SJC toughens rules for debt collectors

New protections for consumers over small claims

By Beth Healy and Michael Rezendes
Globe Staff / August 7, 2009

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The Supreme Judicial Court has approved a series of sweeping changes designed to protect consumers from aggressive debt collectors known for bullying tactics, seizing cars in the middle of the night and, in extreme cases, threatening debtors with jail time.

The new rules, governing debt actions in small claims sessions across the state, are intended to close loopholes and correct lax practices that too often transformed the so-called “people’s court,’’ created as a place for ordinary citizens to settle small-scale legal battles, into a venue where sophisticated collectors clearly had the upper hand.

Rampant abuses in small claims cases were the focus of a 2006 investigation by the Globe Spotlight Team. The chief of the state district courts, Lynda M. Connolly, appointed a committee to amend court rules following the series.

The new standards, which take ef fect Oct. 1, will require debt collectors to provide basic evidence about the money they want to collect and to prove that debtors have been properly notified of when to appear for court proceedings. They also call for clerk magistrates who oversee small-claims hearings to review all payment agreements and to ensure that collectors are not illegally tapping disability or Social Security income as a source of debt payments.

“These changes are going to be a tremendous benefit to consumers,’’ Connolly said.

She praised the 20-member working group - representing consumers, plaintiffs, the courts, and the Legislature - with hammering out the new rules, which then had to go through a lengthy approval process by the state’s highest court. “I am tremendously proud of the work that was done here,’’ she said.

Connolly said the courts have provided new training for judges and magistrates and updated their website to provide more information for debtors and creditors. They have also made physical improvements to small claims locations in two of their busiest courts: Worcester has a new courthouse, meaning that small claims defendants no longer have to crowd into a criminal courtroom, and New Bedford has shifted small claims to its housing court.

The Spotlight series, called “Debtors Hell,’’ found that debt collection lawsuits by credit card companies and third-party collectors accounted for the majority of more than 100,000 small claims filed annually with the state’s 70 district courts. From 2000 to 2005, collectors filed 575,000 such lawsuits, or one for every 11 Bay State residents.

Small claims courts are intended to be a venue for individuals to initiate legal action when $2,000 or less is at stake, without the expense of hiring a lawyer. But in Massachusetts, all too often the opposite was happening: Large, sophisticated financial firms and a handful of bare-knuckled debt collectors were hiring lawyers to sue people who had no legal representation. When they did show up for court, consumers were often confused, belittled by court staff, and unaware of their rights as they were pressured to settle debts, sometimes in courthouse hallways.

When debtors did not show up or did not pay as agreed, some aggressive collectors would seek permission to tow their cars, often without notice, the Globe found. The tactic left many defendants without a car and with hundreds of dollars in additional fees.

Among the new requirements:

■ Creditors must certify that they have verified a defendant’s current address to help ensure that the defendant has received a mailed notice of the legal action against them and has a chance to mount a defense.

■ Plaintiffs must notify the court in writing when a small claims judgment has been paid in full. This is meant to help consumers clear their credit reports after paying a debt.

■ Magistrates are expected to rule in favor of a defendant if the debt collector or other plaintiff fails to appear in court, just as they often rule for the plaintiff when defendants fail to appear.

David W. White, a Boston lawyer who is president-elect of the Massachusetts Bar Association and who was part of the working group, said, “The new rules go a long way to meeting the needs of both the people who have a right to collect and the rights of due process for those who are defendants.’’

But others warned that the new rules could have an adverse impact. Jordan L. Shapiro, a longtime collection attorney, called the new rules a burden on creditors and collectors who follow the rules.

In addition to the new rules, some state lawmakers, acting at the behest of the working group, have proposed legislation that would make it more difficult for creditors to seize automobiles owned by debtors, by raising the state’s so-called auto exemption.

The existing exemption dates back to 1975 and says creditors may seize a car if it is worth at least $700. But Senator Cynthia Stone Creem, a Newton Democrat and Senate chairwoman of the Joint Judiciary Committee, says the exemption should be raised to reflect changes in car values and the basic necessity for many of owning a car.

“The value of a car has gone up five times since 1975,’’ Creem said. “We have to consider that cars are not necessarily a luxury, but a way for people to get to work.’’

Creem said lawmakers have not reached an agreement on a specific amount for the exemption, but added that federal bankruptcy law says creditors may seize cars only if they are worth $2,400 or more.

In addition to enforcing the new rules, which were made public yesterday, Connolly said the courts have pledged to do a better job informing citizens of their rights and to make sure magistrates are not rubber-stamping debt cases.

Connolly also said that a concerted effort has been made to stop the rampant use of jail threats to scare people into repaying debts.

Clarification: A Page One story Friday about the overhaul of the state’s small-claims court rules identified attorney David White, a member of the committee that developed the rules, as president-elect of the Massachusetts Bar Assocation. That was the position he held while serving on the committee; he is now the immediate past president.