Debt collection tips from WSJ

WSJ.com - Once-Ignored Consumer Debts Are Focus of Booming Industry:

In 1996, when Heather Scott's marriage split up, she defaulted on $3,000 she owed on her Discover credit card. "It was either that or feed my kids," the Phoenix woman says. Until recently, she probably could have walked away from her credit-card debt with little more than a damaged credit report. But an increasingly aggressive debt-collection industry is going after people, like Ms. Scott, who used to fly below the radar.For six years, she heard nothing about her Discover debt. Then, in 2002, she was sued in small-claims court in Phoenix. A company called Asset Acceptance Capital Corp. had bought her Discover debt and wanted to collect. The 35-year-old single mother of two, who says she couldn't afford a lawyer, didn't show up in court. Asset won a default judgment of about $9,500, including more than $2,000 for the company's legal fees. For the past year, the company has been taking about $100 out of the $625 paycheck she receives every two weeks as an administrative worker for the state of Arizona.

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Six years after her divorce and default on her credit-card debt, Ms. Scott of Phoenix heard from an Asset lawyer that she was about to be sued. Unable to pay for her own lawyer, she says she went to a free legal-services agency where a lawyer told her there was no point in showing up in small-claims court. That was bad advice, which Ms. Scott says she followed.


Asset won a default judgment of $7,731 in February 2002, a sum that included interest costs and $2,035 for Asset's legal expenses and court fees. Two months later, Asset offered to settle for $3,290. Ms. Scott says she didn't have it. By August, Asset had withdrawn the offer, and the total bill had risen to $9,537. Then, last month, Ms. Scott offered to pay the company another $3,000 that a relative agreed to lend her. Asset accepted the settlement. "I had to get it behind me," Ms. Scott says.


Some former debtors and lawyers who have skirmished with Asset say Ms. Scott may not have had to pay the company anything if she had gone to court and contested its claims.


Asset acknowledges that, when buying a pool of debt, it typically gets a bare-bones list of debtors' names, their social security numbers, the amounts creditors were owed and the date of last activity. To acquire more information would require creditors to dig deep into their files, which would cost Asset dearly. In many instances, where debts have already changed hands, industry executives say it is very difficult to obtain definitive documentation.


As a result, if a debtor can plausibly argue in court that the amount Asset is seeking may be incorrect, a judge may dismiss the case for lack of evidence, some consumer attorneys say. "They usually don't have the documentation," says Glen Chulsky, an attorney in Dover, N.J., who now represents individuals but previously did work for debt-collection firms.


Jason David Fregeau, a lawyer in Longmeadow, Mass., says he has faced off against Asset seven times in recent years, and each time the company has settled because it lacked documentation. "I have yet to see them prove their case," he says.


Asked about these assertions, the company says it has acted appropriately. Asset confirms that it is often hard to prove old debts and that consumers are challenging its documentation more often.


Asset executives say the vast majority of debtors know they owe money, and those complaining about court proceedings are merely trying to escape from paying. "If a person has a plausible or legitimate reason why they cannot pay, or if the debt is fraudulent, then we will work with them to resolve the issue," the company said in its written statement. "However, from our experience, we find that most people accept their responsibility and pay their past obligations."


Paul Zecchino says Asset appeared out of the blue, suing him three years ago in connection with an old Citibank credit-card debt for $6,000. Astonished by the amount Asset was demanding, Mr. Zecchino, a freelance writer in Englewood, Fla., consulted with lawyers and responded to the court that he lacked knowledge of Asset's claims. He asked that the company provide evidence. Asset never responded, Mr. Zecchino says, even when he offered to settle the case for a smaller amount. The suit was eventually dismissed.


Idalberto de la Torre appeared in a Miami small-claims court in November 2003 to contest Asset's suit against him. The company demanded $1,800 in old Providian Financial Corp. credit-card debt, plus another $900 in legal fees. Mr. de la Torre, an administrator for Delmonte Fresh Produce Inc., hired an attorney and was able to produce copies of credit reports that he says showed that Asset's records were wrong. Asset agreed to drop its suit.


Asset farms out legal cases to an army of lawyers who earn a percentage of everything they collect. The company is one of the few debt buyers to maintain a big in-house legal staff, as well.


At its headquarters, one group of workers does nothing but manage lawsuits. "We're making sure the attorneys are getting things done," says President Brad Bradley, gesturing to workers typing busily in their cubicles. The company won't say how many suits it files, but industry veterans estimate that the figure reaches into the tens of thousands a year. Asset says the suits it files are only a fraction of the 16 million accounts it is currently processing. The company added in a written statement that it believes itself to be "at the low end of the industry when it comes to legal collections."


The debt-buying industry suffered a big setback in the late 1990s, when the then-biggest player Commercial Financial Services Inc., collapsed in an accounting scandal. But the industry bounced back as consumer debt continued to increase.


A doctor's son from Mount Clements, Mich., Asset's Mr. Reitzel, 70, started a finance company in 1962 that loaned people money to buy carpets and vacuum cleaners. He visited borrowers' homes every Friday for payments. In the 1970s, he began buying bad debts from other companies but struggled to find sellers. "We'd go around to karate schools, I'm not kidding you," says the businessman. The savings-and-loan debacle of the late 1980s gave him his first big break. With his wife helping out in the office, Mr. Reitzel and Mr. Bradley, his son-in-law, drove around the country, buying up S&L loan portfolios and loading boxes of documents into a U-Haul truck.


While today the company says it sues only recalcitrant debtors, Asset has internal quotas to encourage employees to refer cases to the lawyers. Newer collectors are expected to refer two or three debtors a month, while the quota for those with more than a year's experience is 12, a former employee says. Asset said in a written statement that collectors are asked to turn over accounts because otherwise they would tend to continue working on them, decreasing the overall efficiency of Asset's collections efforts.