Proposed amendments to a Massachusetts economic development bill would increase the limit on small claims and court costs for filing lawsuits there.
One observer says the bill would impact large collection agencies and the attorneys who have made a business out of taking debtors to court, while leveling the playing field for small collection agencies. But another ARM legal expert says the proposal also will hurt small businesses and consumers.
The amendments in Senate Bill 2345 increases the maximum amount for a small claim from $2000 to $7000 and ties court costs to the number of claims filed in a year by one party or firm. Specifically, filing fees will increase from a maximum of $40 to $75 per case for the first five cases any party has filed during a calendar year. One hundred fifty dollars will be charged any person or firm that has previously filed 10 claims during the year, and $240 will be charged to plaintiffs that have previously filed 100 or more cases.
The Massachusetts Senate has already unanimously approved the bill known as the Economic Development Reorganization Act, which is designed to stimulate the state’s economy by streamlining government processes. The Senate’s proposed state budget also reflects the changes, though the final budget may not if the House doesn’t approve the bill, said Kara Keefe, spokeswoman for the Senate Ways and Means Committee.
Keefe said the House Ways and Means Committee has yet to unveil its version, but is expected to take up the before the session ends July 31.
Martin Ervin, of Hull, Mass.-based ARM firm Ervin Family Investment, favors the proposal because he believes smaller agencies like his stand to benefit if a volume-based court fee system is adopted. He said fewer small claim cases would be filed in court and small businesses will opt to place more of their delinquent accounts with debt collection agencies earlier.
“They will place an account a lot sooner with agencies that have the time to handle their account, rather than with agencies that score the accounts and only work those accounts that will benefit them,” Ervin said.
Ervin said that a lot of accounts being litigated nowadays are less than 60 days old. He said more creditors who can’t collect themselves are going directly to attorneys or law firm-affiliated collection agencies that file suit after a few attempts to reach the debtor. But he said that is not helping clients because “a lot of judgments can’t be enforced because people don’t have the money.
“I think that’s more so now because people don’t have the money to pay,” he said.
Ervin said more effort should be put into trying to reach consumers, find out why they can’t pay, and negotiate some agreement or payment they can afford.
“I’ve talked to clients who told me that they never got a call or that the (collection) agency never got back to them. If (some agencies) didn’t have such a sweat shop mentality, they’d potentially work with people. We forget that the people we are collecting from are no different than we are.”
Kenneth Wilson, president of the Massachusetts Creditors Bar Association, agreed that every attempt must be made to reach and negotiate payment terms with consumers. And he said more accounts are going to court pre-charge off. But he said consumers’ refusal to communicate with creditors, formally or informally, is the reason more cases are litigated.
“If a person doesn’t respond sometimes we’re left with no choice but to file a legal action to try and collect,” Wilson said. “Sometimes the first time we actually get to talk to (a debtor) is at the court house.”
The proposed volume-based court fee structure is not the solution for less legal action. He said the Massachusetts Creditors Bar Association is trying to educate state lawmakers about what the industry does and its impact the economy.
Wilson said his firm, Lustig, Glaser, & Wilson PC of Needham, files between 35,000 and 40,000 cases each year. But it won’t be greatly impacted by the proposals because only about 10 percent of those cases are small claims. He said his firm will move some cases to civil court where filing costs are similar and clients won’t forfeit their right to appeal.
However, he said small businesses will lose revenue they can’t afford to recoup costs through the courts and debt collection firms that litigate the bulk of their cases in small claims court would suffer, too.
“Some firms are 90 percent small claims,” Wilson said. “They would have big problems.”
So would consumers because Massachusetts law charges court costs to the losing party and most consumers lose their small claims by default for not showing up to court or not providing sufficient evidence to refute the claim.
“It’s not fair to the consumer that was sued later to end up with a larger judgment (because of court costs),” Wilson said.
Even if the House and Senate don’t agree on a version of the bill before the legislative session ends July 31, Wilson said some version of the tiered court cost filing structure is likely to be introduced during the next session.
“More than one legislator has proposed it so it’s unlikely to go away,” he noted. “They will reintroduce it. This is an ongoing fight.”
by Cynthia Wilson / insideARM.com /June 17, 2010
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