The Debt Mills: How state courts grind through consumer debt cases
Cohlette Carlino walked into small claims court in Lynn recently to discuss a $1,063 debt a California-based company said she owed on an old credit card.
In the courtroom, an attorney who represented the debt collector, Midland Credit Management Inc., invited Carlino to join him at a table in front of an assistant clerk magistrate.
The single mother of three sobbed as she discussed her difficulties paying her monthly bills, depending on a food pantry to help feed her children. She didn’t know how exactly how the debt originated, saying it was money her ex-husband had spent. The attorney told her he could reduce the debt owed to $750, and accept payments in monthly installments.
Carlino was then directed to speak with the clerk, who told her she didn’t have to make the payments. Instead, Carlino agreed to a judgment that confirmed her debt that remains on the books for two decades. At any time, another collector could reach out to seek payment.
What Carlino told GBH News later is that she didn’t understand she had the right to contest the debt altogether.
“I didn’t know that I didn’t have to settle and agree to this,” Carlino said. “I’m living check to check and struggling.”
Carlino’s story is becoming increasingly commonplace in the 70 district and Boston municipal courts across Massachusetts. Debt buyers and other companies filed more than 92,000 cases in these courts last year to collect debts from consumers, according to a new report released by the Massachusetts Trial Court.
The vast majority of those cases go to the state’s small claims courts, which limit claims to $7,000 or less. About 85% of all cases filed in small claims courts last year were to collect consumer debt, according to the state data collected in response to a request by the GBH News Center for Investigative Reporting.
That’s a marked jump from the 70% of small claims cases filed in 2016 to collect consumer debt, as reported by the National Consumer Law Center.
In the state’s civil courts, where claims can rise to as much as $50,000, consumer debt lawsuits were nearly 66% of the more than 33,000 cases filed last year, the court said.
Trial court officials declined an interview request. But consumer rights advocates say the new data represents an eye-opening look into a long-standing problem: State courts have become an unofficial arm of debt collectors and credit card companies pursuing low-income people already struggling to meet their monthly bills.
They say too often low-income people like Carlino are unaware of legal defenses that could help them win their case. And the vast majority of defendants, more than 97% last year, were not represented by an attorney, the court’s report found.
Losing a case can be costly. Judgments to pay remain on the books for 20 years and generally accrue an annual interest of 12%. Debt collectors can seek to garnish a person’s wages or seize their property to clear the books.
Matthew Brooks, managing attorney for the Consumer Rights Unit of the nonprofit Greater Boston Legal Services, said he was stunned by the new data.
“I feel a pit in my stomach when I look at this,’’ said Brooks, who pairs volunteer lawyers with consumers in four Boston-area courts. “It’s way worse than I thought. And it was already really bad.”
Alexa Rosenbloom, an attorney with the Legal Services Center of Harvard Law School, says she was particularly struck by the high number of consumer debt cases in small claims courts. The courts are “known popularly as the people’s court,’’ court officials say, because of informal procedures meant to reduce barriers to filing and defending claims.
”The fact that these courts were created to allow individuals to have their day in court without process, and then these sophisticated companies are using it to steamroll people, I just find appalling and deeply, deeply troubling,” Rosenbloom said.
“I didn’t know that I didn’t have to settle and agree to this. I’m living check to check and struggling.”Cohlette Carlino, a single mother who has debt
In June, GBH News published an expose of one local debt collector whose companies have filed more than 1,800 lawsuits and been accused in state and federal courts of improperly seizing people’s cars to force them to pay back old debts.
The trial court report shows how much influence out-of-state debt buyers have in the state system. Three national companies — which buy abandoned debt in bulk from other companies for discounted rates — filed nearly 41,000 cases last year, nearly 60% of all consumer debt cases filed that year, data showed.
Carlino owes her money to Midland Credit Management Inc., which, with its sister company Midland Funding, filed more than 16,000 consumer debt cases last year in Massachusetts, state data shows.
The company has been the focus of state and federal scrutiny for its collection practices. In 2022, then Attorney General Maura Healey alleged “Midland engaged in predatory and illegal practices to collect debt,” including using “misleading” tactics and collecting payments without sufficient proof they owned the debt. Midland’s parent company, Encore Capital Group and its subsidiaries, denied wrongdoing but agreed to pay $12 million and change its practices.
Companies are generally represented by what is called a “coverage” attorney who works for several debt buyers and credit card companies. They are familiar with the court staff and sometimes sit in the main courtroom, where defendants can easily confuse them for court employees, consumer law advocates say.
Courts often include all collection cases in one session. When Carlino arrived in Lynn District Court, Assistant Clerk Magistrate Nicole Starrett told defendants that they could speak with the plaintiffs’ attorney sitting at a table in front of her.
Starrett didn’t mention to those sitting in the courtroom that the attorney, Daniel A. Miller, wasn’t a court employee. Nor did she detail the process for what is called a magistrates hearing, or small claims trial, where companies are supposed to prove they own the debt and document how much is owed.
April Kuehnhoff, a senior attorney with the Boston-based National Consumer Law Center, said court officials should be informing people that they can question whether they owe the money at all. “Courts do a disservice to consumers if they are not clearly conveying this information,’’ she said.
Miller told GBH News that Massachusetts is a consumer-friendly state with laws to protect people from being forced to pay if they can’t afford it. He said it makes sense for him to sit close to the clerk because of the number of documents he has to manage. He questioned the theory that courts serve as an arm of debt collectors — saying the system also benefits from filing fees.
”It is literal tens, if not hundreds of thousands of dollars in every court that is funded by filing fees from debt collections,“ he said. ”I genuinely cannot say from which direction the cart is being driven.“
Carlino’s appearance in court that day was itself unusual. Only a few of about 24 people named on that day’s docket showed up to discuss their case. It’s a common occurrence. The trial court’s report found that nearly 50% of all consumer debt cases last year ended with a default judgment, meaning the company won the case because the defendant failed to appear or file a response.
Several consumer advocates told GBH News they believe the trial court’s default numbers are an undercount, pointing to studies in other states and their own experience in the courts. They say the default rate is so high because people are challenged by work conflicts, confused by mail from a company they aren’t familiar with, or never got the letter in the first place. Notice of small claims lawsuits just need to be sent by first class mail, with no required proof that anybody received them.
Carlino told GBH News that she showed up in court after successfully petitioning the court to vacate an earlier default judgment. She said she never got a notice for the first hearing.
“I got a letter in the mail stating a judgment was made. … I just was completely baffled because I wasn’t even aware that I had a court date,’’ she said.
After Carlino agreed to the new judgment and left the courtroom, Starrett and Miller got ready to address the defendants who didn’t show up. They are familiar with the drill, each sitting in front of a pile of files with nobody available to speak for them.
“I’m ready if you’re ready,’’ Starrett said.
“I’m ready,’’ Miller responded.
And they began. She read the name of a case. He identified himself as the attorney for the plaintiff and generally asked for a default judgment.
Starrett later told GBH News that she goes over the documents later but mostly rules in favor of the companies. “Most of mine end up in default judgments,” she said, adding, “Most of these people don’t have the ability to pay.”
GBH visited several small claims courtrooms in the state for this story, finding even some court officials worried about abuses.
On an April day at the East Boston Division of the Boston Municipal Court, First Assistant Clerk Magistrate Ariel Madaro assailed an attorney representing Midland Credit Management for arriving without proper documentation.
“Our court has never been this busy with small claims,” she told the attorney, referring in general to the number of consumer debt cases. “It seems like they’re expecting the court to just make default judgments.”
Faryar Borhani, chief communications officer for Encore Capital Group, Midland’s parent company, told GBH News that the company never assumes it will win by default. “We always include all documents and information required to not only prove our claims, but to help the consumer understand the origin of the debt,” Borhani said.
Consumer debt attorneys say if people show up to court with an attorney they usually win. But only about nine of the 70 district and municipal courtrooms in the state have a regular volunteer lawyer program.
Maria Cornier of Roslindale says she never would have won her case without legal help.
Cornier was sued by Midland Credit Management in 2020 over a credit card she no longer used. She says before the lawsuit was filed, she hadn’t heard from the credit card company and believed the $500 debt had been forgiven. But last year, Midland notified her it was attempting to garnish her wages after she failed to show up at a hearing — an event she says she didn’t attend because the notice was sent to the wrong address.
Cornier found a pro-bono attorney who helped her successfully get the default judgment vacated. But then another clerk ruled she still owed the money, a debt that expanded to $1,300 with interest and court fees.
Cornier says she earns minimum wage and struggles to pay bills to support herself and her disabled mother.
With the help of her attorney, she appealed the decision and asked for a jury trial. Midland dismissed the case, she believes because it didn’t want to pay an attorney to go to trial.
“All you have to do is fight back and they will literally go down,’’ she said. “I want people to know that you’re not the only ones out there that are being scammed.”
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