BOISE, Idaho (AP) — Douglas Ackley thought he was making good on his debts. Then he got sucked into what became a two-year battle in state and federal courts.
At 32, the Boise State University student and Boise VA Medical Center employee had gotten in over his head. He owed $12,000 on four credit cards. So he cut a deal with a Maryland debt-consolidation firm: The firm would settle with the credit-card companies, and he would make payments for three or four years, emerging debt-free.
"I found out after the fact that they hadn't settled with anybody," Ackley said. Instead, his debt had been sold off to a debt buyer.
So Ackley became one of the fraction of Idahoans who decide to fight lawsuits brought by debt buyers — lawsuits that are part of a "system for resolving consumer debt collection disputes (that) is broken," according to the Federal Trade Commission.
Debt buyers are companies that make their money from ancient bills. They pay pennies on the dollar for a chance to collect on debt that original creditors have given up on. Such debt gets sold in giant packages worth thousands to millions of dollars.
Court records, interviews and complaints to state regulators paint a picture of a thriving debt-buyer industry that files thousands of lawsuits each year and is rarely challenged by debtors.
Credit-card debt and the recession have fed the growth of Idaho's debt-purchasing business over the past decade. Five debt buyers were licensed to work in Idaho in 2008. By 2009, there were 44. Last week, there were 99.
They buy uncollected debts from retailers, utilities, telecom companies and credit-card companies that would rather settle for pocket change than nothing at all.
Nationwide, three of the largest buyers bought more than $77 billion of old, hard-to-collect accounts between 1996 and 2006, paying $1.8 billion, according to DBA International, the debt buyers' association.
Three major debt buyers that collect in Idaho — Midland Funding, a subsidiary of Encore Capital Group of California; Asset Acceptance Capital Corp. of Michigan; and Portfolio Recovery Associates of Virginia — filed hundreds of lawsuits in Ada County last year.
The companies routinely sue debtors for the balance due plus interest plus attorneys' fees.
Midland Funding got $1.52 million, Asset Acceptance got more than $300,000, and Portfolio got $1.14 million in legal judgments just in Ada County in the past year, according to a review of court records by the Idaho Statesman.
The vast majority of those lawsuits went unchallenged, giving the debt buyer a near-automatic victory in court and a shot at garnishing wages on judgments of about $600 to about $31,000.
Some debtors know they owe the money and don't want to fight it, or they put it behind them by paying at least some in a settlement.
Idahoans also rarely take debt collectors to court under the Fair Debt Collection Practices Act, the law all collectors must follow. It's not easy for debtors to win such challenges, says Robert Hobbs, a deputy director of the National Consumer Law Center.
"The claim that people win against debt buyers is where it's the wrong person, or they have filed a sworn statement in court that is clearly erroneous," Hobbs said.
In Ackley's case, the Maryland firm took Ackley's payments for a few years while his debt got re-packaged and sold off.
Ackley said he learned he'd been played when someone representing debt buyer Portfolio Recovery Associates showed up at his girlfriend's house. The company's lawyer "said if I didn't pay them $1,500 immediately, they would take me to court, and I would (also then) have to pay $150 to $200 an hour in legal fees," Ackley said.
For the next couple of days, Ackley stressed about what to do.
"I was really considering trying to come up with the money" to pay up front, he said.
Then he heard from Oscar Klaas, an attorney for Brady Law in Boise. Klaas had seen Ackley's name as a defendant while scouting for promising cases to represent. Klaas said he took a shine to consumer protection while studying law in Minnesota. When he can, he said, he reaches out to people like Ackley who are tangled up in debt-collection lawsuits.
Debt can be re-packaged and resold many times. By the time it reaches the last buyer, it might be so far from its source that important news has been lost: It was flagged as an identity-theft case, it was already paid off, or it was sold to two buyers at once.
Klaas said "there is a valid place" for debt buyers and collection agencies, and he doesn't advocate trying to outrun a legitimate debt or abusing consumer-protection laws to get out of paying them off. But owing money isn't grounds for being treated unfairly, he said.
Consumer lawyers like Klaas say sold-off debt packages come with basic details about the accounts, such as the debtor's name, the last four digits of an account number or Social Security number, and possible contact information.
DBA International, the trade association, says buyers obtain more information than that. "The due diligence ... is much greater than is portrayed in the media," said Barbara Sinsley, general counsel to the association.
But the lack of verification of debt appears to be growing. Consumers filed about 32,500 complaints with the Federal Trade Commission in 2010 saying they didn't get that verification as required by law, about 10,000 more complaints than the previous year.
Klaas says that, as in any industry, there are bad actors. For some companies, getting sued is a cost of doing business, he said. Most debt collectors and debt buyers surveyed by ACA International, another trade association that represents debt collectors, set aside less than 5 percent of its annual budget for incoming lawsuits.
"You have different levels of legitimacy" and aggressiveness, Klaas said. "The more delinquent the debt gets, the cheaper it is (and) the more nefarious the debt buyer can be."
The Statesman reviewed more than 100 complaints to the Idaho Department of Finance in the past five years. Many people were frustrated that a collector had the wrong person.
After receiving a complaint, the department contacts the company and investigates for violations of federal and state law. The agency "very seldom" gets the facts to prove a violation, said Jo Ann Lanham, consumer affairs officer. "I've had cases before where it's been a one-time violation, and the employee has been terminated," Lanham said.
Debt buyers typically close the complaining person's file and block it from being resold, she said.
"Unfortunately, if it changes hands, the debtor is contacted again and again and again," Lanham said.
Senior Judge Patricia Young, who handles Ada County collection cases, said her office processed 8,000 cases in 2011, and about 90 percent were debt collections.
"There's a lot of sadness in it," she said. "People say, 'I want to pay my debt, I just don't have a job right now.' "
Cases can be dismissed because the company and debtor reach an agreement to settle the debt, something Young said she encourages. Usually, though, the debtor never comes forward.
Most people can't, don't want to or don't know how to defend themselves in debt lawsuits.
The linchpin of Ackley's defense was to ask for proof that he was obligated to pay the company. He asked for names, dates, ownership proof and a list of who'd owned the debt or tried to collect it. Three months later, the company couldn't produce that evidence, so it dropped the lawsuit.
"I found it frustrating that they could get to that point," Ackley said.
Hobbs said companies that buy debt fresh from, say, a credit card company have a "fairly straightforward" claim but "often do not want to make public their purchase agreement with the credit card company . so they fold.'
Once debt is bundled and rebundled to many buyers, proving "a chain of title (to an individual account) is formidable," he said.
Young said it's rare that cases are dismissed for lack of paperwork, but she doesn't see many people asking for it.
"Some complaints give more information than others for the defendant, and if there's not enough information, it's certainly appropriate for the defendant to ask for more," Young said. That happens maybe twice a month, she said.
The debt collectors "always have the burden of persuasion, and my experience is (that) more times than not, they have it," Young said. "I have not sensed that attorneys are filing (cases) irresponsibly."
Sinsley, general counsel to the DBA International trade group, said most debt buyers are not litigation-happy.
"It doesn't really make business sense to sue if you can work it out," she said. "There's a big business risk that you never recover the court cost."
It's also "very rare" that a full court judgment is actually collected, she said.
Sinsley said mushrooming debt levels in the U.S. —not a more-litigious debt buyer industry — are to blame for the rise in lawsuits.
Klaas and Ackley took Portfolio Recovery Associates to federal court in 2010, saying it violated the Fair Debt Collection Practices and Idaho Consumer Protection acts.
Ackley's lawsuit pointed out that the company hadn't paid his legal fees as ordered by state court — an irony that isn't lost on Ackley and Klaas.
The law firm that represented Portfolio Recovery Associates, Doolittle Law, files many of the debt-buyer lawsuits in Ada County. Lawyer Michael Doolittle said he's not authorized by his clients to discuss the lawsuits or his own practice. Portfolio Recovery Associates also declined to comment.
The company and Ackley settled. The terms of the settlement are confidential. The case was officially closed Dec. 5.
Information from: Idaho Statesman, www.idahostatesman.com