A few years ago, Lexington, Neb., resident Jeremy Walton got tired of bill collectors, so he turned the tables and filed a half-dozen lawsuits against them, collecting several thousand dollars and erasing a substantial chunk of debt in the process.
“Fair is fair,” Walton said. “They were working me, so I worked them. I got to where I would push and prod them on the phone to get them angry.”
And at some point, Walton hoped, to get them to commit a violation of the federal Fair Debt Collection Practices Act, a 1970s law passed to protect debtors from harassing, abusive or unethical bill recovery efforts. It happened often enough, Walton said, that he collected several hundred dollars per suit after the bill collectors agreed to settle and slash or forgive amounts allegedly owed rather than fight it out in court.
Walton, who says the debts in question were incurred by an ex-girlfriend under his name, is not alone in his use of the federal law to silence collection efforts. Federal court records show a sharply increased willingness by Nebraska consumers to take their bill collectors to court.
In 2009, court records indicate, there were eight such suits filed the whole year. The number has steadily risen, with more than a dozen in 2010 and successive years. There have been 19 so far this year.
The intensified willingness to take bill collectors to court, according to interviews with debtors and their attorneys and collectors and their attorneys, is attributable to an increased awareness of debtors' rights, the ease of finding an applicable attorney via the Internet and more lawyers actively pursuing such cases in the state.
“We have absolutely noticed an increase in Fair Debt Collection Practices Act filings by consumers,” said Lea Wroblewski, an attorney at Legal Aid of Nebraska, a nonprofit organization that offers representation to people who cannot afford it. “Frankly we think it is a needed development to create change within the collections industry.”
In Walton's case, at issue was about $10,000 in debt incurred by his ex, who used his name to obtain credit cards. Walton said the collection law violations he was subjected to were myriad, from idle threats of legal action to harassing and repetitive collection attempts.
“I learned pretty quickly what they can and cannot do,” Walton said. “For example, if they imply that they are an attorney or that there is pending legal action when there isn't, or use legal terms like 'deposition' when they don't intend to sue, they basically are toast.”
As for the collections industry, it says debt collection lawsuits nationwide are declining after having risen for several years during and after the recession that started in about 2008.
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“We have returned to normal levels of litigation,” said Robert Foehl, chief attorney for ACA International, the Association of Credit and Collections Professionals.
He acknowledged that it is probable that economic hardship results in more delinquencies and collection efforts. Foehl also said most cases that are not dismissed for one reason or another are settled out of court because collectors don't want to spend the money to go to a trial.
“We understand that it can be an emotionally charged situation, people are often in some stage of personal difficulty,” Foehl said. “We want bad actors out of the business, too. They don't help our industry.”
Foehl said most people employed as debt collectors don't break the law, and many seek the job because they enjoy problem-solving. Professional and competent collectors, he said, are able to arrange variations of interest rates, payment plans and even partial debt forgiveness if a debtor commits to making regular payments.
“Debt collectors are very skilled at working with people to find a solution,” Foehl said. “That is the reason consumers should keep the lines of communication open.”
The collections industry says it provides a vital service to the economy, as the costs of bad debt are priced into everything sold on credit, from cars to cellphone plans. In 2010, the last year for which figures are available, collectors in Nebraska recovered $447 million of bad debt, according to the Nebraska Collectors Association; nationwide, the figure was $55 billion. The collection industry in Nebraska employs almost 1,300 people.
“Most are small businesses,” Foehl said.
Until recently, filing federal suits on behalf of Nebraska debtors was the domain of out-of-state law firms. Court records show that 45 percent of the cases filed since January 2009 were handled by the Chicago firm of Smith Marco. Another Chicago lawyer, Michael Agruss, accounts for 17 percent. Connecticut attorney Sergei Lemberg has filed 11 percent of the cases; Lemberg said he files suits all over the country and has been noted for filing more FDCPA cases in some years than any other attorney.
“It is a federal law, so it doesn't matter in what state it happens,” Lemberg said “It lends itself to a national practice.”
But it's not all national lawyers these days. Omaha lawyer Burke Smith's first debt case in the past five years wasn't until 2012, but he already accounts for 11 percent of the fair collection suits filed in U.S. District Court in Omaha since 2009. “People these days have a greater awareness of the law and their rights,” Smith said. “The law is there to protect people and they are seeking legal help more and more.”
Smith said that most of his cases involve allegations of abusive language, repetitive calls, calls to a debtor's place of work when the debtor has forbidden it and the revelation of debtor financial information to unrelated parties such bosses or co-workers.
The proceeds from such a suit are legally capped at $1,000 per suit, regardless of how many violations are proven. Smith said the vast majority of cases are settled out of court, with the collector paying the debtor's legal fees.
“It is very simple,” Smith said. “The law prohibits behavior that is unfair, undignified, untrue or disrespectful.”
The law was passed by Congress in 1977 as U.S. consumer indebtedness and subsequent collection efforts was rising; over the years, courts have adopted a standard known as “the least sophisticated debtor” benchmark. It means that courts will view debt collector verbiage and communication through the eyes of just such a person.
It can be a minefield for bill collectors.
Josh Dickinson, an Omaha lawyer who represents debt collectors who have been sued, said a steady stream of lawsuits over words, wording and the mental impressions they leave upon debtors is probably not what Congress envisioned when it passed the law.
“From my perspective, a lot of this litigation is contrary to the legislative intent,” said Dickinson, of Spencer Fane Britt & Browne. “It is unfortunate because the law had great intentions, but now it is being used to make money in settlements.”
James Cada, a Lincoln attorney who also defends bill collectors in lawsuits, was equally blunt on the topic. “It is quite often merely an issue with words. People settle because they figure it is better to pay a little and be done with that rather than spend $30,000 defending.”
Not so fast, say lawyers representing debtors.
“The law is more than 35 years old and it is a good law,” said Agruss, the Chicago attorney who has filed several fair collection suits for Nebraska debtors. “It gives control back to the consumer.”
Agruss said the overwhelming majority of his clients — and people in general who are the subject of collection efforts — are not deadbeats, lazy, idle or unambitious.
Most he said, are delinquent on their financial obligations for a good reason, like a recent client: a woman who is a double amputee with emphysema and enormous medical bills. A collector told her that her Social Security benefits could be seized to pay the debt, a legal impossibility, as such benefits cannot be attached.
Still, Agruss said, stereotypes persist and even some of his family members don't understand the niche of the law profession.
“I have relatives say, you mean these people don't pay their bills and you turn around and get money for them?” Agruss said. “But sometimes hiring a lawyer is the only way to get redress. Some collectors I have sued have cleaned up their act, while others repeatedly violate the law for the same thing.”
The topic will remain a fresh one in Nebraska legal circles for some time to come. One suit against a Grand Island collection agency over wording in a letter is seeking class-action status. Also this year, a 2011 case was given the go-ahead to proceed as a class-action that might include almost 30,000 people.
As for Walton, the Lexington man who gleefully sparred with bill collectors, he is in what he figures is a unique position: he is trying to collect from a debt collector.
Walton said he won a court judgment against an East Coast collector, what he termed “two guys in an apartment in New Jersey who bought some bad debts.” They made the mistake, he said, of calling themselves the “Legal Assistant” and the “Legal Director” of their firm when they telephoned.
“What they really were doing was just handing the phone across the table to each other,” Walton said. “And now, they are in collections with me.”