Kristy Schwarm was introduced to collection agencies after she bounced an $83.41 check at a Mendocino County FoodMaxx. She soon started receiving menacing letters on district attorney and sheriff's department letterhead, warning her she was under criminal investigation and threatening her with arrest.
In rural Fresno County, an 18-year-old student living with her parents became anxious and depressed and eventually dropped out of school after a Hanford-based collector kept calling at home and at work about a delinquent $3,509.18 hospital bill.
"Her voice is stuck in my head, and it's ugly, ugly," said Margarita Guzman of Parlier, a town of about 13,000 southeast of Fresno. "She made me feel like I was this bad person and couldn't be responsible.
"Then people started asking me, 'Why are you putting up with this?' " said Guzman, now 23.
Harassing phone calls, threats of arrest, vulgar language, calls to employers, lawsuits against people who don't even owe money all are hallmarks of the Wild West tactics consumers are confronting amid the troubled economy.
But there is a twist. A surging number of Californians including Guzman and Schwarm are turning the tables on collection agencies as the state experiences an explosion in lawsuits filed against debt collectors.
In the last seven years, the number of lawsuits in California accusing collectors of violating federal law has increased fivefold, The Bee found in an analysis of more than 5,000 debt-collection cases filed in California's federal courts since 2005.
Since Kristy Schwarm set off a successful class-action suit in 2005, the number of federal lawsuits in California alleging violations of the Fair Debt Collection Practices Act jumped from 230 to 1,255 last year.
Complaints to California's attorney general about debt collection practices also climbed steadily in the past six years, hitting their peak last year.
"The economy is so bad that it's getting more and more difficult for these debt collectors to get money from people who just don't have it," said Tammy Hussin, a Carlsbad attorney who handles debt collection cases for consumers.
"So the collectors are more frustrated, and they're getting more aggressive."
Hussin cites instances where "rogue collectors" have stalked their targets, harassed them at work and even threatened violence. "There are some really nasty things going on," she said.
Abusive and profane telephone language has fueled many of California's lawsuits. Debt collectors are accused in court papers of calling consumers a "jackass," a "(expletive) idiot," a "big baby," a "low-life," a "crackhead," an "irresponsible flake" and "stupid."
An Iowa woman complained that a Southern California collector threatened to fart in her face over a debt she insisted she did not owe.
Debt collectors paint a different picture, saying that a few bad actors in their ranks have tarnished an industry vital to the country's economic health.
As for the litigation rush, some collectors portray themselves as victims.
They contend that the spiraling lawsuits do not necessarily reflect poor business practices but rather the ingenuity of a small band of lawyers, who have crafted a cottage industry to cash in on these claims.
Jack Gordon, a former debt collector in Michigan, said he was so concerned about the escalation of "frivolous" lawsuits nationally that he established a company in 2009 to monitor legal trends and advise the industry.
"The plaintiff's bar has found their ideal statute, really," said Gordon, the CEO of WebRecon. "It's almost guaranteed that they can't lose."
Gordon found that more federal lawsuits were filed against debt collectors in California last year than any other state. His data reveal that eight of the nation's 30 busiest attorneys pursuing debt collectors are licensed in California, representing more than 1,000 consumers last year.
"And there's no indication that this is going to stop," Gordon said.
So far, the federal government and attorneys general in several states, including California, have shown little sympathy for the debt collection industry.
The Federal Trade Commission, which oversees the industry, declared in a 2010 report that the nation's debt collection system is "broken." In its report, the FTC urged states to do more to protect consumers and improve debt collection practices.
In January, the state Senate passed a bill that would create new consumer protections against unfair debt collection practices. The bill, by San Francisco Democrat Sen. Mark Leno, is now in the Assembly.
A flourishing industry
Amid a faltering economy, the debt collection business is flourishing with employment expected to grow faster through 2018 than the average for all occupations, according to the U.S Bureau of Labor Statistics.
Why? Consider the pool of "clientele."
Today, some 30 million people in the United States are being pursued by collectors, with an average unpaid debt of $1,400, according to figures from the newly created U.S. Consumer Financial Protection Bureau.
An important distinction is just who is in pursuit.
The market of third-party debt collectors is dominated by three types of operators: Agencies that collect debt for another company in exchange for a fee. Firms that buy debt from the original business, often for pennies on the dollar, then keep for themselves whatever they collect. And, law firms that collect through filing lawsuits.
Whatever the business model, third-party collectors historically have fallen under the watch of the FTC, which enforces the Fair Debt Collection Practices Act (FDCPA). Some of that responsibility is shifting to the Consumer Financial Protection Bureau.
The FTC publicly acknowledges that "debt collection plays a vitally important role in the consumer credit system." Even so, there are limits to what debt collectors can do, and the government is charged with protecting consumers from deceptive, unfair and abusive tactics.
California has its own statute forbidding such practices, though the Golden State quit regulating debt collection agencies in 1992.
Collectors have long argued that federal law and many state statutes are vague - leaving open to interpretation, for instance, how many collection calls in a specified period constitutes harassment.
"There is a lack of clarity," said Mark Schiffman, spokesman for the Association of Credit and Collection Professionals, known as ACA International, a Minneapolis-based trade group that represents 5,000 agencies.
"There is a reason why debt collectors aren't leaving voice mails any longer, and that's because it's unclear what the collector can or can't say."
Meanwhile, consumers are filing complaints in record numbers. The FTC gets more complaints about the debt-collection industry than any other single business, the federal agency reported last year.
While consumers are leading the litigation charge, the FTC recently began its own aggressive legal pursuit of one Southern California debt collection firm that billed itself on letterhead as "Aggressive, Dignified, Effective."
The government disagreed with that assessment, calling the agency a "shake-down debt collector." Last fall, the FTC persuaded a federal judge in Los Angeles to halt the operation and freeze the assets of Van Nuys-based Rumson, Bolling & Associates. The company operated under a series of names, including Forensic Case Management Services Inc. and Commercial Investigations.
The lawsuit is part of what the FTC describes as an ongoing "crackdown" on illegal debt collection practices. This one, the government contends, raked in more than $20 million in the last four years by deceiving small businesses and abusing their alleged debtors.
The FTC, aided by several Southern California Better Business Bureaus, interviewed numerous consumers nationwide about their distressing brush-ups against the California company, according to court documents.
Among them: A mother in Missouri who owed $5,000 for her daughter's funeral was informed that her daughter's body would be dug up and hung from a tree if she didn't pay up. She also claimed the collector threatened to shoot her dog and eat it.
In Southern California, a single mother with special-needs children complained that the bill collector told her she should "sell" her "retarded children."
An email to one debtor read: "Jesus paid his bills. Why don't you? We have had this account for 4 months now. Not even $1. That is not what Jesus wants. That is why the Muslims are winning."
"We've seen some very nasty practices, but the stuff we're seeing in the Rumson case is particularly terrible," said Chris Koegel, the FTC's lead attorney in the case.
Defending itself against the FTC's action, the company's attorneys denied that the defendants engaged in unfair, deceptive or abusive acts. In protesting the shutdown and freezing of assets, the defendants' attorneys acknowledged that "some employees used 'creative' and more accurately regrettable devices in collecting debts.
"But the fact that there may have been some bad apples in the barrel does not mean that the barrel should be destroyed."
Consumers push back
For most consumers, the FTC is unlikely to ride to the rescue over alleged debt collection abuses.
Enter private attorneys.
The Bee's examination of debt collection cases in California revealed that a small group of lawyers and firms are dominating the federal filings.
The money at stake per lawsuit is generally around $5,000 unless you are the collection agency ordered to pay a Texas man $1.5 million in 2010 for leaving racist and vulgar phone messages. In addition to the massive punitive damages, a Dallas jury awarded the man $143,000 in attorney's fees and $50,000 in mental anguish all because of a disputed $81 credit card debt.
The vast majority of debt collection cases never go to trial and settle quickly. Sometimes the settlement comes with a payment plan. Other times, the debt itself is forgiven, or referred back to the original creditor.
Under federal law, a consumer suing for violations of the Fair Debt Collection Practices Act can collect up to $1,000 in statutory damages, plus attorney's fees and court costs.
Similarly, California's debt collection statute, the Rosenthal Act, calls for a maximum $1,000 in statutory damages. Both laws allow consumers to recover any actual damages they sustained because of the violation. This means a successful litigant who can prove that he or she was harmed by the collector a lost job, for instance, or emotional distress could receive additional compensation.
"Most of the time, people aren't going to bring a lawsuit unless there's something to it. It's not fun to do," said Jeremy Winter, a Sacramento attorney who recently expanded his bankruptcy law practice to include debt collection claims. "The clients who come to us most of them just want it to stop."
The Bee's analysis of more than 5,000 debt collection cases filed in California since 2005 found that a controversial Pennsylvania-based company, NCO Financial Systems Inc., is by far the most frequently sued collection firm in this state.
NCO, which has a satellite office in Rancho Cordova, was sued 231 times between 2005 and December 2011 for alleged FDCPA violations. The second most frequently sued was Portfolio Recovery Associates, a Virginia-based company, with 113 federal lawsuits in that same period.
Both companies are among the nation's largest debt collectors. NCO, which lost its contract with California's Franchise Tax Board in 2009, has been accused by attorneys general in multiple states of abusing consumers.
Both companies have spawned websites and blogs by people who have squared off with them, ranting about their treatment.
"They managed to get me fired from my job," said Lynette Bartholomew, a 48-year-old bookkeeper in Jerome, Idaho, who sued the company in California. "They kept calling my work even after I told them not to. They would call my house at 5:30 in the morning and after 9:30 at night."
Under federal and state law, a debt collector can call only between 8 a.m. and 9 p.m., unless the consumer agrees otherwise. Collectors are not allowed to contact employers or discuss the debt with third parties, without the person's permission.
Bartholomew, who had fallen behind on a $300 credit card debt, said she was making payments to the credit card company but that NCO persisted in trying to get her to pay and at one point, insisted that she now owed $2,000.
"They were just, 'Oh, you're a deadbeat, you're a terrible person,'" Bartholomew said.
Five weeks after the suit was filed in Sacramento in 2008, the case was settled when NCO offered $1,250 in damages without conceding wrongdoing. Bartholomew said she did not have to pay the remaining debt.
NCO did not respond to a request for comment.
Kevin Thomas of Rocklin had his own encounter with NCO last year after his mother suffered a fall and was taken by ambulance to Sutter Roseville Medical Center.
Thomas, 48, said his 76-year-old mother had insurance coverage to handle the bills, but that calls and letters from NCO started pouring in demanding $150 for the ambulance ride and $327.28 for the hospital treatment.
"They were writing her threatening letters, and then, I don't know how they got it, they started calling my cellphone ," Thomas said. "When they started calling here I got absolutely livid."
Thomas, who said his mother has suffered four strokes and two types of cancer, finally had it out with one collection agent.
"I said, 'Don't threaten me.' And they said, 'You know your mother could end up with six months in jail and a fine?' I said, 'You take me to court. Go ahead.'
"Threatening people like old gangsters? And preying on people like seniors? That's ridiculous."
Thomas and his mother eventually sued and reached a confidential settlement.
Predator or prey?
The debt collection industry concedes that some collectors make abusive and harassing calls. But a spokesman for an industry trade group insists that such behavior is not condoned.
"It does happen and it shouldn't," said Schiffman of ACA International.
"You should throw the book at them, and throw it hard. There's no reason why collections should be done with threats or harassment. Not every debt collector treats people that way."
Industry leaders point out that, by recovering billions in delinquent debt, third-party collectors help businesses survive, prevent layoffs, stave off tax increases and keep down the costs of goods and services for all consumers.
Yet as lawsuits mount, some collectors say that they are the ones being preyed upon.
Jack Gordon, the former collector in Michigan who is tracking the surge in lawsuits, said he has found numerous instances where single plaintiffs have filed multiple lawsuits against different firms. Gordon said he discovered a plaintiff in Florida and one in Pennsylvania who had filed 16 lawsuits each.
The practice has been compared to the so-called "serial plaintiffs" who file multiple claims for violations of the Americans with Disabilities Act. Those suits have created a backlash against the disabled in communities where single plaintiffs have filed hundreds of boilerplate ADA suits, forcing the closure of some small businesses.
Schiffman of the industry trade group said the barrage of lawsuits is being fueled by law firms and groups that encourage suits over "picky violations," or simply as a way of making money.
"There are those that are serial and are racking up major numbers of lawsuits nationally or in a state," he said. "There are a few that have absolutely made careers out of this and are doing nothing but suing collectors."
Gordon said many had been prominent lemon-law attorneys who made the switch to debt collection cases because "they saw greater opportunity there."
In its examination of 5,088 federal lawsuits over the past seven years, The Bee identified at least 16 plaintiffs who had filed eight or more cases in California. Most of these were in the Central District of Los Angeles.
One Hollywood woman, for instance, filed seven federal lawsuits in seven weeks in 2009 and another suit in 2010, alleging violations of the Fair Debt Collection Practices Act. Lourdes Jimenez accused the various debt collectors of the same general misconduct: making lots of calls, threatening to file a lawsuit against her, failing to disclose the collector's identity or improperly disclosing her debts to third parties.
The amount and nature of Jimenez's alleged debts were not specified in any of the complaints, which had strikingly similar language.
In her lawsuits most of which settled quickly Jimenez was represented by one of the busiest law groups nationally that is filing these claims: Krohn & Moss of Los Angeles.
Krohn & Moss bills itself as a "consumer law center" that began in 1995 as a firm handling defective auto lawsuits and began suing over debt collection tactics in 2002. But the firm also has been criticized by judges and collection-industry attorneys for filing mass-produced lawsuits lacking adequate investigation.
Founder Adam Krohn initially agreed to an interview with The Bee, but did not respond to subsequent attempts to reach him.
Krohn & Moss represented one California man who sued NCO and eight other collection companies in 2009 and 2010, alleging that repeated phone calls from the companies left him suffering from weight loss and "overpowering pessimism."
Michael Sirbu, who lives in Marin County, would not discuss the lawsuits when reached by The Bee.
Each of the cases was settled or voluntarily dismissed, frequently a move made after a settlement is reached.
The court filings provide a glimpse of the financial side of such lawsuits.
In a suit Krohn & Moss filed for a different plaintiff in 2009, the collection agency did not respond and a default judgment was entered. The law firm asked for $5,350.58 in damages, costs and fees, including $3,114.90 in attorney's fees. The federal court in Sacramento awarded $4,600.58, including all of the attorney's fees sought.
"The plaintiff really has nothing to lose," said Gordon, who contends many are "nuisance" suits that are too costly to fight. "Once you've been sued as a collection agency, you've already lost."
But Hussin, the Carlsbad attorney who files debt collection claims exclusively for Lemberg & Associates, said the firm scrutinizes every case before deciding whether to file.
"It's not like we're going out and finding these people. They're coming to us," she said. "They've reached the end of their line."
Hussin and other attorneys who specialize in suing debt collectors almost uniformly told The Bee that altruism and helping the underdog are among the job's greatest rewards.
"These are real people, and I sit down and meet with every one of them," said attorney Joshua Swigart of San Diego, who represents many military service people in debt-collection cases. "I've got a box of Kleenex on my conference room table."