"The 'people's court' has become the collector's court," The
Boston Globe concluded in its 2006 award-winning series
entitled "Debtors' Hell."1 The series uncovered the
surprising - if not shocking - practices of some debt collectors in
Massachusetts, as well as the vulnerability of the hundred thousand
overwhelmed, unrepresented consumers sued each year in unfriendly
small claims and district courts.2
The Globe found that there was virtually no
representation of consumer defendants in the commonwealth's small
claims courts. With small amounts of debt being litigated, it made
no economic sense for consumer defendants to hire private attorneys
to represent them in court. Most legal aid organizations could not
afford to give priority to small claims cases when they could
barely provide urgent representation in evictions, domestic abuse
cases and other emergencies.
Lack of representation allowed debt collector lawyers to obtain
quick default or agreed judgments and payment orders, often without
any evidence of the original debt or of a valid assignment. Default
judgments were sometimes entered against defendants who were not
properly served notice of the underlying suits. Rather, the court
often assumed that defendants were notified unless notices were
returned undelivered to the court by the U.S. Postal Service.3
Nevertheless, most defendants were convinced to settle debts that
collectors could not legally prove were owed or could not even
identity by account number.
Nearly four years after the Globe's report, many of
these problems persist and are exacerbated by an economic recession
that has forced thousands of Massachusetts families to fall behind
on payments and leaving them unable to catch up because of
exorbitant interest rates and late fees. Debt collection suits
continue to swamp civil court dockets, and debt buying - the
process in which companies purchase uncollected debt portfolios
from creditors for a small fraction of their face value - has
become a busy, lucrative industry.4 Though the
commonwealth's courts and legal service organizations are working
to create a fairer playing field for debtors and collectors, it
will be the efforts of pro bono lawyers that are likely to make the
difference.
Courts work to create a level playing field
In response to the explosive growth of debt collection suits in
the commonwealth's small claims courts, the Supreme Judicial Court
amended the Uniform Small Claims Rules, based on recommendations
from the District Court's Small Claims Working Group.
The amended rules, which went into effect on Oct. 1, 2009,
include the addition of mandatory address verification
requirements, under which a plaintiff must certify that he or she
has verified the defendant's mailing address.5 If
followed, this rule increases the likelihood that debtors will
receive notice of any claim against them. Debt collectors not
complying with this rule will have their cases dismissed without
prejudice. The amended rules also expressly allow debtors to move
the court to vacate a judgment if they did not receive actual
service, reflecting the due process requirements in Mass. R. Civ.
P. 60(b)(4).6
The amendments include two other significant changes. First, the
amended rules now require substitute or "covering" attorneys to
file an appearance for each case they answer.7 These
attorneys, whose law firms had informal agreements authorizing them
to answer cases on behalf of collection attorneys from other
offices, historically did not file formal notices of appearances
with the small claims courts. This amendment allows substitute
counsel to file a time-limited appearance, enabling the court to
maintain accurate records for all attorneys appearing before
it.8 Second, the amended rules make it inappropriate for
the court to endorse any voluntary payment agreement relying on
exempt sources of income.9 While certain property is
already exempted from execution on judgment, this amended rule
reaffirms that standard and informs legally unsophisticated parties
that protections are available to them under state law.
Additionally, several organizations have collaborated to curb
debt collector abuses. In 2007, the National Consumer Law Center
and WilmerHale Legal Services Center of Harvard Law School
developed the Debt Collection Justice Project to expand access to
representation for low-income debtors. The project allowed law
students certified under Rule 3:03 to represent debtors in small
claims disputes at the Dorchester District Court. The students'
involvement led to surprising results. Of the cases chosen for
representation, every one was dismissed with prejudice prior to
trial due to the debt collector's lack of evidence.
With this success, the Debt Collection Justice Project recently
expanded its efforts to other courts. This year, in collaboration
with the Volunteer Lawyers Project, Senior Partners for Justice and
the Boston Bar Association, the Debt Collection Justice Project has
worked to establish a Lawyer for the Day program as well as limited
assistance representation programs for debtors at the Central
Division of the Boston Municipal Court.
Attorneys interested in participating in these programs can
contact Emily Jarrell of the Volunteer Lawyers Project at (617)
423-0648.
Modernizing the commonwealth's property
exemptions
In addition to recommending changes in the Uniform Small Claims
Rules, the District Court's Small Claims Working Group emphasized
the commonwealth's need to review its list of property exempted
from seizure by creditors. These state law exemptions, which were
last revised in 1975, are woefully antiquated and have not
accounted for inflation or changes in technology. Moreover, they
depart dramatically from federal law exemptions, which are
available to Massachusetts consumers only if the can afford to file
for bankruptcy.
Originally enacted in 1698, the exemptions permitted under state
law provide varying levels of protections for personal property.
Government aid and retirement plans are protected
entirely.10 On the other hand, certain personal property
is protected up to specified, often inadequate values.11
Most notably, state law allows consumers to protect up to $700 for
an "automobile necessary for personal transportation or to secure
or maintain employment."12 While $700 may have
represented a reasonable price for a used car in 1975, roadworthy
used cars in 2010 cost considerably more. Other outdated state
exemptions include protections for rent (up to $200 per month), for
weekly wages (up to $125), and for two cows, 12 sheep, two swine
and four tons of hay.13 The state exemptions currently
provide no protections for household computers so critical to job
searchers.
In contrast, federal bankruptcy law affords stronger
protections, and the exemptions are readjusted every three years to
account for inflation.14 Under federal law, debtors are
allowed to protect up to $3,450 of the equity in a car,
not of its total value.15 Hence, if the debtor has a car
worth $8,000 with a $5,000 car loan balance, the debtor has $3,000
in equity and can fully protect the car through the exemption. In
addition, the federal exemptions also allow for exemptions of
certain property not exempted under state law, such as jewelry.
In the debt collection context, the purpose underlying the
federal and state law exemptions is to protect debtors' property to
the extent that continued possession of the property would allow
them to regain financial stability. The exemptions are not designed
to shield debtors from paying their obligations. For debtors who
must drive to work because public transportation is not available,
the low value for the automobile exemption is not effective if it
means the debtor must surrender the automobile and thus be unable
to earn a living. As uncollected judgments against debtors
skyrocket, the need to bring state exemption limits in line with
current property values becomes more apparent. Therefore, the
Legislature should act swiftly to make these common sense revisions
to the values of property exemptions, thereby assisting families to
rebound from overwhelming debts during a period of widespread
unemployment.
Conclusion
Rebalancing the rights of debtors and creditors is critically
needed to assure that more Massachusetts families are able to
participate in and strengthen the economic growth that has been so
elusive for the last two years.
Notes
1. The four-part Debtors' Hell series
is available online. See Special Reports, Debtor's
Hell, The Boston
Globe, www.boston.com/news/specials/debt/.
2. The Boston Globe estimated that
575,000 suits were filed from 2000 to 2005 by professional
collectors in Massachusetts district courts. Michael Resendez &
Francie Latour, No Mercy for Consumers, The Boston Globe,
available at
www.boston.com/news/special/spotlight_debt/part1/page2.html.
3. To emphasize this flawed system, The
Boston Globe conducted a simple experiment, in which it sent
100 letters to the same person at incorrect addresses across the
state. Of letters sent, only 52 were returned. Beth Healey,
Debtors' Hell Part 2: A Court System Compromised, The Boston Globe,
available at
www.boston.com/news/special/spotlight_debt/part2/page4.html.
4. In 2005 alone, debt buyers purchased over
$66 billion in delinquent credit card accounts, paying pennies on
the dollar for the right to collect from consumers and creating
high profit margins.
5. Massachusetts Uniform Small Claims Rule
2(b) available at
www.lawlib.state.ma.us/source/mass/rules/tc/small2.html.
6. Massachusetts Uniform Small Claims Rule 8
available at
www.lawlib.state.ma.us/source/mass/rules/tc/small8.html.
7. Massachusetts Uniform Small Claims Rule
7(e) available at
www.lawlib.state.ma.us/source/mass/rules/tc/small7.html.
8. Commentary to 2009 Amendments,
Massachusetts Uniform Small Claims Rule 7(e) available at
www.lawlib.state.ma.us/source/mass/rules/tc/small7.html.
9. Massachusetts Uniform Small Claims Rule
7(a) available at
www.lawlib.state.ma.us.
source/mass/rules/tc/small7.html.
10. The following is a listing of statutes
providing protected government benefits and retirement plans: Mass. Gen. Laws c.152, §
47 (2006) (Worker's Compensation); Mass. Gen. Laws c. 115,
§ 5 (2006) (Veteran's Benefits); Mass. Gen. Laws c. 118,
§ 10 (2006) (Aid to Families with Dependent Children); Mass. Gen. Laws c. 151A,
§ 36 (2006) (Unemployment Insurance); Mass. Gen. Laws c. 235,
§ 34 (15) (2006) (General Public Assistance); Mass. Gen. Laws c. 246,
§ 28 (2006) (Pension or Retirement Plans); Mass. Gen. Laws c. 235,
§ 34A (2006) (IRA Plans).
11. Common items protected under Mass. Gen. Laws c. 235,
§ 34 include: monthly amount needed for fuel, heat, water, hot
water and light, not to exceed $75; provisions and money necessary
for use by the family, not to exceed $300; homes or amount of money
each rental period necessary to pay the rent for the dwelling unit,
not to exceed $200 per month; cash, savings or other deposits in a
banking institution or money owed to the debtor each pay period as
wages, not to exceed $125; car necessary for personal
transportation or to secure and maintain employment, not to exceed
$700; necessary household furniture, not to exceed $3,000; tools,
implements and fixtures necessary for carrying on his trade or
business, not to exceed $500; and materials and stock designed and
procured necessary for carrying on trade or business, not to exceed
$500.
12. Mass. Gen. Laws c. 235,
§ 34 (16) (2006).
13. Mass. Gen. Laws c. 235,
§ 34.
14. 11 U.S.C. § 104(b) (2006).
15. For a list of federal exemptions, see 11
U.S.C. § 522(d) (2006).
The Authors
Robert J. Hobbs is the deputy
director of the National Consumer Law Center, where he has authored
numerous NCLC publications, including Fair Debt Collection
(6th ed. 2008), The Practice of Consumer Law
(2nd ed. 2006) and the NCLC Reports. He is also a
founder of the National Association of Consumer Advocates.
José I. Vazquez is a consumer fellow at the
National Consumer Law Center. He graduated from Suffolk University
Law School and Tufts University. He is a member of the National
Association of Consumer Advocates.