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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