The Enforcer

Misfortune is Daniel N. Gordon's best friend.

No Oregon lawyer files more lawsuits—or wins more—than Gordon. He doesn't do divorces, car accidents or medical malpractice.

Instead, he is the lawyer that banks and other creditors call most often to pursue people who aren't paying their credit-card bills.

Debt collection is one of Oregon's—and the nation's—fastest-growing businesses. Sophisticated companies buy up portfolios of bad credit-card debt, often at pennies on the dollar, in a kind of salvage operation.

And Gordon is their hammer.

In Gordon's world, it pays to be aggressive. In 2010, the latest year for which there are figures, Gordon's law firm filed 9,151 lawsuits in Oregon. That's a lawsuit every 15 minutes courthouses were open, and one of every eight civil lawsuits filed in the state that year.

Gordon also practices in Washington and Idaho, flying his six-seat Cessna across the Northwest to attend court hearings.

Businesses have always employed third parties to collect debts. And banks have found new ways to sell dud loans, beginning with the savings-and-loan collapse of the 1980s, which enriched financiers, such as Andy Wiederhorn of Portland's now-defunct Wilshire Financial Services Group.

But in the past five years, the debt-collection industry has spread across the nation like an oil spill, thanks to an explosion of bad credit-card debt. The federal Consumer Financial Protection Bureau says more than one in 10 American consumers today are in the collection process. 

In the wake of the global recession, American banks are dumping as much as $100 billion in credit-card debt annually. Bad credit-card debt is now a commodity like soybeans or coal.  And lawyers such as Gordon allow buyers to turn the new commodity into gold.

The market is confrontational. Debt collectors generate more complaints to the Federal Trade Commission than any other industry.

FTC and state investigations have found that debt collectors rely increasingly on shoddy, inaccurate paperwork. The results are mistaken identifications, attempts to collect debts not owed, and harassment—often done under the authority of the courts. 

In Oregon, consumer complaints against debt collectors did not make the state Department of Justice's top-10 list in 2000. Last year, however, debt collectors ranked second on the list, behind only telemarketers, racking up 1,032 complaints. 

In the past decade, Gordon has had 17 ethics complaints filed against him with the Oregon State Bar, and 55 consumer complaints with the Oregon Department of Justice.

The state bar disciplined him once and admonished him twice, but the DOJ hasn't had the same success: A 2011 investigation alleged Gordon's methods violated Oregon's Unfair Trade Practices Act, and that he employed "unconscionable" collection practices. Rather than capitulating like others in his industry, Gordon turned right around and sued the DOJ, claiming the agency had no authority to rein him in.

He won.

"The attorney general's office was acting in a lawless manner," Gordon says in a gravelly accent belying his Yonkers, N.Y., upbringing.  “When they do that, they need to be slapped.”

Lawmakers have sought to toughen debt-collection laws since 2009. But Gordon's recent victory over the DOJ raises questions whether the state can actually police the burgeoning industry and bring collectors to heel if they break the law.

"What we have today is a vicious system of drive-by lawsuits," says John Gear, a Salem consumer lawyer. "Debt buyers acquire spreadsheets full of incomplete information and turn them over to some legal minion and say, 'Sue them all.'"

Linda Houlihan knows what it's like to tangle with Daniel Gordon.

Houlihan, 59, of Oregon City, says her late husband's medical bills crippled her financially. He died of pulmonary fibrosis in 2004.

In 2006, she failed to pay $580.36 on a credit card issued by Capitol One Bank.

Capitol One hired Gordon to go after her.

Houlihan is one of 30 million people every year who fall so far behind on their debts that banks take action to collect. In many ways, Houlihan's case was routine. On Aug. 16, 2006, Gordon served notice he was going to sue her. She paid in full.  

"I believed the matter was settled and so the case would be dismissed," she says.

But Gordon proceeded with the lawsuit anyway. A month later, Houlihan received notice from a state court saying Gordon had won a judgment against her for $1,594.30—the original debt, plus court costs and Gordon's legal fees.

Houlihan, a former loan officer now working as a manager for a grocery chain, says she was shocked. She fought back, filing a bar complaint against Gordon, alleging he'd made "false and misleading statements to the court."

A year later, the bar's investigation found Gordon had violated ethics rules.

"Gordon admits the affidavit and other documents he signed and submitted were inaccurate," the state bar investigation found. "He failed to confirm the accuracy of the information before he signed and submitted them to court."

On Feb. 23, 2009, the bar reprimanded Gordon for "conduct prejudicial to the administration of justice."

"I screwed up," Gordon says. "I question whether it was an ethical matter. It was a negligence issue."

In the end, it took 18 months to get the judgment against Houlihan vacated and removed from her credit report.

"It was a hard road," Houlihan says. "If somebody didn't have the background I had, you'd be dead in the water."

Banks are the primary issuers of credit cards. The cards are lucrative because banks charge rates of interest far higher than their costs of borrowing. But federal rules also require banks to write off delinquent accounts 180 days after the date of last payment.

Some banks try to collect the debts themselves. But they have increasingly sold those debts to third parties, according to a January 2013 investigation by the Federal Trade Commission. Debt collectors paid an average of 4 cents on the dollar for the debts the FTC examined. 

Even critics of debt collectors, such as Keith Karnes, a Salem consumer lawyer, say selling bad debts allows banks to recoup some of their losses. Otherwise, Karnes says, "The banks will pass those costs along to the rest of us."

Debt buyers try to collect the debt or sell it to other buyers. 

In its examination of billions of dollars of such debts, the FTC found banks often sell debt that is insufficiently documented—lacking proper identification of the debtor or correct account information and containing affidavits that have been "robo-signed." (That same problem—poor documentation of the actual debts—has complicated the home-foreclosure crisis.)

The FTC found debts that had already been paid but were not recorded or had been discharged in bankruptcy court—something lawyers call "zombie debt."

And even though most debts the FTC reviewed were valid, the sheer volume of debt flowing to collectors means the number of consumers victimized by shoddy paperwork is large. 

"Debt buyers seek to collect on more than a million debts each year that consumers assert that they do not owe or that they owe in a different amount," the FTC report says. "This is a significant consumer protection concern."

The result, the FTC and consumer advocates say, is a system in which people are being asked to pay debts they may not owe. Such problems are compounded in court. 

"The system for resolving consumer debt disputes through litigation is seriously flawed," the FTC report says. "Debt collection complaints often do not contain sufficient information to allow consumers to admit or deny the allegations and assert affirmative defenses."

National consumer groups have made reforming debt collectors' litigation machine a top priority.

"This current reality reflects loosened lending standards of recent decades and the economic collapse," says Lisa Stifler, policy counsel at the Center for Responsible Lending in Durham, N.C. "Those factors combined with weak record-keeping by creditors result in the current system where consumers are wrongfully sued or unknowingly sued for debts they don't owe."

Oregon laws are friendly to debt collectors. And over the past decade, the number of collectors operating here has quadrupled from just over 200 to more than 800. 

Oregon's statute of limitations on credit-card debt—six years from the date of last payment—is twice as long as in many states.

“That is very favorable to debt buyers,” says Lynn Clark, a lawyer at Portland State University Student Legal Services. 

A 2012 Oregon Court of Appeals decision shows the danger to consumers. Gloria Stevens, a Washington County resident, claimed the statute of limitations had expired on a $2,183 credit-card debt she owed. A Washington County judge ruled against Stevens and ordered her to pay the debt and Gordon's fees of $24,262—11 times what she originally owed. (The Court of Appeals upheld the decision but ordered a reconsideration of the legal fees.)    

“If the debt collector can prove any semblance of being correct, he’s going to get fees,” Karnes, the consumer lawyer, says. 

About 90 percent of the time, Gordon and other attorneys for debt buyers win default judgments against the debtor. That means the judge rules in favor of the debt collector because the defendant did not show up.

There are several reasons people almost never show up in court when sued by a debt collector. They may be trying to dodge the debt. They may also be unaware they're being sued, or they may just be afraid of the legal system, or they may not think the debt is valid. 

Consumer lawyers say judges often side with debt collectors because the presumption is, if a lender says a debt exists, it probably does. 

"The collectors often have some veneer of paper," says Karnes. "That leads them in some cases and places to win judgments in the skimpiest of cases."

Default judgments are powerful because they allow the winning lawyers to claim the debt and attorney fees. Such judgments are valid for 10 years and can be renewed for another 10. 

So if the debtor comes into funds any time within two decades after the judgment, Gordon's client can garnish a bank account or collect on a lien. 

Gordon says that's appropriate.

"The majority of people I sue have been not very astute in managing their finances," he says. "They used their credit cards as a piggy bank. That's not very smart. I don't control whether people are smart or not."

A bull of a man at 5 feet 10 inches and 235 pounds, Gordon takes no guff—especially when the legal tables are turned on him. When a process server came to Gordon's office a few years ago, state bar records say Gordon opened a window and yelled at the man. When he later tried to serve Gordon at home, Gordon slammed the door in his face. 

Gordon works out of a fortresslike office. The window shades on his stand-alone building are drawn, and the front door is always locked. His clients require heavy security, he says, but he also hears occasionally from angry debtors. One of Gordon's employees carries a gun—something Gordon says he doesn't discourage.

“People have threatened us,” says Gordon.  “If they came at me, they’d probably end up on the ground, bleeding.”

Gordon's opponents say he's a savvy operator.

"He's a smart man," says Hillsboro lawyer Bret Knewtson, who has faced Gordon in court. "Probably a better lawyer than I'll ever be."

Gordon did not set out to be a debt collector. The son of a pediatrician father and homemaker mother, he earned a master's degree and a Ph.D. in sociology at the University of Wisconsin. 

"Back in those days, I guess you would have called me a liberal," Gordon says. "I've gotten more conservative as I've gotten older. I'm more in the Tea-Party mode now."

He taught at Dartmouth College for three years before earning a tenured associate's position at the University of Oregon. But Gordon says he grew tired of academia. 

“After a time, I just decided that it wasn’t for me,” Gordon  says. “I liked research, but I didn’t like being a teacher.”

He started attending the University of Oregon law school in 1975 while on sabbatical. After graduating, he went into general practice doing civil and criminal work. He says his debt-collection work really expanded in the past decade, and he's done nothing else for the past seven or eight years. 

Now, Gordon says, he's preparing to wind down his practice. He says he has no regrets. 

"I've never looked back," he says of his shift from sociologist to debt collector. "I didn't plan this, but it happened and it's been a pretty nice ride."

As the economy plummeted, Gordon's debt-collection business soared. 

State records show he filed 2,369 lawsuits in 2008, 3,998 cases in 2009, and 9,151 cases in 2010.  

"The reason this business can work is, it's highly specialized," he says. "We do one or two kinds of debt, and we can automate processes. We are very efficient.” 

Gordon declined to comment on his firm's profitability. 

"I'm not Bill Gates," he says. "I know lawyers who make a lot more."

In 2009, then-state Sen. Suzanne Bonamici (D-Beaverton) passed legislation turning enforcement of laws regarding debt collectors over to the Department of Justice. Previously, the state Department of Consumer and Business Services regulated the industry. 

Then-Attorney General John Kroger told the Legislature that Consumer and Business Services "is focused on the collectors' duties to creditors in collecting debts rather than the collectors' duties to consumers."

Since then, the DOJ has won seven judgments or settlements against debt collectors, for such practices as calling at inconvenient hours, wrongly identifying debtors, and threatening people with jail time if they don't pay their bills.

Documents show Milwaukie-based Metro Area Collection Service, for example, was fined $30,000 in February for using offensive and insulting language when dealing with debtors and for threatening them with arrest, a warning they have no legal authority to make. Collectors also did not immediately identify themselves when contacting debtors. The DOJ has received 34 complaints against the six-employee collection agency since 2009.

And last fall, Leading Edge Recovery Solutions was fined $30,000 after the DOJ alleged one of its collectors failed to identify himself and threatened debtors that the amount of their outstanding bills could increase—a violation of state law.

But the biggest fish netted by the department was Derrick McGavic, a Eugene lawyer who, at the time, was king of the debt collectors. The agency forced McGavic in 2011 to quit the debt-collection business and surrender his bar license. 

That same year, the DOJ went after Gordon.

It alleged his firm “engaged in unconscionable tactics to collect on outstanding debts.” 

The complaints against Gordon mirrored the problems found across the nation in the January FTC report. After concluding its investigation, the DOJ believed it "had probable cause to prosecute Unlawful Trade Practices Act violations against the Gordon law firm.” 

The agency alleged Gordon's firm regularly tried to collect debts that were beyond the statute of limitations or not properly documented.

The Justice Department based its case on complaints from consumers such as Mary Clark.

Clark, a nurse who lives in Lake Oswego, complained to the DOJ about Gordon in 2010. Clark thinks because her name—which she notes is fairly common—and phone number were on an easily accessible website, Gordon's office matched her to records for another debtor with the same name.

"Gordon's firm was calling me at my work. I'd call them back and ask them, 'Who do I owe?'" Clark, 52, says. "They had no information at all. They were just fishing."

Eventually, records show, Gordon's people quit calling Clark in the fall of 2010 after she complained to the DOJ.

Jeff Shay was not so lucky. Shay, a 54-year-old Portland artist, says he's lived through a "super-long, intensely annoying" experience with debt collectors. He says they linked his name to "deadbeat folks" with the same last name.

"My credit is perfect," Shay says, "but I kept getting calls from these clowns trying to collect from me even though I didn't owe anything."

After he complained about Gordon to the DOJ, records show, the lawyer backed off. But Shay, a former engineering manager, says the problem is systemic.

"There's a huge, messy, uncorrectable database problem, and there's nobody who's making money with any incentive to fix it," he says. "The only way it gets fixed is some outside source stepping in, which is about as likely as my flying off the Broadway Bridge."

Gordon  says he might have made mistakes, but he's done nothing intentionally wrong. 

"Are there errors in the data? Sure, but these banks store their information digitally," he says. "The business records of the bank become the business records of the debt buyer."

When the DOJ went after Gordon, the odds were against him. He had seen the agency crush fellow debt collector McGavic.

"Derrick did things that I would never do," Gordon says of McGavic, who died last year. "He was essentially committing wholesale perjury by submitting false affidavits around the state."

Gordon fought back. Last year, he sued the DOJ, arguing the state's Unlawful Trade Practices Act did not apply to lawyers acting on a client's behalf. Only the bar and the Oregon Supreme Court, he argued, could police lawyers.

On March 20, Lane County Circuit Judge Karsten Rasmussen agreed.

"They lost. I won," Gordon says. "Sometimes government officials use their authority to spend lots and lots of money. They picked the wrong guy to go after."

DOJ spokesman Jeff Manning says his agency is considering whether to appeal the Gordon case while continuing to pursue rogue debt collectors.

"Some debt collectors are intimidating people with threats of jail time and harassing them with endless phone calls," Manning says. "Much of the time, collectors for debt buyers have no documentation proving the original debt and routinely call the wrong people. Then these debt collectors also add interest, legal fees and processing fees, oftentimes surpassing the original debt."

Gordon's legal victory over DOJ, however, has the potential to undo whatever modest gains the state has made in policing debt collectors.

For years, the state's financial services lobby—including banks, credit unions and debt collectors—has fought reform. In the past three years alone, political action committees funded by those groups have contributed nearly $800,000 to legislative campaigns. Bills pending in Salem would require debt collectors to provide better documentation and make going to court less onerous for debtors. Similar legislation died without a vote in 2011. 

Jim Markee, a lobbyist for the Oregon Collectors Association, says the legislation overreaches and would be "putting up roadblocks to people trying to collect legitimate debts.” 

But Angela Martin, a lobbyist for Economic Fairness Oregon, which has advocated reining in debt collectors for three sessions, says the FTC report and increasing complaints to the DOJ provide evidence that change is needed.

"Who owes, how much they owe or the age of the debt are crucial questions that need to be answered with facts, not 'trust me' assertions passed down from the big banks," Martin says. "We're asking Oregon lawmakers to restore the principle of innocent until proven guilty by requiring debt buyers to show proof of the wrongdoing before filing a lawsuit."

Martin says if one reform measure, House Bill 2826, passes, Gordon's victory over the DOJ will become less important, because the legislation will force third-party debt collectors to provide ironclad documentation to their attorneys.

Gordon says at clients' requests, he stopped seeking legal fees on default judgments about a year ago. And Gordon says critics such as Martin ignore the fact that the vast majority of debtors he and other collectors pursue owe the money.

Without debt collectors, he says, credit would be scarce for everybody.

"If creditors had no way to collect delinquent accounts," Gordon asks, "how easy would it be to get a credit card in Oregon?"

But Rep. Paul Holvey (D-Eugene), chairman of the House Consumer Protection and Government Efficiency Committee and sponsor of the pending bill, says predatory collection practices are a more real threat to Oregonians than the possibility banks will stop pushing credit cards. "We want to hold debt collectors and their attorneys to higher standards," Holvey says. “We want to see an end to unfair and unethical practices.” 

WW intern Matthew Kauffman contributed to this story.

WWeek 2015