Credit Card Issuers Say ‘I’ll See You In Court’

As creditors sue to collect their bills, unsophisticated debtors often have no idea how to respond.

Last July, as 81-year-old Willie M. of Oakland prepared to go to court over $6,136.39 in credit card debt, she received a call from someone who said they represented the collection agency suing her. His message, she says, is still burned in her mind. He told her that they would go after her Social Security payments and added, “You can’t win the case because you’re not a lawyer; I’m a lawyer and the judge will believe me,” said Willie, who asked that her full name not be revealed because she’s embarrassed by her debt. “So I went in knowing I couldn’t win. Me not being a lawyer, I don’t know what they can do.”

Willie was cowed. In a trial that lasted less than an hour, she represented herself. Not knowing any better, she didn’t mention the phone call. She also failed to disclose that her only income consisted of Social Security and a small pension, which would have made her nearly judgment-proof in the eyes of the court, since government assistance cannot be confiscated by debt collectors.

Instead, she was soon on the hook for $6,651.50. She’d also have to pay an additional 10 percent on the debt in annual interest, retroactive to 2007. Even if she never missed a payment of $70 a month, she wouldn’t be debt free until her 119th birthday.

Willie’s case represents a trend, according to attorneys from the East Bay Community Law Center, a clinic associated with UC Berkeley’s Boalt Hall School of Law that serves indigent clients and sees about 100 such lawsuits a year. Both locally and nationwide, collection agencies and their lawyers are filing lawsuits en masse against those who are least able to pay off their debts. And in many cases, there are questions about the ethics and legality of the practices they employ. Law center advocates have handled cases where clients have been misled into not showing up for trial, where lawsuits have been filed after the expiration of California’s four-year statute of limitations, and where the entirely wrong person has been sued.

Some clients also complain about harassing debt-collection calls. One elderly client said she was told that she’s a “bad Christian” for failing to pay her credit card debt on time; another client complained that he was repeatedly told he was a “criminal” after falling behind on payments when he lost his job after a workplace injury. Willie said she was receiving frequent phone calls from the collection company. “They call at least twice a week and on Saturday mornings before you can wake up good, and then at 8 or 9 at night,” she said. “They may call you twice or three times a week.”

A number of these practices are illegal or unethical. For instance, the pretrial phone conversation that Willie describes violates federal debt-collection laws prohibiting “undue harassment,” said Elisa Della Piana, another supervising attorney at the clinic. “Anything false and misleading is illegal and violates the Fair Debt Collection Practices Act,” she said.

With the help of the clinic, Willie has since settled her case and will pay about $4,300 in $25 and $70 increments over the next several years. (An attorney for Portfolio Recovery Associates, the agency that sued Willie, declined to comment.) But in a handful of cases, the clinic has filed ethics complaints with the California State Bar on behalf of its clients.

“Collection agencies are buying credit card debt at a price that’s heavily discounted, and they’re suing the poor, elderly, and people on disability,” said Osha Neumann, a managing attorney at the clinic. “These collection agencies are just churning out these lawsuits. Then, when our clients get them, they get flustered and they’re not able to get a lawyer and they’re not answering the lawsuit, and the collection agency wins a judgment by default. These companies count on getting default judgments.”

The Alameda County Superior Court has seen an increase in debt-collection cases since 2006. It estimates that about 14,500 of these lawsuits were filed in the county in 2008, a number that appears to be leveling off this year.

But the number of people seeking help through remains high. “These cases have not tapered off for us,” said Larry Lulofs, president of Volunteer Legal Services.

According to research by Victoria J. Haneman, an associate professor at the University of La Verne College of Law in Southern California, 70 to 90 percent of the lawsuits filed against debtors result in a default judgment. In a 2008 Missouri Law Journal article, Haneman writes that “litigation — a collection tactic heavily subsidized by the public — proved to be a lucrative and easily available tool” for forcing payment on credit card debt.

“People come to us too late and by the time they talk to us, they already have a judgment against them,” noted Candace Goldman, the program director of the court’s Self-Help Center. “They see this institution coming after them and they think that they don’t have the same kind of access to a lawyer as the people who are suing them do, and it panics people. Which is too bad because there is information here and referrals we can make to help people.”

Willie M., a diabetic with high blood pressure and a heart problem, has been on a fixed income since she retired from her job as an X-ray darkroom technician at age 67. She collects $800 in Social Security and $300 from her pension each month. Funds usually get scarce by the end of the month, so she visits the local food bank to get by until her next check arrives.

In 2000, at age 72, she signed up for her first credit cards, a MasterCard and a Visa. She didn’t know much about how they worked, but the people from the credit card company enticed her to open the accounts. “They were wonderful at first; they called me on the phone and said, ‘Sometimes you might run low on cash and then you have a credit card and it’s just so you can have a little extra money laying around.'”

She insists that she wasn’t extravagant. “I’d go to Goodwill and the supermarket, little things like that,” she said. “I wasn’t buying no big stuff. Maybe I’d treat a couple of friends to dinner on Sunday after the supermarket and charge it on my card. We’d go to Denny’s or Sizzler.”

However, Willie soon reached her credit limit — $3,000 between the two cards — and every month she paid whatever she could afford: $60 here, $110 there. There were occasions where she was hit with a late charge.

Although she stopped using her cards around 2002, she didn’t fully understand how the interest would compound her debt. One card was charging her a 30 percent APR at one point, and by 2005 her credit card bills had actually increased because she wasn’t drawing down the principal. When she stopped receiving receipts for her payments from the credit card company, she said she decided to quit paying. The debt-collection calls started soon thereafter.

Since then, Willie said she has sworn off credit cards and is mortified today by the entire experience. “It’s really embarrassing getting yourself into this situation,” she said. “They need to explain how much trouble people can get into with a credit card. That could take a lot of stress off of old people. This has made me feel terrible because I’m always worried about it.”


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