San Antonio Express-News (Sunday)
LOADS OF DEBT
Lawsuits to collect from Texans, including Bexar residents, have soared
The massive pile of documents crammed into the back room of a nondescript courthouse in an industrial area off Loop 410 carries evidence of a tide of cases overwhelming the justice system in Texas.
Every morning, trucks drop off thousands of copies of credit card statements and contracts from all over the United States. Lawyers will use the records as evidence in debt collection lawsuits filed against people living in this local jurisdiction.
And every day, the pile gets bigger and bigger.
In this court and others in Bexar County, debt collection lawsuits more than doubled from 2012 to 2020.
“I’m trying to manage this behemoth, but there are some guidelines I have to follow as well,” said Roger “Rogelio” Lopez Jr., judge for Bexar County Precinct 4, who operates out of the Loop 410 courthouse.
Similar scenes are playing out from Houston to Dallas to Fort Worth as debt collectors sue a skyrocketing number of Texans over claims of unpaid credit cards, medical bills, student loans and other debts, a Hearst Newspapers examination has found.
Debt collection lawsuits filed statewide exploded by 73 percent from 2012 to 2021, according to a Hearst analysis of data from the Texas Office of Court Administration.
For the first time in history, the 374,000 debt lawsuits filed in the Lone Star State last year made up nearly half of all civil cases, which include traffic tickets, landlord evictions and small claims such as disputes between neighbors. The crush of debt cases raises concerns that overwhelmed Texas civil courts can’t adequately review each lawsuit and deliver justice while juggling higherpriority cases, consumer advocates say.
That means judges face pressure to move debt law
“People were out of work, unable to make ends meet.”
Sergio De Leon, a justice of the peace in Tarrant County
suits quickly to keep their dockets manageable. With only minutes to review cases, judges can miss important details. The rapid-fire justice puts a sharp focus on whether defendants can get a fair shake, said Mary Spector, a law professor at Southern Methodist University in Dallas.
“Any public perception that the courts are merely rubberstamping for the creditors is bad for the system,” said Spector, who directs a law clinic that works on behalf of consumers in debt litigation.
Texas adopted key provisions that have spurred debt collectors to crank out more cases in recent years.
From 2012 to 2020, state lawmakers passed legislation that gave debt collectors more flexibility to file cases in justice of the peace courts, where filing costs are lower and it takes less time to move cases on the docket. The changes, which included actions by the Texas Supreme Court to revamp the debt collection process in civil courts, ultimately made it cheaper and faster for debt collectors to win judgments, consumer advocates said.
As a result, debt collectors have concentrated their efforts in the justice of the peace courts, where debt suits statewide soared by almost 150 percent between 2015 and 2020.
The state Supreme Court, which is responsible for adopting processes and rules to ensure that state courts are efficient and fair, has been alarmed by the rise in caseloads, Chief Justice Nathan Hecht said.
“You need to worry about it,” Hecht said. “This is where the public meets the justice system.”
To address those concerns, the Legislature ordered the Supreme Court to publish new rules that will require debt collectors to provide additional notification to debtors of their rights, he said. The rules take effect today.
Big corporations have highpowered attorneys to manage their interests and lobby for reforms.
“But this is about the little guy,” Hecht said. “What the justice system has to do is to provide justice for the people who come to it. We want everybody walking away from the court saying, ‘Well, thank God for the court. I may have lost, you know, I wish that had not happened, but I got a fair shake.’ ”
A Hearst Newspapers review of dozens of court documents, observations of court proceedings and an examination of statewide data on court dispositions found that:
• Last year, 45 percent of lawsuits filed in civil courts were against Texans for debt, according to the Texas Office of Court Administration, the agency that collects the data and operates under the direction of the Supreme Court. In 2017, debt lawsuits represented 30 percent of all civil filings.
• Cases settled by default judgment have increased since 2012. That means more cases are decided with defendants not present to fight a claim, and the court cannot weigh both sides equally before making a judgment. The number of default judgments in large Texas counties totaled nearly 74,000 in 2021, an increase of 86 percent from 2012.
• No courts in the state have seen a more dramatic increase in debt suits than justice of the peace courts. JPs, as they are known, preside over weddings, misdemeanors and truancies. Many JPs are not lawyers. Of the hundreds of thousands of debt collection lawsuits filed in 2021, 80 percent were in JP courts.
Many justices of the peace from some of the state’s largest counties lamented that their courtrooms have been turned into debtors’ courts and undermined public confidence in the justice system.
“It just sickens me,” Lopez said.
They acknowledged that many defendants appear before them who are delinquent on bills and that debt collectors have the right to sue for money owed.
Still, judges worry that an increasing number of defendants do not know their rights. Most don’t have attorneys who can represent them. When facing opponents who have attorneys, defendants can face devastating consequences.
“I make sure these (debt collection) attorneys are very reasonable and not asking for this person’s first-born child,” said Jo Ann Delgado, a justice of the peace in Harris County.
Meanwhile, judges are supposed to be impartial. As judicial officers who serve as referees in debt disputes, they can’t provide legal advice to either party.
“For us, it’s about following our judicial role,’’ said Ralph Swearingin Jr., a justice of the peace in Tarrant County.
The primary goal of debt collection attorneys is to serve banks and creditors trying to recoup loans and limit losses. But current and former attorneys interviewed for this story acknowledged that courts could make the process more accessible to defendants, most of whom want to settle their debts.
“The reason debtors are where they are is that some of them just had terrible things happen to them,” said Riecke Baumann, a Houston creditor’s attorney.
In 30 years of representing clients, including big creditors and local businesses, “I can count 35 or 40 who I thought were crooks — that’s minuscule,” Baumann said.
A variety of factors explains the amassing of debt.
The pandemic created significant hardships for households, particularly working-class families and people of moderate incomes, who studies show are more often contacted by debt collectors than those with higher incomes. Those already in debt sank further into the hole.
“People were out of work, unable to make ends meet,” said Sergio De Leon, a justice of the peace in Tarrant County. “They can’t pay off their credit card, and they can’t pay their rent.”
Texas is second in the nation behind Louisiana for the highest percentage of its population with delinquent credit, making residents here more vulnerable to debt collections. In December 2020, 41 percent had defaulted on accounts that were sent to collections, according to the Urban Institute’s Debt in America report, which is based on millions of consumer records from credit bureaus.
The state’s median amount of debt in collections was roughly $2,100, representing past due loans, unpaid medical bills and credit cards.
Lopez, the judge in Bexar County, said he has had many defendants acknowledge they owed the money. Yet they said they could not afford to pay back the charges on their credit card because they are retired or on a fixed income. Many suffered during the pandemic with illnesses and job losses.
“Really, we try to give people as much notice as possible,” Lopez said. “Sometimes, we give notices beyond what is required so that they can come in and try and work something out. But some people just don’t. The reality — you know how the saying goes — you can’t squeeze blood from a turnip.”
Various economic indicators show a difficult situation is likely to get more desperate.
This spring, the U.S. Consumer Financial Protection Bureau reported that credit card companies were expected to hike late fees and penalties because of inflation and other factors. In 2020, fees topped $12 billion.
PRA Group, one of the nation’s largest debt buyers, informed investors during a conference call this year that the company was expecting a rush of debt collection activity.
PRA Group executives pointed to the latest Quarterly Report on Household Debt and Credit, in which the New York Federal Reserve Bank reported an increase of $52 billion in credit card balances in the fourth quarter of 2021 — the largest quarterly increase in 22 years. Overall, total U.S. household debt increased by $333 billion during the fourth quarter to $15.58 trillion, according to the New York Fed.
Not ‘what justice looks like’
In the JP courts, judges are struggling to handle time-sensitive evictions that surged during the pandemic, as well as more routine cases, such as traffic violations.
At the same time, tens of thousands of active debt lawsuits jam their dockets, waiting for a disposition. In 2021, debt suits in JP courts statewide exceeded 278,000, a 95 percent jump since 2012.
While the pandemic contributed to the backlog, the number of active cases was already increasing a year before the public health emergency, data shows.
The challenge: ensuring a fair process for both sides. On one side are seasoned attorneys who handle hundreds of similar cases each day. On the other side are
defendants without attorneys, who don’t know their rights and are apt to make legal blunders.
Sharolyn Wood, a former district judge, faced a full docket in January as she filled in for a Harris County JP who was away on business. Wood whipped through the early batch of cases in under two minutes.
One defendant provided a general denial that she owes the debt but no evidence supporting it. In under 30 seconds, the creditor won the judgment.
That same month, a judgment for $3,904 was declared against Edgar Ramirez, a Houston widower in his 60s who stopped working months prior to the pandemic to care for his wife, who died from pulmonary fibrosis, a form of lung disease. Her medical care had been expensive. After her medical coverage ran out, Ramirez did not have a job that could absorb some of the medical costs.
“I got into financial problems,” he said. “But I have been trying to get my life back in order and making arrangements to pay off the money I owe.”
In September, he showed up to a livestream to battle the debt claim, but the attorney for the credit card company that sued him didn’t show. The judge rescheduled the matter for November. The creditor’s attorney had asked for a continuance.
When that day came, Ramirez called the court when he couldn’t get on the livestream, but he was told his case had been pushed back to January. The creditor’s attorney had asked for another continuance.
Ramirez didn’t show up to the January livestream because of a work conflict.
“I need both parties present,” Wanda Adams, the justice of the peace, told the creditor’s attorney. “I’m sure you understand that we have to hear evidence on both sides.”
But it took only a few minutes for the attorney to persuade Adams to grant a default judgment.
“Judge?” he said. “It is within your discretion to issue a default.”
After a brief chat on some housekeeping, she made up her mind.
“I’m doing this as a favor for you today,” she said.
A reporter reached Ramirez after the hearing at a Houston body shop where he was working. He said he was confounded that no consideration had been given for his good faith effort to make his scheduled court dates. When he called the clerk in November, it was not explained to him that the creditor’s attorney had sought back-to-back continuances.
Ramirez could have appealed his case to county court, but the 21-day deadline had passed. He didn’t have an attorney to lean on to inform him of that right.
“I don’t think this is what justice looks like,” he said. “Why do I have to be the loser when I was there ready to be present?”
Adams did not respond to requests for comment.
How process evolved
Years ago, the debt collection process was more personal.
Sometimes, debtors could negotiate arrangements with their immediate creditors — the grocer, the doctor, the banker. They could make a phone call or two, then stop by to deliver the money in person. If a debt couldn’t be paid on time, the debtor could try to work something out.
That process was particularly encouraged in Texas, which has stringent debtor protections. The Texas Constitution prohibits debt collectors from seizing a long list of personal items, including family homes, cars, livestock and farming equipment that were necessary to make a living. Texas is also among only a handful of states that prohibits wage garnishment, except for paying child support.
So for years, debt collectors were reluctant to tap the courts to collect on money owed, consumer advocates said.
Defendants often prevailed in court in a battle against a debt collector, and a significant number of cases were decided on a technical violation or a mistake by a creditor who sued the wrong person for debts exceeding the statute of limitations, which is capped at four years in Texas.
Creditors also were deterred from filing more lawsuits because of a risk that one of their missteps could trigger a violation of federal law, said Brent Devere, a consumer and commercial law attorney in Austin. The U.S. Fair Debt Collection Practices Act prohibits debt collectors from abusive practices, such as threatening a lawsuit or harassing phone calls.
Debt collection companies became more successful when they developed computerized systems that enabled them to churn out lawsuits in vast quantities. The sophisticated systems were aimed at securing as many favorable judgments as possible, without having to waste much time filing motions and making appearances in court, said Mark Gibson, a justice of the peace in Fort Bend County.
“They want to be able to crank out thousands of cases per day because the only way they see the revenue is by the volume,” Gibson said.
A decade ago, Houston creditor attorney Benjamin Sanchez was handling 25,000 active cases for a debt collection firm based in Seattle. Attorneys and staff for the collection firm completed the initial research on the credit card records for defendants, but those lawyers weren’t the ones who actually represented their creditor clients in front of judges. They were Texas attorneys who had barely reviewed the case, Sanchez said.
Some of his clients were debt buyers who purchase debt at a substantial discount. Debt buyers are able to purchase at much lower rates because they buy older debts that could not be recovered by original creditors and other debt collectors.
Debt buyers acquire hundreds of debt portfolios valued at tens of billions of dollars for much less. For example, from 1996 to 2006, PRA Group acquired 803 debt portfolios with a face value of $24 billion — yet it paid just $528 million, annual reports show.
Debt collection firms don’t expect to collect on all the debts, Sanchez said. But if they received judgments on just a small number, profits could soar. Relying on economics of scale to minimize their costs of trying to collect, they pounded the court with thousands of lawsuits, he said.
The firms quickly got better at tracking documents and packaging defaulted debts, Sanchez said. The companies would bundle those judgments into packages and sell them. Sometimes there could be 1,000 debt judgments or more in a package.
By 2012, Sanchez had grown weary of the creditor’s side of the business.
“Eventually it got to the point where it was all rote,” he said. “It was no longer really practicing law. It was a machine of pushing out paper, putting out numbers.”
Sanchez became so disillusioned he began serving consumers in 2013.
Speaking ‘legalese’
That’s also around the time when changes in state law began setting the stage for the explosion of debt suits.
For years, parties could not argue disputes for more than $5,000 in justice of the peace courts. In 2007, the cap was raised to $10,000. Then it war raised again in 2020, to $20,000.
The cap raising was a way to keep the courts “relevant” for Texans, said Rick Hill, past president of the Justice of the Peace and Constables Association of Texas.
“Ten thousand dollars isn’t much in today’s world,” Hill said. “So, it was like, ‘Hey, if you want to keep Texans able to go to small claims court, if we raise the jurisdictional limit, it would allow them more access to justice.’ ”
In 2013, the Legislature passed a court overhaul bill that ordered the Texas Supreme Court to adopt a process that would make debt collection disputes more accessible to the public.
Hecht, the court’s chief justice, said he and his peers saw a need to create a less intimidating atmosphere for defendants.
So the court cut out certain formalities, such as a requirement to launch into the legal discovery process, which requires extra time to permit each side to share with the other what evidence may be used against them.
“We were trying to make the process simpler, easy to understand and fair to both sides,” Hecht said. “The justice system doesn’t speak English. It speaks legalese. It has procedures and formalities that ordinary people don’t appreciate and don’t understand.”
Another reason the court supported the change was because debt cases are usually “routine, plain-vanilla,” he said. If a creditor has certain paperwork, such as the original document that shows the defendant signed the credit card agreement, “there’s no point in arguing about it,” he said. It also should be as equally clear when the defendant didn’t open the credit card account, he said.
Early on, the changes improved the quality of paperwork filed by creditors to prove a debt is owed, said Lopez, the San Antonio justice of the peace.
Over time, consumer attorneys felt the changes chipped away at their ability to argue on behalf of defendants. For example, justice of the peace courts were not required to force creditors to submit proper documents, said Jerry Jarzombek, a consumer law attorney in Fort Worth.
“So, some courts require proof and some don’t,” Jarzombek said. “It’s like the Wild, Wild West.”
As a result, decisions can be made solely on the basis of what the creditor says happened, said David Fernandez, a consumer attorney in Houston. That creates the possibility of creditors abusing the system because there’s no checks and balances to stop them.
“Ultimately, the effort for a fair result is often futile,” Fernandez said.
Before 2013, when she could press for a review of evidence under the legal discovery process, Caitlyn Wells, a Dallas consumer attorney, felt confident she could argue a settlement amount for her client that was sometimes as low as 10 percent to 20 percent of the claim. Debt collectors would agree to the lesser amounts because they didn’t have evidence to support their debt claims and wanted to avoid a trial, she said.
But discounts are now rare. Her best option often is to try to negotiate a settlement that could take the consumer many months to pay off.
“It’s just unfortunate because there’s not a lot I can do anymore,” Wells said.