A Losing Equation

By Angela Martin of Portland, Oregon. Angela is the Executive Director of Economic Fairness Oregon, a non-profit organization that works for economic fairness.

In these uncertain economic times, we’re all looking for ways to make sure our financial futures are secure. And some of the morally bankrupt among us don’t care how we do it. Curbing the abuses of the get-rich-quick-off-the-most-vulnerable-among-us set is why consumer advocates support SB 516, legislation to cap the interest charged on old debts taken to court. Just why is this bill so important?

Let me introduce you to the business model used by Portfolio Recovery Associates, a publicly traded debt buyer. They’re our nominee for SNL’s next “really!?!” segment: purchasing old debt for four cents on the dollar, then using the public court system to sue for the full amount plus double digit interest. PRA is just one of several debt buyers that’s filed thousands of lawsuits in Oregon courts looking to get judgments on debt they purchased from credit card companies and other businesses.

In reviewing hundreds of these cases in Multnomah County District Court, we came across Barry. (We won't use Barry's last name, to protect his privacy). Portfolio Recovery sued Barry in 2008 for credit card debt that he allegedly stopped paying on in 2003. According to the court records, the amount owed was $2,600. According to SEC filings, Portfolio Recovery paid an average of four cents for junk debt accounts that year, meaning they paid about $100 for Barry’s account.

Portfolio Recovery filed a debt collection lawsuit and received a default judgment, meaning Barry never showed up to court. Now Barry isn’t the only alleged debtor who didn’t show up – the vast majority of debt collection lawsuits are filed and resolved without the consumer’s participation, resulting in an automatic win for the creditor. Easily earning an $8,200 judgment in court, Portfolio Recovery now has the right to garnish Barry’s wages, extract money from his bank account or even seize his property. Their right to collect can live on for the next 20 years. Ouch.

Look, we understand how businesses work. Creditors do have the right to go to court to collect on unpaid debt, and we agree that a fair debt collection system is necessary to keep credit affordable for everyone. The problem is that some debt collectors are setting all of us up to fail.

Barry, like thousands of other Oregonians who have fallen behind on their bills and now have garnishments, is being charged 26% interest on the judgment. The accumulated interest means that a year after suing, Barry’s original $2,600 bill is now a whopping $8,200. So let’s review: Portfolio Recovery buys the old debt for $100 and files a lawsuit to collect the full unpaid amount, plus accumulated interest, plus attorney fees and court costs, plus 26% annual interest until the bill is paid in full.

We aren’t asking anyone to make an excuse for folks who can’t pay their debts. There are plenty of good and not so good reasons someone like Barry stopped paying. What we’re asking you to look at is the opportunity we have to minimize a bad situation by setting a reasonable limit on the interest companies like Portfolio Recovery are allowed to charge someone who is already so far behind they can’t make good on their debts.

SB 516 would limit the interest companies such as Portfolio Recovery could recoup in a debt collection lawsuit to 9% - Oregon’s current rate on non-consumer contract judgments. The changes set forth in SB 516 would go a long way in helping Oregonians get back on their feet. The huge penalties debt buyers are currently collecting only serve to keep Oregonians looking to rebuild their financial stability in debt for longer.

You can learn more about the toll the debt-buying industry is taking on Oregon’s court system and economy. You can also quickly and easily e-mail your legislators to urge them to support SB 516 by using this simple online form.

April 11, 2011 Posted in guest column.