Kim McRae doesn’t remember exactly what she bought with a credit card in the early 2000s. It was probably Christmas gifts for her grandchildren, and groceries at Nob Hill and Trader Joe’s, the 78-year-old surmises. 


McRae says she tried to work out a payment plan for the $6,185 she owed but didn’t have. “I said I would pay back monthly as I could, and they just simply laughed their heads off,” she says. 


In 2006, years after she cut up the HSBC card, she got sued by Midland Funding, a company McRae had never heard of. “I never really knew who was trying to collect the money from me,” she says. “I just tried to ignore it. I got caller ID. But their number was always blocked out, and since my daughter’s number is also blocked out, that didn’t help anything.” 


It was about that time that McRae, who rents a home in Pacific Grove and lives on a fixed income of under $25,000 a year, was prescribed blood-pressure medication. 


She ignored a summons to appear in Monterey County Superior Court, and three months after Midland filed suit, the company won a default judgment against her. She was ordered to pay the outstanding card debt, plus almost $400 in interest, $225 in court costs and $800 in attorney fees. 


That’s not uncommon for how Midland’s more than 900 lawsuits filed in Monterey County go, based on the Weekly’s review of about 50 cases filed since 2007. Midland, a San Diego-based subsidiary of Encore Capital Group, purchases consumer debt for pennies on the dollar from banks like HSBC, Chase, Bank of America and Citibank. 


“Customers often ask why Midland Credit Management is servicing their debt rather than the original lender,” according to Midland’s website. “When a lender does not receive payment on an account for a specific amount of time, they may decide to close your account and turn it over to collections.”


According to a statement by Minnesota Attorney General Lori Swanson, who won a $500,000 judgment in December against Midland for robo-signing lawsuits, Midland buys debts from credit-card companies at about 3 cents per dollar. That means most of what a consumer pays Midland is profit. 


Citibank and HSBC did not respond to repeated requests for comment regarding their practice of selling unpaid consumer debt. Even when sales contracts are included in court papers, the amount a debt-buyer pays is typically redacted. 


Only about five in every 100 accounts reaches litigation, according to Julie Reynolds, director of corporate communications for Encore. “Litigation is a last resort for our company,” she wrote by email.


Midland is one of several active debt-buyers that’s become a “frequent filer” in Monterey County courts, with 20-some boilerplate complaints filed every month for the last six months. 


“This is a high-volume and small per-case value [business],” says Salinas attorney Lyn Woodward, who’s represented Midland in the past and still does debt-collection cases. “The typical unsecured credit card is usually under $20,000.” 


That means debt-collection by Midland and its competitors, including Asset Acceptance and CACH (a subsidiary of Denver-based Square Two Financial), are unlikely to drag consumers into bankruptcy, even though they’re common creditors on Chapter 7 cases. 


But in a Feb. 5 hearing, a general contractor told Monterey County Superior Court Judge Kay Kingsley his outstanding credit-card debt might force him to file bankruptcy. 


“Have you considered bankruptcy?” Kingsley asked Dennis Palma, who’s unemployed and hadn’t been able to pay off a business debt after his business crashed in 2008.


“For $50,000 I didn’t think I needed to,” Palma said, “but I might have to.”


After the hearing, Elliott Sanford, representing Asset Acceptance, approached Palma in the hallway and extended a handshake. “Good morning, Mr. Palma,” he said. “We didn’t expect you to be here today.”


That’s typical for the junk-debt industry, according to a 2012 paper in Clearinghouse Review. “They are filing these lawsuits based on two historically accurate assumptions,” University of Maryland law professor Peter Holland writes. “(1) The vast majority of consumers will not show up, and (2) a majority of judges will award a default judgment.” 


Less than 1 percent of defendants in collections cases are represented by an attorney, Holland found. 


Since small claims court is reserved for non-attorney cases, these corporate cases go directly to civil court. That leaves people like Palma, who wore jeans and walked with a limp, facing off against trained attorneys in suits and ties. 


“It’s scary,” says Kellie Morgantini, director of local nonprofit Legal Services for Seniors. “Especially for a client who has this debt that may be 10 years old. You would’ve had to keep track of your statements for 10 years, and you don’t know what this is about.”