Monday, October 5, 2020

THE PARASITE ECONOMY - DEBT COLLECTORS AND PARASITIC BANKSTERS LIKE CAPITAL ONE

BANKSTER PARASITCISM RELIES ON  BANKSTER-OWNED POLITICIANS.

THE BANKSTERS KNOW THAT  BARACK OBAMA, JOE BIDEN AND KAMALA HARRIS ARE BOUGHT AND OWNED.

AS ATTORNEY GENERAL OF CALIFORNIA KAMALA HARRIS PROTECTED HER DONORS WELLS FARGO FROM BEING CRIMINALLY PROSECUTED FOR THE GLOBAL TOXIC MORTGAGE MELTDOWN. SHE DID THE SAME FOR BANKSTER STEVEN MNUCHIN WHO WAS QUITE GENEROU$ WITH KAMALA HARRIS AFTER SHE DEMONSTRATED SERVICES WELL RENDERED THAT KEPT THIS GOLDMAN SACHS BANKSTER OUT OF PRISON. IN CALIFORNIA, MNUCHIN WAS KNOW AS ‘KING OF FORECLOSURES’.

“The same giant debt buyers known for fighting consumer protection laws at every turn have been raking in cash during this pandemic,” Sen. Elizabeth Warren, D-Mass, told ProPublica. “They are now licking their chops in anticipation of profiting even more off families who have their hours further cut or can’t find a job, and can’t keep up with their bills or their mortgage. This is disgraceful and reinforces the need for Congress to protect consumers and small businesses from this predatory behavior.”

He eventually struck a settlement to pay Capital One a total of $300 on a payment plan of $20 a month. But shortly after he made his first payment, he was shocked to find that his wages had been garnished anyway. The seizures continued for weeks, well into March of this year. Both Capital One and the marshal’s office told ProPublica that Robert’s employer had been sent notice not to execute the garnishment, but that it had done so anyway in error and that the checks had been promptly mailed back to the employer.

Stop Seizing Paychecks, Senators Write to Capital One and Other Debt Collectors

Wage garnishments ordered before the pandemic started have continued for many workers during the recession. Senators Elizabeth Warren and Sherrod Brown have demanded an end to the practice.

by Paul Kiel

Sen. Elizabeth Warren, D-Mass., on Jan. 29. Warren and Sen. Sherrod Brown, D-Ohio, wrote in letters that the nation’s largest debt collectors should suspend seizing wages “immediately.” (Samuel Corum/Getty Images)

The nation’s largest debt collectors should suspend seizing wages “immediately,” two prominent senators demanded in letters sent Wednesday.

The letters came in response to a ProPublica story this month that focused on how the most prolific filers of debt collection lawsuits, Capital One and large debt buying companies, continue to garnish paychecks amid the COVID-19 pandemic. While most courts shut down to new hearings in March, wage seizure orders obtained before then were allowed to continue in most places. That left some essential workers and others desperately searching for relief amid the economic downturn.

“Filing collection lawsuits and garnishing the wages of consumers already struggling to pay for basic necessities will only exacerbate the economic and public health crisis,” Sens. Elizabeth Warren, D-Mass., and Sherrod Brown, D-Ohio, wrote.

Brown and Warren sit on the Senate Banking Committee, which oversees financial services companies. Brown is the ranking member.

Capital One largely stopped filing new suits after mid-March, but other large collectors did not stop filing new suits. Warren and Brown also wrote to Encore Capital Group and Portfolio Recovery Associates, two of the largest debt buyers in the country. Both of them continued to file suits into April and May, according to ProPublica’s review of online court databases.

In the letters, the senators also request an accounting from the companies of how many suits and wage garnishments they’ve filed this year. Because collection suits are filed in state and local courts, it’s impossible to arrive at a full accounting of such suits (although ProPublica has tried to shed light on the practice by rounding up data from various states). This makes an aggressive form of collection that affects millions of people each year largely invisible to the public. Answers from the companies may help to reveal the scope of the biggest plaintiffs’ activity.

In a statement in response to the letter, a Capital One spokesperson said: “Since the pandemic first began, we have been committed to working with all of our customers who are experiencing financial hardship as a result of COVID-19. In addition to deferring payments, offering tailored payment plans and waiving fees, we have stopped the filing of all new bank garnishments and lawsuits and have taken action to prevent the garnishment of any stimulus funds. We recognize that these are exceptional times and our policy is to work with any customer who needs help and is impacted by COVID-19.”

A spokesperson for Portfolio Recovery declined to comment, saying the company was reviewing the letter and preparing its response.

Sheryl Wright, an executive from Encore Capital's subsidiary Midland Credit Management, said, "In keeping with the long-standing hardship policy in our Consumer Bill of Rights, we suspend collections when a consumer tells us they’ve been directly impacted by COVID-19, and we stopped bank garnishments for all consumers in mid-March. For any bank garnishment that was initiated prior to the stoppage, if the consumer informs us that we inadvertently levied exempt funds, including CARES Act relief payments, we immediately initiate a refund."

Capital One and Other Debt Collectors Are Still Coming for Millions of Americans

As the COVID-19 pandemic hit, Americans got protection from evictions, foreclosures and student debt. But debt collectors have continued to siphon off their share of paychecks from those who still have jobs.

by Paul Kiel and Jeff Ernsthausen

Capital One recovered hundreds of millions of dollars of debt beyond any other card issuer last year and has continued collecting despite a global pandemic.

Since 2018, Capital One has been a looming presence in Julio Lugo’s life, ever since the company sued him, as it did 29,000 other New Yorkers that year, over an unpaid credit card. But when the coronavirus hit the city this March, it wasn’t on his mind.

At Mount Sinai in Manhattan, where he works, he’d been drafted into the hospital’s frenzied effort against the virus. He normally gathered patient information at the front desk of a radiology clinic in orderly shifts, 9 to 5. Now he was working 16-hour days, often overnight. At one moment he might be enlisted to help a team of doctors or nurses put on their full-body protective equipment and then he would rush to disinfect another team. He lost track of the days, only orienting himself by the need to juggle care with his ex-wife of their two young children who were now out of school.

But despite a global pandemic, Capital One didn’t forget about him. The company began in late March to seize a portion of his wages to collect on that debt — one that he says wasn’t even his.

Federal, state and local officials have all taken some steps to protect Americans from the ravages of the economic crash due to COVID-19. Congress halted a substantial portion of evictions, foreclosures and collection on student loans. And when it sent $300 billion in stimulus checks out to families, many states took steps to make sure that debt collectors didn’t grab the money. But one of the most aggressive and common forms of debt collection has generally been allowed to continue: seizure of wages for old consumer debts.

The main protection Americans have gotten from debt collectors has been inadvertent, a byproduct of state courts being closed to most hearings, including those pushed by debt collectors. But this didn’t help people like Lugo who were the target of actions that began before the closures. Wage garnishments can run indefinitely once begun. As a result, essential workers and others who were lucky enough to keep their jobs have still been at risk of forfeiting a portion of their paychecks.

No one tracks wage garnishments either federally or at the state level, and that’s a key reason they get little public attention. But ProPublica has found that it hits workers earning $40,000 or less the hardest and is particularly common in predominantly black communities. Because garnishments are set at a percentage of income (25% in most states) regardless of whether someone can afford it or not, they often provoke a financial emergency and cause the debtor to let other bills go unpaid.

While new collection activity has dropped off, some major debt collectors have been laying the groundwork for a return to normal by filing suits by the thousands, according to a ProPublica review of online court records from county and state court websites. For example, in Maryland, two major debt collectors alone filed over 2,000 suits in April.

When the courts fully reopen, as they already have in some states, these companies will be first in line to win new court judgments. Those debtors who still have jobs will be forced to either make payments or risk their wages being seized. With 48% of American households having experienced a loss of employment income in the past few months, many will have no wages to take. But debt collectors can be patient and wait until they do.

Even more worrying to consumer advocates is what lies ahead. Households often rely on credit cards during moments of financial stress. In recent months, more have been paying rent with their cards. Eventually the bill will come due, which could lead to a wave of collection suits as the nation attempts to recover.

“There’s going to be a whole swath of people who never thought they’d be in a position to default,” said Pamela Foohey, a law professor at Indiana University who argues in a recent paper with two colleagues that Congress should impose a debt collection moratorium to allow for recovery. “It’s not productive to be garnishing people’s wages when they need to pay for food and get back on track financially,” she said.

Over the past couple decades, Capital One, Lugo’s pursuer, helped lead the way in transforming the nation’s local courts into collection machines. As recently as the 1990s, these courts conformed to the picture most people have in their heads, primarily working as a venue where a judge resolved disputes between two sides represented by a lawyer. Now the most common type of case is debt collection, a recent Pew Charitable Trusts report found. Lining up against debtors who are almost never represented by an attorney, debt collection companies win millions of court judgments each year, which then allow them to seize debtors’ wages for years into the future. An old unpaid bill will fall off a credit report after seven years, but a court judgment can haunt someone forever.

While different types of plaintiffs may flood the courts in different areas (from payday lenders to nonprofit hospitals), those collecting on credit card debt have driven this trend over time, according to ProPublica’s review of court data from several states.

The change has been obvious in courts everywhere, from New York to Las Vegas (where the local court decided to give such cases their own category, “Civil – Credit Card Collection”) to rural Iowa.

“It does bother me that courts have become sort of a tool for credit card companies. We’ve just become part of their business machinery,” said Judge Chris Foy, who presides over the district court in the small town of Waverly, Iowa.

The most common plaintiffs don’t tend to be household names that advertise with bold TV campaigns: Most are debt buyers, companies that buy up bad debts in bulk. The exception is Capital One.

Aggressive debt collection is key to Capital One’s profitability. Last year, the same year the company reported $5.5 billion in net income, it recovered $1.4 billion from its card accounts that had been previously charged-off, or recognized as losses. It was a haul hundreds of millions of dollars beyond any other card issuer, even much larger ones like JPMorgan Chase.

In a statement, a Capital One spokeswoman said the bank files more suits than other banks because it makes riskier loans. According to public filings, as of the end of this year one-third of Capital One’s cardholders had a credit score under 660, generally considered the threshold that identifies those most likely to have trouble paying debts back. The bank’s current card offers for such customers carry an annual interest rate of 27%.

“Most regional, community and especially large banks retreated from the subprime segment to focus on more affluent customers, resulting in a growing population of people with less access to the banking system,” the spokeswoman said. “Capital One remains a full spectrum lender.”

“Debt collection for us is about helping customers resolve their delinquent debt and reducing losses, not making money,” she said, and the bank always attempts to work with borrowers before suing. As for Lugo’s case, the company said it couldn’t comment because it was currently in litigation.

The best estimate of the national scope of garnishments comes from ADP, the nation’s largest payroll services provider. At the request of ProPublica, ADP first undertook a study of payroll records six years ago. It followed up with a second survey in 2017. Both times, it found that 2.9% of workers had their wages garnished for consumer debts in the previous year. That works out to about 4 million nationally. Notably, both surveys were done during a period of economic expansion. In the Great Recession, between 2007 and 2009, the number of suits skyrocketed, according to ProPublica’s review of filings from several states.

Court judgments also allow collectors to seize money from bank accounts, often emptying them. But taking a portion of a paycheck is far more common, according to a ProPublica review of court data in Missouri and Georgia.

When the coronavirus outbreak hit, New York, like many other states, took several steps to protect vulnerable people, such as halting evictions or new garnishment orders. But the state let existing wage garnishments continue. Consumer advocates and the New York City Bar called on Gov. Andrew Cuomo to fill that gap and suspend all garnishments. So far, he has not, despite moves by some other states, such as Nevada, to do so. In New York, plaintiffs can take up to a tenth of a debtor’s pay.

Cuomo’s office did not respond to a request for comment.

U.S. hospitals are in the spotlight for being on the frontline of fighting the pandemic. But in the shadows, debt collection operations continue, often by the same institutions treating coronavirus patients, all while unemployment and uncertainty soar.

Lucian Chalfen, a spokesman for the New York State Courts, told ProPublica that garnishments were allowed to continue because “existing orders were considered essential matters.”

Those burdened with a garnishment amid the pandemic could request an emergency court hearing to have it suspended, according to guidance given to the city’s marshals, who administer garnishments. Michael Woloz, a spokesman for the marshals, said they “do everything they can to accommodate” people with hardships.

Susan Shin, legal director of the New Economy Project, a legal aid organization in New York City, said her group has been getting calls since March from New Yorkers asking for help with ongoing wage seizures. Capital One was often the plaintiff. People were afraid of risking their health to go out and seek help from the courts. “Why put someone in that position?” she said. Relatively few people who need help find their way to legal aid.

ProPublica spoke with three New Yorkers who struggled to address seizures of their pay after the pandemic hit. Although all three managed to eventually halt the garnishments with the help of a legal aid attorney, the cases show how such suits can hang over people’s lives for decades. Two of them asked ProPublica not to use their last names out of fear it would displease their employers.

Capital One, asked about the cases, said, “Our policy is to work with any customer who needs help and is impacted by COVID-19.”

Capital One sued Robert in 2007 for about $1,900. He is HIV positive and fell behind because of health issues, he said, and has been in and out of work over the years. For almost a decade, he said, he didn’t hear from Capital One. But last fall, soon after Robert began a new job, he received notice telling him to arrange payment on the debt or he would be at risk of garnishment.

He eventually struck a settlement to pay Capital One a total of $300 on a payment plan of $20 a month. But shortly after he made his first payment, he was shocked to find that his wages had been garnished anyway. The seizures continued for weeks, well into March of this year. Both Capital One and the marshal’s office told ProPublica that Robert’s employer had been sent notice not to execute the garnishment, but that it had done so anyway in error and that the checks had been promptly mailed back to the employer.

Capital One sued Grace, a social worker in Queens, in 2013 after she lost her job and fell behind on her payments. Like Robert, she said she hadn’t heard from Capital One for years. In February, she received a letter from the marshal warning her that her pay would be garnished if she did not make other arrangements to pay off her debt of $2,800.

When the virus hit and the courts largely shut down, she assumed it was a problem that could wait. “I was just trying to get by,” she said. After the garnishment started, she searched online for help and found her way to Shin, the legal aid lawyer. The money has since been returned, but Grace knows the seizures could start again when the courts reopen.

Given Lugo’s hectic days and nights working at the hospital, it wasn’t until mid-April, when 500 New Yorkers were still dying every day from the virus, that he discovered $168 missing from his latest paycheck. Although he was sued in 2018, he didn’t find out about the suit until his wages began to be garnished last year, he said. One reason is that the debt is not his, he said.

In a legal filing, with the help of a legal aid attorney, he argued that his now-deceased father likely stole his identity to take out the card. A process server falsely claimed to have served his mother with notice of the suit, he said.

The filing stopped the garnishments last year, but in early March, he missed a court hearing because it conflicted with a parent-teacher conference at his child’s school, he said. He thought the hearing would be rescheduled, but unbeknownst to him, it triggered a new garnishment.

“Being that the courts were closed, I couldn’t understand how they could just start taking out money again without letting me know,” he said.

Eventually, again with help from a legal aid attorney, he was able to stop the garnishment and get a new court date, currently set for August.

After the virus hit in March, Capital One largely suspended filing any new debt collection lawsuits. But other big debt collectors did not, including Encore Capital, the nation’s largest debt buyer. ProPublica reviewed online court filings in eight states where courts had largely stopped hearing new cases and found that Encore still filed over 1,600 lawsuits in April.

Encore reported collecting $1.3 billion in old debt in the U.S. last year and was looking forward to another good year when March came.

Encore CEO Ashish Masih told analysts last month that the company is still optimistic. Widespread unemployment and the courts closing hurt the company’s near term prospects, but Masih said this would only cause a “delay, not a permanent loss” in what the company hoped to collect in 2020. Eventually, he said, “the court processes will start working,” and “we hope to recoup about 90% of collections over time.”

In response to questions from ProPublica, Encore said that according to its company policy, “We’ve suspended collections for any consumer who lets us know they’ve been directly impacted by COVID-19.”

Across the country, courts are taking steps to resuming full function. In Arkansas, where the virus did not initially hit hard, but has been spreading faster lately, the state supreme court announced in early May that all courts could reopen to hearing any type of case starting May 18. How exactly to do this is up to local courts, and solutions range from video hearings to in-person hearings with a limited number of people in the courtroom and temperature checks before entering.

Wage garnishments in the state never stopped, said Susan Purtle, an attorney with Legal Aid of Arkansas, which serves almost half the state. That’s partly due to the large number of meat processing plants there, she said. “Those clients have continued to work,” she said, and so had wages to take.

But recently, she said, calls about new suits have been coming in. Typically, she’s seeing court hearings scheduled for July or August. Once they begin again, collectors will resume winning judgments that can be used to collect on the debtors who still have jobs. For the ones who don’t, the companies will wait until they do.

Ellis Simani contributed reporting.

 

Debt Collectors Have Made a Fortune This Year. Now They’re Coming for More.

After a pause for the pandemic, debt buyers are back in the courts, suing debtors by the thousands.

by Paul Kiel and Jeff Ernsthausen

Earlier this year, the pandemic swept across the country, killing 100,000 Americans by the spring, shuttering businesses and schools, and forcing people into their homes. It was a great time to be a debt collector.

In August, Encore Capital, the largest debt buyer in the country, announced that it had doubled its previous record for earnings in a quarter. It primarily had the CARES Act to thank: The bill delivered hundreds of billions of dollars worth of stimulus checks and bulked-up unemployment benefits to Americans, while easing pressures on them by halting foreclosures, evictions and student loan payments. There was no ban on collections of old credit card bills, Encore’s specialty.

At the same time, the pandemic compelled households to cut spending. Finding themselves with enough money to settle old debts, people responded to collectors’ calls and letters. Debt-buying executives couldn’t help marveling at their good fortune. All this created “a perfect storm from a cash perspective,” the CEO of Portfolio Recovery Associates, Encore’s main competitor, told Wall Street analysts.

After its record second quarter, analysts expect Encore to blow past $200 million in profit this year and reward stockholders with 40% earnings growth compared with last year. Portfolio Recovery is set for similar growth. The share prices of both have soared off their early April lows.

Investors didn’t even show much concern when, in early September, the Consumer Financial Protection Bureau sued Encore, saying that it had broken the terms of a consent agreement struck in 2015. The agency had previously charged the company with “pressuring consumers with false statements and churning out lawsuits using robo-signed court documents,” as it said at the time. (In a statement, Encore said the CFPB’s recent suit was unnecessary because it had fixed the alleged problems “years ago.”)

In recent months, the only real bad news for debt buyers was that local courts across the country temporarily shut down. Debt collection lawsuits provide a key source of revenue for the companies, a way to extract payment from consumers, typically low-income, who don’t offer it up.

But now even that hiccup is over. After a bit of a lull in the spring, Encore and other debt buyers are back at it, filing suits by the thousands every week, according to ProPublica’s analysis of state court filings.

In August alone, Encore filed about 1,000 suits in Indiana and over 2,000 suits in the metro Atlanta area. Other debt buyers jumped back in as well. In Chicago, Portfolio Recovery filed over 3,000 suits in July, while LVNV, a major debt buyer privately owned by Sherman Financial Group, filed over 2,700 suits in Maryland in August. For all these companies, ProPublica found, the volume was well above the number they’d filed before the coronavirus arrived, in January or February of this year. No national numbers on suits exist.

In statements, the companies said they have been actively working with consumers during the COVID-19 pandemic and only sue as a last resort on a small portion of accounts.

Elizabeth A. Kersey, a spokesperson for Portfolio Recovery, said the company’s hardship program “allows for the suspension of collection efforts for ninety (90) days upon notification of a hardship event.” The company is currently not seeking new orders to seize debtors’ wages or bank account funds, she said.

Ryan Bell, an Encore executive, said, “We have consistently and proactively communicated to consumers the various relief options we’ve put in place in response to COVID-19, including temporarily stopping collections.” The company said it had stopped seeking orders to garnish bank accounts. It is, however, seizing wages.

Sherman Financial did not respond to requests for comment.

If Congress is unable to pass any further stimulus , unemployment is likely to remain high. In that scenario, debt buying companies and the banks that sell defaulted accounts to them expect more Americans to fall behind on their credit card bills over the coming months.

Even that scenario turns out to be rosy for the debt buyers. While good times can mean that Encore collects on more debt than it expected, bad times typically bring a glut of people suffering under loans they cannot repay. The result is that Encore can scoop up the raw materials for its profit machine — defaulted accounts — more cheaply. Or as Encore CEO Ashish Masih put it to Wall Street: The company is “particularly excited about the prospects for increased supply in the future.”

“The same giant debt buyers known for fighting consumer protection laws at every turn have been raking in cash during this pandemic,” Sen. Elizabeth Warren, D-Mass, told ProPublica. “They are now licking their chops in anticipation of profiting even more off families who have their hours further cut or can’t find a job, and can’t keep up with their bills or their mortgage. This is disgraceful and reinforces the need for Congress to protect consumers and small businesses from this predatory behavior.”

In recent years, Encore has bought around 2 million to 3 million U.S. accounts per year, according to public filings. Last year, on average, the company paid 8.6 cents on the dollar for each account. For a typical debt of $3,142, Encore paid $271.

To earn a profit on that investment, Encore and other debt buyers pursue debtors in near perpetuity. Encore is still collecting tens of millions of dollars each year from debts it bought in 2009 or earlier. The key to that persistence is the courts.

Since the early 2000s, debt buyers have flooded local courts nationwide with suits. The companies regularly account for more than a quarter of all debt collection cases in a given jurisdiction, according to ProPublica’s review of collection filings over several states.

That disproportionate presence has been particularly apparent in recent months, as the banks themselves have mostly opted to suspend filing new suits. In normal times, Capital One files far more lawsuits than other banks, in numbers similar to those filed by Encore and Portfolio Recovery. But since March, although Capital One continued to seize pay via garnishments secured before COVID-19 struck, it has largely stopped filing new suits.

ProPublica did find one exception among the major banks that commonly file a significant number of suits: Citigroup, which resumed filing suits at its normal levels in July. The bank, for instance, filed over 200 suits in Oklahoma in August, more than it had filed there in January and February combined.

In a statement, Citi spokesperson Jennifer Bombardier said the bank has a special assistance program for customers impacted by COVID-19 and that it is not seeking to garnish the bank accounts of customers it has sued. The bank also did not sell charged-off accounts to debt buyers “for up to 120 days” in the states “most impacted by COVID-19,” she said.

Encore sued Nicole Campbell of Brooklyn, New York, in July. Her first task was to figure out what to do. The suit was over $3,023.76 in debt she incurred years ago with CareCredit, a card offered by Synchrony Bank to people who need to cover medical costs, such as dentistry and eyecare. She knew she should answer the complaint by going to the courthouse, but she was wary of going there during the pandemic and wasn’t even sure whether it was open.

Even attorneys have difficulty finding their way. “Courts have been returning to full operation, but there’s so much confusion as to what’s happening,” said Susan Shin, legal director of the New Economy Project in New York City. “It’s hard to know what to advise people on what to do with their case.”

With help from an attorney with the New Economy Project, Campbell responded to the suit by mail. She’s not sure what to expect next but said she doesn’t have much time to worry about it. She cares for three boys, 5, 11 and 14, on her own and has to figure out how to get them to school on the city’s part-time schedule while helping them with online lessons when they’re home. She juggles this with her own job as a customer service rep: That also has a rotating, part-time schedule in order to minimize the number of people in the office.

“It’s crazy to me they’re filing all this during this time when there’s so much going on,” she said.

Such collection suits are most common among workers with income under $40,000 per year and particularly common in mostly Black neighborhoods. The suits routinely result in judgments, which in turn usually result in attempts at garnishment, according to a ProPublica analysis of Missouri court filings. Past studies have put the number of workers who have their wages garnished each year at around 4 million. In most states, plaintiffs can seize up to a quarter of a worker’s take-home pay or clean out their bank account.

In recent years, when state legislatures have moved to protect more funds from garnishment, Encore has been there to oppose the measures. In 2018, a Connecticut bill proposed to automatically protect up to $1,000 in a bank account. An Encore executive, Sonia Gibson, argued against it, writing in a letter, “Since the average amount we collect through bank garnishments is typically around $700, an automatic exemption of $1,000 would leave us unable to use bank garnishments.” The bill died.

Last year in California, Encore joined with other debt buyers to combat a similar bill that aimed to protect around $1,700.

“It was a really huge fight,” said Ted Mermin, head of the California Low-Income Consumer Coalition and a professor at the University of California, Berkeley, School of Law. “And you’ve got to think, ‘Why?’ Who on earth thinks it’s a good idea to take someone’s last dollar? The only people who would do this are debt collectors who have no ongoing relationship with someone.” The bill narrowly passed and became law.

In Washington state, lawmakers last year sought to protect more workers from wage garnishment. Under federal law, earnings above $217.50 in a week are eligible to be seized, a level that has remained the same since 2009 because it’s tied to the $7.25 federal minimum wage. The Washington bill, which ultimately passed, aimed to tie the exemption to the state’s much higher minimum wage, which this year is $13.50 an hour. In 2020, about $472.50 in weekly take-home pay would be protected. That was much too high for Encore. Gibson argued in a letter that people earning that much shouldn’t be “completely exempt from garnishment.”

As an alternative to automatic protections, Encore generally argues that consumers should have to file exemptions in court to demonstrate they really can’t afford to have their money taken. Consumer advocates say that such exemptions, which often exist in state laws, are rarely invoked by debtors because they either don’t know about them or don’t understand the process.

On paper, Randall Ward would seem to be well-insulated from garnishment. He lives in the small town of Marianna, Florida, and state law protects the wages of anyone deemed the “head of household,” which is defined as someone who earns more than half the household’s income and has dependents. Since Ward helps care for his 20-year-old son with Down syndrome and a granddaughter, his pay from his job as a manager at a Waffle House is eligible for protection.

But when Encore, after having won a judgment against Ward the previous year, sought to garnish his wages this past February, Ward didn’t understand that he qualified for the “head of household” exemption. So, starting in March, Encore began taking a quarter of Ward’s take-home pay. The size of the debt, a Citibank card that had ballooned to $5,220 with interest and court costs, meant that Ward, even with what he’s proud to call a “good job,” was in for many lean months.

The only way to make ends meet, he said, was to cancel health insurance for himself, his son and his wife, “because I could not pay the bills if I didn’t do it.”

Then the virus forced his restaurant to close for several weeks and his pay stopped altogether. The family was without income as he waited for his unemployment claim to go through. When, finally, he could go back to work, the garnishments returned. Encore has said in public statements that it looks to work with consumers, especially those who’ve been impacted by COVID-19. Ward said that was not his experience.

“They’re just ruthless about it,” he said. “I would hate to see that happen to anybody.”

Encore declined to comment on individual accounts.

Collection suits can have a lasting negative effect on consumers. A recent study by economists from Dartmouth’s Tuck School of Business and the University of California, San Diego, focused on debtors who, after being sued, agreed to pay in order to avoid garnishment. The settlements left consumers worse off: They were more likely to fall behind on other debts or end up in foreclosure or bankruptcy, the study found. The main reason was that paying up on one debt had drained those consumers’ cash buffer and that left them vulnerable to falling behind on others.

Even in good economic times, low-income consumers live on the edge, so the CARES Act aid was particularly helpful to them. According to a Federal Reserve survey, the temporary $600 boost to weekly unemployment insurance benefits actually resulted in higher pay for about 40% of those who received them. On top of that came the $1,200 stimulus checks ($2,400 for married couples) with an additional $500 for each child.

In July, the Fed found households with income under $40,000 a year had significantly more savings than normal: Whereas last year just 39% said they would have covered an unexpected $400 expense with cash, this summer, 48% said they would.

Debt collectors were a clear beneficiary of those extra funds. According to a survey by the Bureau of Labor Statistics, while most people used the stimulus payments to buy food and other essentials, about 25% used at least some of the money to pay down debts.

But Felipe Severino, a Tuck School of Business professor and one of the authors of the paper on debt collection settlements, said there may be negative long-term consequences for households who used the extra money to settle older debts. The companies say they do not charge interest on the old, charged-off debts they collect so the debts are not growing.

“I would argue it’s not a very good use of their money,” he said. With less of a safety net, those households are more likely to find themselves behind on their bills again.

Furthermore, he said, stimulative government aid like the CARES Act is meant to be “spent and magnify across the economy” in the near term by, for instance, leading to increased purchases at local businesses. That doesn’t happen when the money goes to debt collectors.

The flood of government aid, along with the sudden contraction in spending due to COVID-19, has led to an unpredictable economy, one where unemployment has shot up without the usual tide of delinquencies, bankruptcies and foreclosures. But now, banks are predicting that tide to finally arrive in the coming months.

In July, Capital One reported a loss for the quarter despite delinquencies actually going down. The reason was the bank set aside $2.9 billion as a provision for future credit losses, a kind of safety net for the future.

Encore did not appear to need such precautions. “Our liquidity puts us in a strong position to capture the substantial purchasing opportunity, which we believe is sure to follow,” Masih, the CEO, told analysts.


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