The Great Recession doesn't have everybody crying the blues. As household debt soars, collection agencies are experiencing a Golden Age.
But all too often, their success involves going after folks in their golden years—and these agencies are playing loose with the law to do so.
They're not acting alone: According to watchdog groups, banks routinely acquiesce in allowing seniors' Social Security and veterans' benefits to be illegally seized. Even local courts seemingly turn a blind eye as funds critical to older citizens are frozen for days on end.
But every now and then, the system runs into people willing to fight back. People like Dorothy DeSoto.
In a struggle to keep her home, the 72-year-old Tucson grandmother fell behind on credit-card payments. Eventually, her account landed on the desk of law firm Gurstel Chargo.
The firm asked the Pima County Justice Court for permission to garnish funds in DeSoto's Wells Fargo bank account. The Justice Court granted Gurstel Chargo's request; $327.25 was taken from DeSoto's account on Sept. 3.
However, DeSoto wasn't about to be bullied. She requested her own court hearing, which was scheduled for Sept. 21. Minutes before the hearing, she was approached by Tucson attorney David Lippman. On behalf of the collection agency, he offered to have her money returned.
Later, outside the courtroom, Lippman declined to discuss the case. "You'll have to contact Gurstel Chargo," he told me.
But DeSoto was hardly so reticent. "I only have one (Social Security) check coming in. and I guess they saw this money and said, 'Yippee!'" she says. "And it was only there because my mortgage company wouldn't take it for payment while I'm in foreclosure."
DeSoto said she'd provided every bit of information requested by Gurstel Chargo to prove that Social Security was her sole income. Still, they raided her account. "It's not right," she said, before rushing off to the bank to see if the firm had returned the money.
Jennifer Walker is a senior advocate with the Pima Council on Aging. She battles what she calls the "constant" attempts to illegally seize Social Security and other exempt funds. "I deal with hundreds of these cases every year," she says. "These people are disabled; they're elderly; they got into credit-card debt, and often it was for hospital bills."
They also subsist on pittance. "These people are poor," says Walker, who intervened on DeSoto's behalf. "Their income is $700 or $800 a month. To take $350 or $400 from them is awful for these folks."
The harassment of Dorothy DeSoto is a prime example, Walker says. "She only had Social Security and SSI (Supplemental Security Income). Because they are entitlement programs, they really can't be garnished. Gurstel Chargo knew that was money they would probably have to pay back. But had she not gone to court, they would have kept it."
In an email to the Tucson Weekly, a spokeswoman for the AARP agrees that such situations are all too common. "We have worked with the (U.S.) Treasury Department to implement changes and new guidance for preventing this," writes Cynthia Fagyas. "Unfortunately, we as yet do not know when these new guidelines will be implemented."
But Gurstel Chargo spokeswoman Mary Kay Ziniewicz describes collection actions against DeSoto as uncommon, and a "terribly unfortunate situation." Ziniewicz also claims that DeSoto failed to supply proof that her bank account contained only Social Security funds.
"When we did receive that proof, it's my understanding that Ms. DeSoto's funds were given back immediately," Ziniewicz says.
In this case, "immediately" was Sept. 21—more than five months after DeSoto had written Gurstel Chargo, notifying them that Social Security provided her only income. DeSoto says she brought no new documentation to court that day when the collection agency reversed itself.
Indeed, it appears that such hardball tactics are hardly rare to the firm, which boasts offices in Tempe and Minnesota. In Minnesota, according to a Star Tribune article, Gurstel Chargo is among a handful of agencies known for collecting the debts of the dead. Tactics include contacting the grieving families by sending sympathy cards, and playing upon emotions to get money owed by the deceased. (Editor's note: Amy Rotenberg, a representative of Gurstel Chargo, denied that Gurstel Chargo engages in such collection activities. She said the firm never contacts families of the dead to collect debts; she also said the firm is a law firm, not a debt-collection agency.)
But at least in the case of seniors, such firms couldn't succeed without the willingness of financial institutions to look the other way. That includes banks such as Wells Fargo, which allowed DeSoto's Social Security funds to be seized.
When contacted by the Tucson Weekly, Wells Fargo spokesman Jim Seitz refused to discuss the practice over the phone. Instead, we eventually received a generic e-mail stating that his bank is "required to honor valid garnishment orders," and is "simply following the rules and regulations set forth by Arizona law in doing so."
Others question why Pima County Justice Court signs off on the garnishment of Social Security funds. But Ann Neuman, a supervisor in the court's civil department, says her clerks can't identify what types of funds are targeted when they process a writ for garnishment. "We don't know who deposits into that account. It isn't any of our business, actually. We're neutral. We're just issuing the writ."
Even more interesting, however, is the fact that Gurstel Chargo was seeking the garnishment of "non-earnings" belonging to DeSoto. Non-earnings often refer to Social Security and other government payments.
To advocates for the elderly, these maneuvers point to a banking and debt-collection industry badly in need of stricter oversight. "They're ignoring the law," says Margot Saunders, an attorney with the National Consumer Law Center in Washington, D.C. Several times, she has spoken before Congress on the need for reform to prevent the seizure of Social Security funds from seniors such as DeSoto. "The bank probably had every reason to know that her funds were exempt," says Saunders, "and they did it anyway."
That reform may finally be on the way. According to Saunders, a proposed rule change in the U.S. Department of Treasury would require banks to determine whether Social Security or other protected funds are involved when collection agencies go after debtors. "It will stop the ability of banks to honor garnishment of electronically deposited, exempt federal funds," she says. "And we think that will solve most of these problems."
In the meantime, the targeting of Social Security funds continues, illegal or not. Short of regulatory reforms, "it will take a lawsuit to get rid of it," Saunders says.