Attorney Aidan Butler says he has defended about a dozen clients against… (Katie Falkenberg, For The…)
WASHINGTON — Hard economic times have helped push millions of Americans deeply into debt, plunging many into a dark world filled with relentless collection agents, aggressive lawyers and companies that profit mightily if they can get people to pay up.
Aided by outdated laws and lax oversight, debt collection has become a $12-billion-a-year business as people increasingly have fallen behind on their bills for credit cards, student loans, hospital stays and other expenses.
The Great Recession and its aftermath have led to a sharp increase in the number of people facing debt collectors to an estimated 30 million Americans this year — up nearly 50% since 2003.
At the same time, job losses and underwater mortgages have made it more difficult for many of those people, who already are struggling to make ends meet, to pay off their debts.
Federal regulators, along with lawmakers in California and several other states, are starting to take action against debt collection firms over aggressive tactics that authorities said are becoming rampant.
Those tactics include intimidating phone calls, unfounded threats of arrest, harassment of relatives and neighbors and a flood of lawsuits aimed at squeezing money for unpaid bills from paychecks or home equity — recovering $55 billion in debts in 2010.
Southern California is home to two of the debt-collection industry's major players — ones that consumer advocates alleged have been at the forefront of improper behavior.
Encore Capital Group Inc.of San Diego, which buys unpaid bills from businesses, has faced numerous lawsuits filed by state attorneys general and private lawyers, alleging it used false and faulty affidavits, much the way banks allegedly used robo-signing in filing foreclosure documents.
Although some cases are still pending, Encore said it has corrected the problems.
And Brachfeld Law Group in El Segundo, one of the nation's largest debt collection law firms, has been contending with allegations that it failed to investigate the facts adequately when it pursued some debts. A spokesman said the firm checks to ensure accuracy.
In one case, though, Brachfeld allegedly helped pursue the wrong person for a debt he never owed.
Several years ago, debt collectors began pursuing state Sen. Lou Correa (D-Santa Ana) for an unpaid Sears bill they said he owed. He told them they had the wrong man, but the debt collectors never wavered.
"These folks are very aggressive," Correa said. "They'll call back repeatedly and say, 'Tell us some personal information so we can tell it's not you.' When all of a sudden is the burden of proof on me?"
Last year, Correa discovered his Senate paycheck was being garnisheed because of a $4,329 lien for the Sears debt. Brachfeld had obtained a default judgment in court, even though, Correa said, the lawsuit was never served on him and he knew nothing of the claim or the court hearing.
He later learned that the debt belonged to a Luis Correa from Santa Ana. The man had a different Social Security number, different address, even different first name — the senator is legally Jose Luis Correa.
"I always pay my bills on time. Then to have somebody garnish my wages, I thought was pretty astounding," the lawmaker said. He later resolved the problem and stopped the wage garnishment.
Now Correa is supporting a bill by state Sen. Mark Leno (D-San Francisco) to require debt collectors to document that they are pursuing the right person for the correct amount of money. The bill passed the Senate and is pending in the Assembly.
Michael Gottlieb, director of business development for Brachfeld, said the suit was served on the person who owed the debt, but the senator later was incorrectly targeted for wage garnishment. Once informed of the problem, Gottlieb said, Brachfeld stopped the process before any of Sen. Correa's wages were taken.
For many who do owe money, the debt collection process can be intimidating and nightmarish.
Katie Brown got a call in March about her unpaid $3,000 credit card bill from Hhgregg Inc. The person said he was from a free legal aid service she had contacted to try to stop harassing phone calls from debt collectors.
"After I told him everything, he laughed and said, 'Now let me tell you who I am. I hold your debt from Hhgregg,' " said Brown, 26, of Piqua, Ohio. She didn't know how the debt collector knew she had contacted legal aid.
"I was scared they would get to my husband's work and start calling them," she said, "because at this point they would stop at nothing if they were going to misrepresent themselves."
Brown did what an increasing number of consumers are doing: She filed a lawsuit. Her complaint against International Asset Group Inc. in Amherst, N.Y., alleged the company violated a federal law that prohibits misrepresentation and harassment by debt collectors. The suit is pending.