trust the other party. I prefer having a court system to hold people accountable.

  27. You say “debtor’s prison” like it’s a bad thing… In fact you seem to argue that everybody should be bailed out just like the big banks did.

    Now, the shoddy procedure is certainly a problem, but the general idea, that you pay your debts, seems downright libertarian.

  28. What about medical bills? Most of these aren’t contracts in the sense that the individual knew what they were buying, it’s simply a jumble of outrageous charges submitted many months after the alleged services were rendered. This is different from buying a cruise vacation or a new coat but treated the same by the collection agencies.

  29. If you can gather any decent evidence, most lawyers wouldn’t mind your FDCPA case. If they threaten action they can’t take under state law, call at all hours of the night or use a bunch of other shady tactics, they’re liable. The statute provides for a reasonable attorney’s fee, which makes it attractive to lawyers.

    1. Just wanted to add that IANAL, just read the statute.

  30. I’m sorry, the article is f.o.s..

    Read it: the incarceration spoken of is not “debtor’s prison,” a process in aid of execution upon a judgement, nor is it a sentence for contempt of court by failure to pay child support. The article describes a bench warrant for failure to appear, which is the court’s remedy in aid on its own process..

  31. When are libertarians going to write an article pointing out the obvious: Child Support is Theft

    Libertarians need to spend more time criticizing “child support,” which is obviously contrary to libertarian principles. Not only are men being forced to pay money to their ex-wives (in some cases, more money than they actually make!), but “child support” is also stolen from men who were never married, from men who didn’t want to give birth to a kid, and even from men who aren’t even the father of the kid. We hear all the time about a “woman’s right to choose,” but men have no “reproductive rights” whatsoever. Yes, men can use birth control, but women who want to become pregnant can get around that. Women can also impregnate themselves from oral sex (there was actually a case where a woman spit the seed out of her mouth and impregnated herself with it; the courts ordered the man to pay “child support” for that kid). Even in cases where women commit paternity fraud (that is, they convince a man that a kid is his when it somebody else’s kid), the courts have still given them “child support” payments. I’ve even heard of stories of young men just out of high school being ordered to pay outrageous amounts in “child support” that they couldn’t possibly make. I wouldn’t be surprised if there was a high rate of suicide or even murder-suicide among these men due to the way they are being treated by our sexist court system (although I don’t condone either suicide or murder).

    Of course, the whole issue of “child support” is clear-cut from a libertarian perspective. Libertarians recognize that there is no such thing as a “positive right,” so there is no obligation to “support” anybody else, even if that person is your child (although arguably, you do need to find another person or an orphanage or something to take care of that child). Likewise, there is no good reason why anybody should be required to pay their ex-wife or ex-husband any “alimony” (Rand dealt with this in Atlas Shrugged in the part where Hank Rearden finally divorces his emotionally abusive wife).

    1. what men NEED is an equivalent to the pill. there already IS one, it has just not been FDA approved. when and if men have access to that (readily, like women do), there will be more parity. if men have complete control over whether their sperm are motile etc. enough to result in pregnancy, then they will be equals (as much as allowed by nature. men still can’t carry a baby inside them, ovulate etc.) in this equation. you are correct. right now, women have most of the power. they can lie about being on the pill, for example, and even do such sperm spit chicanery (which i’d never heard of but i guess is possible). when men have access to effective pharmaceutical controls, it will be a much more equal situation.

  32. I have been to court a ton of times on these type cases. Judges are loathe to throw people in jail on small-time debt collection matters. What irks them is when defendants ignore court orders to appear. Hell, even a simple letter explaining why the person cannot appear is sufficient. But to ignore the court’s order? That is just inviting the court’s wrath, a contempt order and an arrest warrant for contempt.

    However, if the person appears and says “Judge, I just don’t have it,” the judge will almost always monitor the case and order the parties to work something out payment-wise.

    Debtors need to do the RESPONSIBLE thing and answer the court call when it arrives.

    1. Here in Ohio it is called a “Citation Forthwith.” Have used it twice in 30 yrs in the business, both times on millionaires. It makes for a fine strawman, however. The real problem is the debt seller/buyer market. Paper is being passed that is not valid. I can say with a straight face that I always have clean paper behind an Exhibit A. The bottom feeding segment of the collection bar is dragging down the industry. The industry must police this problem or crap articles like this will be the basis for terrible law.

  33. Obviously none of the children here citing high-minded “libertarian” principles regarding repaying money you owe have have had the experience of being harrassed by sleazy law firms collecting sleazy debts. I have. My family has been through hell. But that’s okay, go on being noble and high-minded. Just wait until the day that you learn that a “law” firm has lied about serving you and gone and got a judgment behind your back, and you find yourself with wrecked credit and a mound of paperwork and expense that you neither incurred nor deserve. Just wait.

  34. The lax standards employed by the courts to rubberstamp collection lawsuits has produced an environment ripe for fraud. This opportunity has been recognized both by existing debt collectors, who have learned that cheating pays, and by criminals, who are entering the “debt collection” business resulting in increasing complaints of attempts by debt collectors threatening impending lawsuits as a ruse to extort unowed payments while circumventing the FDCPA’s validation requirements.
    The actions by the NY AG to shut down a number of Buffalo area debt collectors is just the tip of the iceberg, as the NY “sewer service” fiasco shows that even supposedly legitimate law firms have been benefitting from gaming the courts.
    A culture of deceit as standard business practice to “expedite” collections, robosigned perjured affidavits, “guess and threaten” debt collection, routine sewer service, the list goes on, but it all stinks of fraud.
    This mess isn’t going to be cleaned up by the collections industry or the licensed bar, as they have no incentive to act against their own interests.
    The courts have the responsibility to fix it, to ensure that their power is not misused by cheaters.

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    They demanded I prove I paid income tax in MA for that tax year, even though neither MA nor VA require you to maintain copies of your tax return for that long.???? ?????? ????? ???????
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