Are Texas State Representatives Selling Texans Out? The Subtle and Less Noticed Changes in Texas Laws and Legislature are Being Used to Help Financial Institutions Wreak Havoc on those Struggling with Credit Card Debt

Amy Blair didn’t show up for court again.

A former police officer, Blair had developed serious health problems that forced her into an early retirement. By 2017, living mainly off disability payments, she’d racked up more than $2,500 in charges and fees on her Visa card that she couldn’t pay. In May a Guadalupe County justice of the peace had granted a default judgment against her after she skipped a hearing to determine if the debt company could start collecting. Blair begged for another chance and Judge Todd Friesenhahn had agreed.

But July 17, when he called her name at 9:45 a.m. in the small Precinct 4 headquarters between Seguin and San Antonio there was only silence. The debt company’s lawyer was there, though. Friesenhahn again granted it legal permission to seize any of Blair’s assets not protected by Texas law.

Over the past two years, so-called debt claim cases like Blair’s have nearly doubled in this precinct encompassing the southwest portion of the county. On Wednesdays, Friesenhahn’s debt court day, the cozy Morawietz Courtroom – named for the husband and wife judges who held court in the precinct for a quarter-century – increasingly has become crowded with lawyers seeking the legal green light to collect unpaid credit card bills.

“It just jumped overnight,” said clerk Shelbie Caddell.

Guadalupe County isn’t alone. Underneath its noisy surface prosperity, Texas is experiencing a quiet debt crisis. The number of debt claims — lawsuits filed by collectors or lenders in the state’s justice of the peace courts — has soared 140 percent since 2014, according to the Texas Office of Court Administration. Judges say the vast majority are for unpaid credit card bills.

On one level, the trend is a counter-narrative to the story of the country’s robust economic health.

With the 2008 recession receding from view, banks loosened credit restrictions. Today U.S. households are holding more debt than ever before. More debt means more defaults; credit card rates are high and delinquencies are climbing.

The country’s largest debt-buying companies, which acquire uncollected bills written off by banks, are reporting record profits.

In Texas, the steep growth of court debt collections is also happening by design.

Texas is known as a debtor-friendly state. Creditors can’t garnish wages and a debtor’s homestead is off-limits to collectors.

Yet over the past half-dozen years, state lawmakers have quietly enacted rules making it easier and more profitable for debt companies to collect here, changes experts say have helped drive the new flood of filings.

Large debt companies driving trend

While debt disputes in higher-level district and county courts have climbed steadily in recent years, it’s the explosion of justice court cases, which are limited to $10,000 — it will rise to $20,000 next year — that has alarmed court officials. In 2014 there were 91,500 debt claims filed; last year it was 215,000. “All the indications are the economy is doing really well right now, but we’re seeing this spike,” said Office of Court Administration director David Slayton.

Not every county has seen huge increases, but the growth is occurring in all parts of the state. In East Texas, Angelina County justice of the peace debt filings leapt 270 percent since 2014. In El Paso, it’s 260 percent. In Denton County, outside of Dallas, it’s 140 percent.

The surge isn’t confined to economically struggling areas, either. On the east side of booming Austin, Travis County Precinct 1 saw 800 debt filings in 2016. This year they will approach 2,000. Judge Yvonne Williams sets aside every Tuesday for the contested cases. Fridays are when she hears the defaults.

“I just sit there and do nothing but talk to lawyers on debt claims,” she said.

Easy credit — more credit cards and increased borrowing — is one explanation. John Lopez, a professor at the University of Houston’s Bauer College of Business, said defaults also parallel the steady rise in interest rates in recent years.

In Texas, the booming economy has been punishing for people on fixed incomes, added Paige Hoyt, who leads the consumer division of Legal Aid of NorthWest Texas in Denton. “Affordable rent is becoming harder and harder to find,” she said. “There’s a lot of easy credit out there, so our clients start living on credit cards. They’ll max one out, then move onto another.”

The jump in justice court filings is being driven by companies that acquire debt after credit card companies charge it off as uncollectable, judges say. Like many states, the Texas market is dominated by a small group of large corporations. Encore Capital Group, which often files as Midland Funding, and Portfolio Recovery Associates, or PRA, are the most prominent.

In 2015, the Consumer Financial Protection Bureau ordered the two companies to pay $18 million in penalties and refund more than $60 million to consumers from whom the federal agency said Encore and PRA had collected old debt using deceptive tactics. “Encore and Portfolio Recovery Associates threatened and deceived consumers to collect on debts they should have known were inaccurate or had other problems,” the agency said at the time.

According to their public filings, the companies have rebounded strongly, reporting record debt purchases and revenues recently. A big reason, PRA executives said in a May conference call, was the success of its legal collections, which were up more than 30 percent from the prior year.

A PRA spokeswoman, Elizabeth Kersey, said the Norfolk, Virginia, company had purchased a record amount of debt over the past two years. While it turns to legal filings only as a last resort, Kersey confirmed PRA’s debt claims had increased in Texas.

More cases for less money

Other states have seen growing debt cases, but experts said in recent years Texas also has made filing the claims easier and more lucrative for debt companies, fueling the trend here.

In 2013, the state’s justice of the peace courts adopted rules that specified what legal documents debt companies needed to file to prove they were entitled to collect on default, or uncontested cases. Slayton, of the Office of Court Administration, said the change was intended as a consumer protection.

Yet it has also allowed debt companies to bring uncontested cases without having to hire attorneys to attend court hearings, said Bronson Tucker, director of curriculum for the Texas Justice Court Training Center, which provides education programs for justices of the peace.

Judges and clerks said half or more of credit card debt claim cases are defaults, so the cumulative cost savings to debt companies to file thousands of cases can be significant, he said: “When you’re doing one thing that makes you a little money a lot of times, it makes a difference.”

It can also make previously unprofitable cases worth pursing. Judges and consumer attorneys report a rise in debt claim cases seeking smaller amounts of money.

“I’ve seen more cases now for under $1,000 than in the past,” said Judge Kelly Green, of Parker County’s Precinct 2. Added Jerry Jarzombek, a Fort Worth consumer attorney: “I have a ton of cases now under $1,000. And I used to never see a case for that little.”

In 2017, state lawmakers also passed a bill allowing debt collectors to more easily and quickly deploy a powerful legal tool called a turnover order. Once granted mainly as a last legal resort for creditors, it allows collectors to pursue a wide variety of assets from debtors, including bank accounts, property and cash. Unlike traditional garnishment orders, turnovers also don’t require a new $46 court filing, making them less expensive for collection companies, Jarzombek added.

Rich Tomlinson, a consumer lawyer with Lone Star Legal Aid in Houston, said turnover orders once were used to help creditors collect from business debtors. But with the change in the Texas law, he said, “That’s not how it’s being used now.” While no one is counting, use of turnover orders “is definitely increasing,” Tucker added.

The orders typically are accompanied by requests for justices of the peace to appoint a receiver to manage them — “like a bounty hunter working for the creditor,” Tucker said. He said some debt companies have asked judges to grant receivers unusually broad authority, such as ordering debtors to immediately turn over all cash on hand, or to have their mail sent to and opened by the receiver — “so they can search for gift checks at Christmas,” Tucker said. “There have been some very aggressive requests. We’ve had classes for our judges to instruct what’s acceptable.”

“I know it’s legal,” said Williams, the Travis County judge, who said she had a stack of receiver requests wating on her desk. “But some of the orders are just so all-encompassing — ‘We can take your mother’s first-born.’”

Receivers also can be expensive. Tucker said the usual charge is 25 percent of the debt amount, a cost tacked onto a debtor’s existing bill. Several judges conceded that piling more debt onto a person already struggling to pay off a delinquent credit card bill can make them feel queasy.

“It’s another law firm charging them more money,” said Friesenhahn, the Guadalupe County justice of the peace.

“Credit card bill or eating”

Several hours after she missed her second court date, Blair was at her twice-weekly pulmonary rehab appointment.

Blair said she first noticed she was getting short of breath in 2009, when she was a patrol officer in a San Antonio suburb. Since then, she has received two double lung transplants, in 2010 and 2014, she said. On full disability, her monthly income fell from $4,500 to $1,500.

At first, Blair said she managed to keep up with her Visa card payments. But after missing several, the late fees and 25 percent interest began piling up and she fell behind.

“I was just using it for day-to-day expenses,” she said. “It came down to paying my credit card bill or eating.” Court records show unpaid charges to Walmart, Buc-ees, a car repair garage, Family Dollar and fast food restaurants.

In early 2018 Credit One bank sold Blair’s debt to a company that three weeks later sold it to another company, which sold it to Midland Funding. A Washington private investigator confirmed Blair’s address, and a process server visited her Schertz home four times in unsuccessful attempts to notify her of Midland’s debt claim. In March, a notice informing Blair “you have been sued” was tacked onto her door.

Blair said it was the first she heard of the case against her. She said she had tried unsuccessfully to negotiate a payment plan with Midland, and that her medical disabilities made traveling to court difficult. “I can’t just hop in the car,” she said. “I understand people come up with all kinds of stories to not pay their bills. But I’m not just blowing smoke.

She said she still wanted to arrange a payment plan. But after Blair missed her re-scheduled appearance, Judge Friesenhahn asked Midland’s lawyer what the company wanted to do. She noted that even if the judge rescheduled yet again, Blair might not show up then, either. After a moment of consideration, the judge agreed, signing his name at the bottom of a default order against Blair for $2,646.16.