By Paul Kiel, ProPublicaThis piece originally appeared at ProPublica.

Five years ago, Naya Burks of St. Louis borrowed $1,000 from AmeriCash Loans. The money came at a steep price: She had to pay back $1,737 over six months.

“I really needed the cash, and that was the only thing that I could think of doing at the time,” she said. The decision has hung over her life ever since.

A single mother who works unpredictable hours at a chiropractor’s office, she made payments for a couple of months, then she defaulted.

So AmeriCash sued her, a step that high-cost lenders — makers of payday, auto-title and installment loans — take against their customers tens of thousands of times each year. In just Missouri and Oklahoma, which have court databases that allow statewide searches, such lenders file more than 29,000 suits annually, according to a ProPublica analysis.

ProPublica’s examination shows that the court system is often tipped in lenders’ favor, making lawsuits profitable for them while often dramatically increasing the cost of loans for borrowers.

High-cost loans already come with annual interest rates ranging from about 30 percent to 400 percent or more. In some states, if a suit results in a judgment — the typical outcome — the debt can then continue to accrue at a high interest rate. In Missouri, there are no limits on such rates.

Many states also allow lenders to charge borrowers for the cost of suing them, adding legal fees on top of the principal and interest they owe. One major lender routinely charges legal fees equal to one-third of the debt, even though it uses an in-house lawyer and such cases usually consist of filing routine paperwork. Borrowers, meanwhile, are rarely represented by an attorney.

After a judgment, lenders can garnish borrowers’ wages or bank accounts in most states. Only four states prohibit wage garnishment for most debts, according to the National Consumer Law Center; in 20, lenders can seize up to one-quarter of borrowers’ paychecks. Since the average borrower who takes out a high-cost loan is already stretched to the limit, with annual income typically below $30,000, losing such a large portion of their pay “starts the whole downward spiral,” said Laura Frossard of Legal Aid Services of Oklahoma.

The peril is not just financial. In Missouri and other states, debtors who don’t appear in court also risk arrest.

As ProPublica has previously reported, the growth of high-cost lending has sparked battles across the country. In response to efforts to limit interest rates or otherwise prevent a cycle of debt, lenders have fought back with campaigns of their own and by transforming their products.

Lenders argue their high rates are necessary if they are to be profitable and that the demand for their products is proof they provide a valuable service. When they file suit against their customers, they do so only as a last resort and always in compliance with state law, lenders contacted for this article said.

After AmeriCash sued Burks in September 2008, she found her debt had grown to more than $4,000. She agreed to pay it back, bit by bit. If she didn’t, AmeriCash won the right to seize a portion of her pay.

Ultimately, AmeriCash took more than $5,300 from Burks’ paychecks. Typically $25 per week, the payments made it harder to cover basic living expenses, Burks said. “Add it up: As a single parent, that takes away a lot.”

But those years of payments brought Burks no closer to resolving her debt. Missouri law allowed it to continue growing at the original interest rate of 240 percent — a tide that overwhelmed her small payments. So even as she paid, she plunged deeper and deeper into debt.

By this year, that $1,000 loan Burks took out in 2008 had grown to a $40,000 debt, almost all of which was interest. After ProPublica submitted questions to AmeriCash about Burks’ case, however, the company quietly and without explanation filed a court declaration that Burks had completely repaid her debt.

Had it not done so, Burks would have faced a stark choice: declare bankruptcy or make payments for the rest of her life.

A Judge’s Dismay

Appointed to Missouri’s associate circuit court in St. Louis last year by Gov. Jay Nixon, Judge Christopher McGraugh came to the bench with 25 years’ experience as an attorney in civil and criminal law. But, he said, “I was shocked” at the world of debt collection.

As in Burks’ case, high-cost lenders in Missouri routinely ask courts to hand down judgments that allow loans to continue growing at the original interest rate. Initially, he refused, McGraugh said, because he feared that would doom debtors to years, if not a lifetime, of debt.

“It’s really an indentured servitude,” he said. “I just don’t see how these people can get out from underneath [these debts].”

But he got an earful from the creditors’ attorneys, he said, who argued that Missouri law was clear: The lender has an unambiguous right to obtain a post-judgment interest rate equal to that in the original contract. McGraugh studied the law and agreed: His hands were tied.

Now, in situations where he sees a debt continuing to build despite years of payments by the debtor, the best he can do is urge the creditor to work with the debtor. “It’s extremely frustrating,” he said.

Since the beginning of 2009, high-cost lenders have filed more than 47,000 suits in Missouri, according to a ProPublica analysis of state court records. In 2012, the suits amounted to 7 percent of all collections suits in the state. Missouri law allows lenders to charge unlimited interest rates, both when originating loans and after winning judgments.

Borrowers such as Burks often do not know how much they have paid on their debt or how much they owe. When creditors seek to garnish wages, the court orders are sent to debtors’ employers, which are responsible for deducting the required amount, but not to the debtors themselves.

AmeriCash, for instance, was not required to send Burks any sort of statement after the garnishment began. She learned from a reporter how much she had paid — and how much she still owed.

After AmeriCash’s deduction and another garnishment related to a student loan, Burks said she took home around $460 each week from her job.

No court oversees the interest that creditors such as AmeriCash charge on post-judgment debts. For instance, the judgment that Burks and an attorney for AmeriCash signed says that her debt will accrue at 9 percent interest annually. Instead, AmeriCash appears to have applied her contractual rate of 240 percent a year.

That seems unjustified, McGraugh said. “I would believe you’re bound by the agreement you made in court.”

In the past five years, AmeriCash has filed more than 500 suits in Missouri. The suits often result in cases like Burks’, with exploding debts. One borrower took out a $400 loan in late 2005 and by 2012 had paid $3,573 — but that didn’t stop the interest due on the loan from ballooning to more than $16,000. (As in Burks’ case, AmeriCash relieved that debtor of his obligation after ProPublica submitted a list of questions to the company.)

AmeriCash, a private company based in a Chicago suburb, has five stores in Missouri, as well as 60 more across four other states. The company did not respond to repeated phone calls and emails about its practices. The firm’s attorney, Wally Pankowski of the Evans & Dixon law firm, declined to comment.

Cases in which lawsuits led to exploding debts abound in Missouri, and ProPublica found examples involving several different lenders.

Erica Hollins of St. Louis took out a $100 loan from Loan Express just before Christmas 2006. She soon fell behind on the payments, but instead of suing immediately, the company waited, the debt growing at 200 percent interest all the while. When the company sued two and a half years later, it received a judgment to collect on $913, including interest.

For years, the company garnished Hollins’ paychecks from her job at a nursing home. When, after a total of nearly $3,600 in payments, Hollins still had not cleared her debt, she called Loan Express’ attorney, she said. As in Burks’ case, the lender was represented by Pankowski. “I asked him would I ever be done paying for this?” she recalled. “And he said, ‘Maybe, maybe not.’ ” (Pankowski declined to comment on the case.)

Hollins sought legal help. Now she’s filed suit against the company, alleging it intentionally delayed suing so that her debt would multiply. The suit is ongoing.

Todd Stimson, who owns Loan Express, as well as three other stores in Illinois, said his company waited to sue Hollins because he believed her wages were already being garnished by another creditor. He also said his company gave her ample opportunity to avoid a suit in the first place but that Hollins didn’t pay. Companies like his have to sue in such situations, he said. Otherwise, “word gets out in the neighborhood, ‘Oh, you won’t get sued anyway, just don’t pay them.'”

As for Hollins paying back more than 35 times what she borrowed, Stimson said his company might have stopped the garnishment if Hollins had asked, although he added that “legally, I don’t have to.”

Not all lenders pursue as much as they are legally entitled to. Some lenders charge triple-digit rates in their contracts, but they lower the rate after receiving a judgment.

Speedy Cash, for instance, has filed at least 9,382 lawsuits in Missouri over the past five years, more than any other high-cost lender, according to ProPublica’s analysis. It has six stores in the state, in addition to making loans online.

Speedy Cash’s loans can be very expensive. A 2011 contract for a $400 loan, for instance, shows a 389 percent annual interest rate and total payments of $2,320 over a year and a half.

But when the company obtains a judgment against a borrower, Speedy Cash charges 9 percent interest, the rate set by Missouri law if the creditor does not specify a different rate. That’s “company policy,” said Thomas Steele, the company’s general counsel.

Speedy Cash seems to be the exception, however. More commonly, lenders take advantage of their ability to pursue a higher interest rate after the judgment.

Judge Philip Heagney, the presiding judge for St. Louis’ circuit court, said the post-judgment rate should be capped. But until that happens, he said, “As a judge, I have to do what the law says.”

Inside a Lender That Sues

Last year, Emily Wright managed a branch of Noble Finance, an installment lender in Sapulpa, Okla., a town just outside Tulsa. A major part of her job, she said, was suing her customers.

When a borrower fell behind on a loan, Noble required a number of steps, Wright said. First, employees had to call late borrowers every day – at work, then at home, then on their cell phones – until they agreed to pay. If the person couldn’t be reached, the company called their friends and family, references listed on the loan application. Borrowers who did not respond to the phone barrage might receive a visit at home from a company employee, Wright said.

If the borrower still did not produce payment, the company had a ready answer: suing. And for that, Noble rarely waited longer than two months after the borrower missed a payment. Waiting any longer could result in the employee being “written up or terminated,” she said. Every month, she remembered, her store filed 10 to 15 suits against its customers.

Wright’s location was one of 32 in Oklahoma operated by Noble and its affiliated companies. Together, they have filed at least 16,834 lawsuits against their customers since the beginning of 2009, according to ProPublica’s analysis of Oklahoma court records, the most of any lender in the state.

Such suits are common in Oklahoma: ProPublica tallied more than 95,000 suits by high-cost lenders in the past five years. The suits amounted to more than one-tenth of all collections suits in 2011, the last year for which statewide filing statistics are available.

Anthony Gentry is president and chief executive of the privately held Noble and its affiliated companies, which operate more than 220 stores across 10 states under various business names. In a written response, he offered several reasons why his companies might sue more than other lenders.

His companies focus on lending to customers who are “currently working,” he said, and therefore have wages that can be garnished under court orders. Under federal law, one-quarter of a person’s wages may be eligible for garnishment as long as they are above the threshold of $217.50 per week. (Federal benefits such as Social Security are off-limits.) Some states further restrict how much can be seized, but Oklahoma is not one of them.

By contrast, Texas, where Noble is based, largely prohibits wage garnishments – and bars installment lenders that sue from passing court costs on to borrowers. Noble operates 67 stores in Texas, but the company files no suits there, Gentry said in his response. He argued, however, that the primary reason for the lack of suits in Texas wasn’t the inability to seize a debtor’s wages or pass on costs, but rather “the strong economic standing of the state.”

His companies do what they can to avoid filing suit, he wrote, but, ultimately, it’s the customers who are responsible: “The loan information is fully disclosed to the borrower, they leave the branch office with money in hand and knowing their payment expectations. Yet when they don’t pay us back – you paint us as the bad guys.”

Wright, the former Noble employee, said she didn’t think the threat of lawsuits discouraged customers. “People are so desperate for money,” she said.

Thousands of Oklahomans have been sued more than once by high-cost lenders in the past five years, according to ProPublica’s analysis. Some consumers have been sued repeatedly over a period of years. For example, ProPublica identified 11 borrowers who had each been sued at least nine times.

One man and woman who live at the same address in rural Woodward County have been sued a total of 21 times. Attempts by ProPublica to reach them were unsuccessful. All but two of those suits were brought by subsidiaries of a single company, Ponca Finance. Ponca, which has filed at least 5,039 suits in Oklahoma in the past five years, declined to comment.

Michael Matthews, a lawyer with Legal Aid Services of Oklahoma who works with clients in Woodward and other nearby rural counties, said he frequently sees people entangled in suits over delinquent high-cost loans. Often, the borrower doesn’t appear in court or respond to the suit. “It’s such an easy process” for the lender, he said. Wage garnishment can follow swiftly.

Not appearing can pose a further danger, he said. Lenders can require borrowers to attend a hearing where they must declare what assets they have that may be eligible for garnishment. Borrowers who don’t show up can be declared in contempt of court, leading to a warrant for arrest.

This is not unique to Oklahoma. In 2012, the St. Louis Post-Dispatch reported that a similar chain of events had landed some Missourians in jail. Last year, Illinois modified its laws to make such warrants rarer.

In Oklahoma, the outsized presence of high-cost lenders like Ponca is most striking in rural counties. Woodward County, for instance, has a population of about 20,000. High-cost lenders file about 400 suits there every year, accounting for more than one-third of all collections suits filed in the county court. Since the beginning of 2009, more than 1,300 different Woodward residents, more than 5 percent of the total population, have been sued at least once.

Installment lenders like Ponca and Noble are responsible for the vast majority of suits by high-cost lenders in Oklahoma. State law allows annual interest rates on such loans to range above 200 percent.

Not all installment lenders are equally aggressive, however. Some sued far less frequently than others, despite having dozens of locations in Oklahoma.

A high number of suits might indicate a lender is relying on “aggressive collections methods rather than looking at a borrower’s reasonable ability to repay,” said Tom Feltner, director of financial services at the Consumer Federation of America.

Gentry, the Noble executive, rejected the idea that his company might be doing a poor job of making sure his customers could make their payments. His company has operated for more than 30 years, he said, and would not have survived with sloppy underwriting.

Paying for a Lawyer Who Doesn’t Show

In Mississippi, the poorest state in the country, the largest installment lender is Tower Loan.

Mississippi laws prevent installment lenders from charging the triple-digit rates common in some other states, but Tower has ways of magnifying the cost of borrowing. The company, for instance, packages expensive but nearly useless insurance with the loans and encourages its customers to renew their loans over and over – both common industry practices.

Attorney Fred Rogers, whose firm Rogers, Carter & Payne represented Tower in the suit, said that attorney’s fees are set by the judge. “Certainly it would have been a lot easier for the debtor just to pay” in the first place, he said. Tower said in a statement that it only sues as a last resort.

The company’s ideal customer is someone “who can’t ever get out of debt,” said Josh Lewis, who worked at a Tower store in rural Yazoo County in 2010.

“It was sad watching low-income people get in that hole,” said John Barfield, who worked at a store last year. “It’s very, very common at Tower Loan.”

For many borrowers, the cycle of debt ends with a lawsuit – and more profit for Tower. Tower commonly sues borrowers and obtains judgments that allow it to continue to charge more than 30 percent interest, court records show. In Hinds County, home to Jackson, the state capital, Tower has filed at least 3,235 suits since the beginning of 2009, according to a ProPublica analysis. That’s about half of all suits filed by high-cost lenders in the county during that time.

In a statement, Tower said it only sues as a last resort and that its stores in the Jackson area have a “much larger than average customer base.”

“We value our customers and it is our desire to contact them and work through their financial problems,” the company said. “Unfortunately, for the risk we take making small loans it is necessary to file suit sometimes to collect the money we have loaned.”

But the company has found another way to make money through such judgments.

According to Hinds County Court records, Tower often retains an attorney named John Tucker to represent it against delinquent borrowers. Tower sets his fees at one-third of the amount owed – a $3,000 debt would bring a $1,000 fee, for example – and asks courts to compel borrowers to pay Tucker for suing them.

Tucker is an executive at Tower Loan, its vice president and general counsel. Though he files suit after suit on the company’s behalf, he does not frequently appear in court in Hinds County. In fact, said Judge Melvin Priester, who sits on the County Court there, “I’ve never met him.”

Tucker need not appear in court to collect the fee. He needn’t do much work at all. “The fact of the matter is, collection work is a forms practice,” Priester said. “And by that I mean every form that they need, they already have on their computer.”

Tower only seeks Tucker’s fee when the borrower doesn’t raise a defense, making victory automatic, Priester said. In the rare case that a consumer contests one of Tower’s suits, Tucker is routinely replaced by another, outside attorney, who handles the case, court records show.

Still, Tower defended its practice of charging borrowers for Tucker’s services. The company said it retained Tucker because, “We are unaware of attorneys in our state who not only have the skill and extensive experience in this area that Mr. Tucker has, but who can also perform this service for less.”

Priester said that, while such practices concern him, there is little he can do: Tower’s loan contracts specify that if the company is required to sue to collect, it is entitled to “a reasonable attorney’s fee of 33 1/3% of the amount delinquent.”

Mississippi law allows lenders like Tower to define what’s “reasonable.” Other states cap attorney fees at far lower rates. Missouri, for instance, restricts them to 15 percent of the delinquent amount. Oklahoma caps them at 10 percent in most cases.

“Something should be done about that,” said Paheadra Robinson, director of consumer protection at the nonprofit Mississippi Center for Justice. “On top of the inflated interest that consumers are paying, you have this inflated legal fee.”

Mississippi’s laws make it easy for creditors like Tower to pursue debtors and inflate their obligations, and Tower takes advantage, said Priester. “If a person falls behind, [Tower is] very quick to come into court and take a judgment.”

Tower, which has a total of 181 locations across five states in the South and Midwest, also often sues its customers in Missouri. There, it filed more suits in the past five years than all but Speedy Cash, according to ProPublica’s analysis. Tower is owned by the publicly traded Prospect Capital Corp., which invests in more than 120 mid-sized companies across a range of industries. Among those companies are Speedy Cash and two other high-cost lenders.

Lewis, the former Tower employee, said he was struck by how routine filing suit against customers and seizing a portion of their wages can be. “It destroys people’s lives.” To work there, he said, you “have to be very thick-skinned.”

Mayeta Clark, Mike Tigas and Eric Sagara contributed to this report.

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