Shipwrecked by the economy and swamped by debt, countless thousands of credit card holders now are finding themselves engulfed by lawsuits.
Courts in Arizona, Florida, Nevada, California and many other recession-ravaged regions are reporting a rising tide of legal actions filed against delinquent credit card customers by credit card companies and the collection agencies and debt buyers that serve as their proxies.
“It’s the economy, pure and simple,” said Judge Lester Pearce, presiding justice of the peace for Phoenix and the rest of Maricopa County, Ariz. “Most of these people lived on the edge financially anyway, and when the economy took a dive, they had no way to recover.”
Three years ago, Pearce said, 50 percent of the cases in his courtroom involved credit card debts. Now, that’s up to 75 percent — and still rising.
The phenomenon appears to be national in scope, with a particular concentration in the areas most affected by mortgage foreclosures and stubbornly high rates of unemployment.
“If there is indeed a rise in the number of consumer debt court cases, we believe it likely corresponds with the nation’s financial crisis,” said Mark Schiffman, director of public affairs for ACA International, a trade association representing more than 5,000 collection agencies, debt buyers, creditors and similar interests in the United States and around the world.
“It’s no secret that, even before the Great Recession, America’s consumers were awash in unprecedented levels of debt from mortgages, auto loans, student loans, credit cards and other financial obligations …,” Schiffman said.
“The massive amount of defaulted consumer debt from the past several years, as a direct result of the economy, has exacerbated the massive amount of consumer debt that exists and the need to collect that debt,” he said. “This is a significant impact that cannot be ignored.”
Raw numbers are hard to come by, largely because most court systems do not categorize civil lawsuits by the specific nature of the dispute. But all available evidence points to an obvious conclusion: Credit card customers who fall behind on their payments are increasingly at risk of being sued.
- In the Phoenix area, the entire court system has experienced a 50 percent increase since 2007 in cases filed against credit card holders, Judge Pearce said.
Kristina Fretwell, a spokeswoman for the Maricopa County Justice Courts, notes that lawyers filed 87,290 new civil lawsuits last year, a 72 percent increase over the number filed in 2007. If Judge Pearce’s court is representative of the entire system, and he believes it is, that suggests that more than 40,000 credit card cases were filed in that single county just last year. “We’re unable to give you any hard stats because of the way we track these suits,” Fretwell said, “but we’re seeing a lot of credit card cases.”
- The situation is similar in many parts of Florida, particularly the Miami-Fort Lauderdale-West Palm Beach area, one of the regions hardest hit by the foreclosure crisis.
Some civil judges in that area also report that 50 percent to 75 percent of the cases on their typical daily dockets involve credit card debts, according to a spot survey conducted last month by the South Florida Sun-Sentinel, a newspaper that mainly serves the Fort Lauderdale area.
We’re so overwhelmed, we’re just trying to keep our heads above water.
— Mary Ann Price
Clark County (Nev.) court system spokeswoman
- In Las Vegas and the rest of Nevada, a state with the dubious distinction of consistently holding first place in the monthly rankings of home foreclosures, court officials say they are being flooded by recession-related lawsuits. In fact, the courts in Las Vegas are so inundated that the city’s website offers residents a link to free information for homeowners facing foreclosure.
“We’re so overwhelmed, we’re just trying to keep our heads above water,” said Mary Ann Price, a spokeswoman for the Clark County (Las Vegas area) court system.
She and consumer advocates in Las Vegas say the situation is so dire there that many people who have fallen behind on their credit card payments aren’t waiting to be sued by collection agencies or debt buyers. Instead, these credit card holders are pro-actively heading straight to bankruptcy court.
“We’re seeing a small increase in the percentage of people coming in with credit card problems, but a drastic increase in the number of people filing for bankruptcy,” said Cena Valladolid, chief operating officer of the nonprofit Consumer Credit Counseling Service in Las Vegas. “These people just have no jobs.
“In the past, if they came in delinquent on their credit card payments for a few months, we’d have a financial counselor develop a payment plan that would prevent the collection agency from suing them or otherwise pursuing them,” she said. “But we’re way beyond that here now. There’s plenty of credit card and other unsecured debt here, but it’s taking a back seat to foreclosures and bankruptcies.”
- In Los Angeles, some evidence suggests that credit card lawsuits have plateaued — but at a very high altitude.
A search of the records at Los Angeles Superior Court finds that the name of one of the most active companies in the credit card collections field, Asset Acceptance Capital Corp., appeared on 1,380 court documents in 2008, 1,474 documents in 2009 and 1,269 documents in 2010. During the first three months of this year, Asset Acceptance appears to have filed 344 cases against credit card holders and other debtors, compared to 321 cases during the first three months of 2010.
Debt buyers active
Asset Acceptance is one of many firms known as “debt buyers.” In general terms, they buy uncollected debts from credit card companies, retailers and others at pennies on the dollar and then work to collect those debts from the consumers responsible for them.
Based in Warren, Mich., Asset Acceptance also has been particularly active in South Florida. The Sun-Sentinel reported that the company filed 938 cases in Broward County (the Fort Lauderdale area) last year, compared with about 250 cases in 2007.
A spokeswoman for Asset Acceptance did not respond to several requests from CreditCards.com for comment. On its website, the company says it has 1,400 “associates” working out of 10 offices in nine states. It says it helps “creditors liquidate delinquent consumer receivables” and assists “consumers in resolving their financial challenges.”
“We take a long-term view toward collections, backed by experienced and well-trained account representatives, strategic office locations around the country and a proven legal strategy,” the company says.
Few card issuers sue
Judge Pearce, the justice of the peace in Phoenix, said he rarely sees cases filed directly by credit card companies. More often, he sees the buyers of these uncollected credit card debts suing for the full amount due. “They bought the debt for pennies on the dollar, but now they’re suing for the entire amount,” he said.
Were finding that a lot of credit card cases do not have clear documentation,” Pearce said. “A lot of times, we have to ask them to go back and get us better documentation.
|— Lester Pearce |
Presiding Justice of the Peace, Maricopa County (Ariz.)
In other instances, credit card companies often hire collection agencies, which file the cases and work on a commission basis as they attempt to recover delinquent debts from consumers.
Schiffman, the spokesman for ACA, which represents both flavors of collection entities, said that it’s important to remember that all of this begins with a delinquent debt — and that credit card companies and their proxies have every right to recover those debts.
In addition, he said, going to court generally is a last-ditch maneuver, and he doubts that any debt buyer or collection agency is eager to pull the legal trigger sooner in the collection cycle than in the past.
Instead, the likely catalysts of the heightened legal activity could be the sheer burden of rising debts combined with the growing difficulty many debt collectors have in reaching credit card and other debtors. For instance, as many people give up their landline telephones, debt collectors face legal obstacles in being able to contact consumers over cell phones — obstacles that soon could grow higher.
“Going to court to recover a debt is expensive and not something that should be approached lightly,” Schiffman said. Adjudication by a judge “is most often the action of last resort after numerous attempts to communicate with the consumer have failed.
“However, if going before the court, attorneys need to make their case supported by proper documentation in order to win judgment,” he said. “It does not seem like a very good business model to adjudicate without the facts to back it up in court.”
Still, Judge Pearce said he frequently sees collection cases that are, shall we say, documentarily challenged. In this, these cases produce an eerie echo of the national foreclosure crisis that now is becoming additionally complicated by years of faulty recordkeeping by many banks and mortgage brokers.
“Were finding that a lot of credit card cases do not have clear documentation,” Pearce said. “A lot of times, we have to ask them to go back and get us better documentation.”
As a result, the judge strongly advises consumers who are confronting credit card lawsuits to make sure that they respond to these legal notices, whether or not they actually owe the money.
If a consumer truly does owe the money, the case likely will go first to mediation, where a compromise involving the size of the debt or the duration of payments could be negotiated.
Consumers’ big goof: ignoring debt
And, too often, he said, innocent people ignore the legal notices, which makes things much worse.
“Make sure you’re the proper party,” Pearce said. “Sometimes, these collection agencies just look for a name, and they send a notice and the consumer says, ‘Well, that’s not me’ and they ignore it.”
“They don’t respond to the court,” Pearce said, “and they end up with a judgment against them.”
Of course, the best advice is to avoid lawsuits by remaining current with your credit card payments. But, if circumstances prevent that, remember the prime directive when it comes to credit card or any other consumer debts:
Do not duck the debt collector.
“Consumers shouldn’t avoid debt collectors or dismiss being contacted as a scam without verifying it first,” Schiffman said. “Avoiding the debt collector won’t make the debt go away. The vast majority of debt collection activity is legitimate, and it’s imperative to address a debt collection inquiry head-on.”