Since 2018, Capital One has been a looming presence in Julio Lugo's life, ever since the company sued him, as it did 29,000 other New Yorkers that year, over an unpaid credit card. But when the coronavirus hit the city this March, it wasn't on his mind.
At Mount Sinai in Manhattan, where he works, he'd been drafted into the hospital's frenzied effort against the virus. He normally gathered patient information at the front desk of a radiology clinic in orderly shifts, 9 to 5. Now he was working 16-hour days, often overnight. At one moment he might be enlisted to help a team of doctors or nurses put on their full-body protective equipment and then he would rush to disinfect another team. He lost track of the days, only orienting himself by the need to juggle care with his ex-wife of their two young children who were now out of school.
But despite a global pandemic, Capital One didn't forget about him. The company began in late March to seize a portion of his wages to collect on that debt – one that he says wasn't even his.
Federal, state and local officials have all taken some steps to protect Americans from the ravages of the economic crash due to COVID-19. Congress halted a substantial portion of evictions, foreclosures and collection on student loans. And when it sent $300 billion in stimulus checks out to families, many states took steps to make sure that debt collectors didn't grab the money. But one of the most aggressive and common forms of debt collection has generally been allowed to continue: seizure of wages for old consumer debts.
The main protection Americans have gotten from debt collectors has been inadvertent, a byproduct of state courts being closed to most hearings, including those pushed by debt collectors. But this didn't help people like Lugo who were the target of actions that began before the closures. Wage garnishments can run indefinitely once begun. As a result, essential workers and others who were lucky enough to keep their jobs have still been at risk of forfeiting a portion of their paychecks.
No one tracks wage garnishments either federally or at the state level, and that's a key reason they get little public attention. But ProPublica has found that it hits workers earning $40,000 or less the hardest and is particularly common in predominantly Black communities. Because garnishments are set at a percentage of income (25 percent in most states) regardless of whether someone can afford it or not, they often provoke a financial emergency and cause the debtor to let other bills go unpaid.
While new collection activity has dropped off, some major debt collectors have been laying the groundwork for a return to normal by filing suits by the thousands, according to a ProPublica review of online court records from county and state court websites. For example, in Maryland, two major debt collectors alone filed over 2,000 suits in April.
When the courts fully reopen, as they already have in some states, these companies will be first in line to win new court judgments. Those debtors who still have jobs will be forced to either make payments or risk their wages being seized. With 48 percent of American households having experienced a loss of employment income in the past few months, many will have no wages to take. But debt collectors can be patient and wait until they do.
Capital One, asked about the cases, said, "Our policy is to work with any customer who needs help and is impacted by COVID-19."
Even more worrying to consumer advocates is what lies ahead. Households often rely on credit cards during moments of financial stress. In recent months, more have been paying rent with their cards. Eventually the bill will come due, which could lead to a wave of collection suits as the nation attempts to recover.
"There's going to be a whole swath of people who never thought they'd be in a position to default," said Pamela Foohey, a law professor at Indiana University who argues in a recent paper with two colleagues that Congress should impose a debt collection moratorium to allow for recovery. "It's not productive to be garnishing people's wages when they need to pay for food and get back on track financially," she said.
Over the past couple decades, Capital One, Lugo's pursuer, helped lead the way in transforming the nation's local courts into collection machines. As recently as the 1990s, these courts conformed to the picture most people have in their heads, primarily working as a venue where a judge resolved disputes between two sides represented by a lawyer. Now the most common type of case is debt collection, a recent Pew Charitable Trusts report found. Lining up against debtors who are almost never represented by an attorney, debt collection companies win millions of court judgments each year, which then allow them to seize debtors' wages for years into the future. An old unpaid bill will fall off a credit report after seven years, but a court judgment can haunt someone forever.
While different types of plaintiffs may flood the courts in different areas (from payday lenders to nonprofit hospitals), those collecting on credit card debt have driven this trend over time, according to ProPublica's review of court data from several states.
The change has been obvious in courts everywhere, from New York to Las Vegas (where the local court decided to give such cases their own category, "Civil – Credit Card Collection") to rural Iowa.
"It does bother me that courts have become sort of a tool for credit card companies. We've just become part of their business machinery," said Judge Chris Foy, who presides over the district court in the small town of Waverly, Iowa.
The most common plaintiffs don't tend to be household names that advertise with bold TV campaigns: Most are debt buyers, companies that buy up bad debts in bulk. The exception is Capital One.
Aggressive debt collection is key to Capital One's profitability. Last year, the same year the company reported $5.5 billion in net income, it recovered $1.4 billion from its card accounts that had been previously charged off, or recognized as losses. It was a haul hundreds of millions of dollars beyond any other card issuer, even much larger ones like JPMorgan Chase.
In a statement, a Capital One spokeswoman said the bank files more suits than other banks because it makes riskier loans. According to public filings, as of the end of this year one-third of Capital One's cardholders had a credit score under 660, generally considered the threshold that identifies those most likely to have trouble paying debts back. The bank's current card offers for such customers carry an annual interest rate of 27 percent.
"Most regional, community and especially large banks retreated from the subprime segment to focus on more affluent customers, resulting in a growing population of people with less access to the banking system," the spokeswoman said. "Capital One remains a full spectrum lender."
"Debt collection for us is about helping customers resolve their delinquent debt and reducing losses, not making money," she said, and the bank always attempts to work with borrowers before suing. As for Lugo's case, the company said it couldn't comment because it was currently in litigation.
The best estimate of the national scope of garnishments comes from ADP, the nation's largest payroll services provider. At the request of ProPublica, ADP first undertook a study of payroll records six years ago. It followed up with a second survey in 2017. Both times, it found that 2.9 percent of workers had their wages garnished for consumer debts in the previous year. That works out to about 4 million nationally. Notably, both surveys were done during a period of economic expansion. In the Great Recession, between 2007 and 2009, the number of suits skyrocketed, according to ProPublica's review of filings from several states.
Court judgments also allow collectors to seize money from bank accounts, often emptying them. But taking a portion of a paycheck is far more common, according to a ProPublica review of court data in Missouri and Georgia.
When the coronavirus outbreak hit, New York, like many other states, took several steps to protect vulnerable people, such as halting evictions or new garnishment orders. But the state let existing wage garnishments continue. Consumer advocates and the New York City Bar called on Gov. Andrew Cuomo to fill that gap and suspend all garnishments. So far, he has not, despite moves by some other states, such as Nevada, to do so. In New York, plaintiffs can take up to a tenth of a debtor's pay. Cuomo's office did not respond to a request for comment. Lucian Chalfen, a spokesman for the New York State Courts, told ProPublica that garnishments were allowed to continue because "existing orders were considered essential matters."
Those burdened with a garnishment amid the pandemic could request an emergency court hearing to have it suspended, according to guidance given to the city's marshals, who administer garnishments. Michael Woloz, a spokesman for the marshals, said they "do everything they can to accommodate" people with hardships.
Susan Shin, legal director of the New Economy Project, a legal aid organization in New York City, said her group has been getting calls since March from New Yorkers asking for help with ongoing wage seizures. Capital One was often the plaintiff. People were afraid of risking their health to go out and seek help from the courts. "Why put someone in that position?" she said. Relatively few people who need help find their way to legal aid.
ProPublica spoke with three New Yorkers who struggled to address seizures of their pay after the pandemic hit. Although all three managed to eventually halt the garnishments with the help of a legal aid attorney, the cases show how such suits can hang over people's lives for decades. Two of them asked ProPublica not to use their last names out of fear it would displease their employers.
Capital One, asked about the cases, said, "Our policy is to work with any customer who needs help and is impacted by COVID-19."
Capital One sued Robert in 2007 for about $1,900. He is HIV-positive and fell behind because of health issues, he said, and has been in and out of work over the years. For almost a decade, he said, he didn't hear from Capital One. But last fall, soon after Robert began a new job, he received notice telling him to arrange payment on the debt or he would be at risk of garnishment.
He eventually struck a settlement to pay Capital One a total of $300 on a payment plan of $20 a month. But shortly after he made his first payment, he was shocked to find that his wages had been garnished anyway. The seizures continued for weeks, well into March of this year. Both Capital One and the marshal's office told ProPublica that Robert's employer had been sent notice not to execute the garnishment, but that it had done so anyway in error and that the checks had been promptly mailed back to the employer.
Capital One sued Grace, a social worker in Queens, in 2013 after she lost her job and fell behind on her payments. Like Robert, she said she hadn't heard from Capital One for years. In February, she received a letter from the marshal warning her that her pay would be garnished if she did not make other arrangements to pay off her debt of $2,800. When the virus hit and the courts largely shut down, she assumed it was a problem that could wait. "I was just trying to get by," she said. After the garnishment started, she searched online for help and found her way to Shin, the legal aid lawyer. The money has since been returned, but Grace knows the seizures could start again when the courts reopen.
Given Lugo's hectic days and nights working at the hospital, it wasn't until mid-April, when 500 New Yorkers were still dying every day from the virus, that he discovered $168 missing from his latest paycheck. Although he was sued in 2018, he didn't find out about the suit until his wages began to be garnished last year, he said. One reason is that the debt is not his, he said.
In a legal filing, with the help of a legal aid attorney, he argued that his now-deceased father likely stole his identity to take out the card. A process server falsely claimed to have served his mother with notice of the suit, he said.
The filing stopped the garnishments last year, but in early March, he missed a court hearing because it conflicted with a parent-teacher conference at his child's school, he said. He thought the hearing would be rescheduled, but unbeknownst to him, it triggered a new garnishment.
"Being that the courts were closed, I couldn't understand how they could just start taking out money again without letting me know," he said.
Eventually, again with help from a legal aid attorney, he was able to stop the garnishment and get a new court date, currently set for August.
After the virus hit in March, Capital One largely suspended filing any new debt collection lawsuits. But other big debt collectors did not, including Encore Capital, the nation's largest debt buyer. ProPublica reviewed online court filings in eight states where courts had largely stopped hearing new cases and found that Encore still filed over 1,600 lawsuits in April.
Encore reported collecting $1.3 billion in old debt in the U.S. last year and was looking forward to another good year when March came.
Encore CEO Ashish Masih told analysts last month that the company is still optimistic. Widespread unemployment and the courts closing hurt the company's near-term prospects, but Masih said this would only cause a "delay, not a permanent loss" in what the company hoped to collect in 2020. Eventually, he said, "the court processes will start working," and "we hope to recoup about 90 percent of collections over time."
In response to questions from ProPublica, Encore said that according to its company policy, "We've suspended collections for any consumer who lets us know they've been directly impacted by COVID-19."
Across the country, courts are taking steps to resuming full function. In Arkansas, where the virus did not initially hit hard, but has been spreading faster lately, the state supreme court announced in early May that all courts could reopen to hearing any type of case starting May 18. How exactly to do this is up to local courts, and solutions range from video hearings to in-person hearings with a limited number of people in the courtroom and temperature checks before entering.
Wage garnishments in the state never stopped, said Susan Purtle, an attorney with Legal Aid of Arkansas, which serves almost half the state. That's partly due to the large number of meat processing plants there, she said. "Those clients have continued to work," she said, and so had wages to take.
But recently, she said, calls about new suits have been coming in. Typically, she's seeing court hearings scheduled for July or August. Once they begin again, collectors will resume winning judgments that can be used to collect on the debtors who still have jobs. For the ones who don't, the companies will wait until they do.
Ellis Simani contributed reporting.