Kristal Dailey looks at a court document from Jefferson Capital Systems’ case against her. Photo by Nick Hagen for ProPublica.
This story was originally published by ProPublica.
Last November, Kristal Dailey looked at her weekly paycheck and realized about $150 was missing, a quarter of her take-home earnings from a factory just outside Detroit, where she makes just over $18 an hour.
“I’m like, ‘What the heck is this from?’” she said.
Dailey immediately reached out to her company’s human resources department. That’s when embarrassment and then anger replaced her initial shock.
Her check, she learned, was being garnished over a $1,500 debt that was at least five years old. The money was being taken by a collection company she’d never heard of, after a court hearing she hadn’t attended. The garnishment went on for more than eight weeks; no matter how much she worked, 25% of her wages were garnished.
“It was terrible,” she said. “I just had a baby, just got back to work. For them to start taking $150, $160 out was drastic to me.”
The original source of the debt was quite familiar to her: DTE Energy, the Detroit area’s largest utility company.
The company had quietly sold off Dailey’s debt in 2017, along with that of more than 290,000 other residential customers and nearly 14,000 commercial accounts, in a little-noticed financial maneuver, Outlier Media and ProPublica found.
The sale brought DTE just pennies for each dollar owed: $4.8 million in exchange for the right to pursue more than $282 million in debt. But for low-income customers whose debt was sold, it was a consequential event, thrusting them into the hands of a debt collector that aggressively sues people. Under Michigan law, these cases can result in creditors garnishing up to a quarter of a person’s wages, as well as refunds from their state income tax returns.
DTE officials declined to be interviewed and did not answer a list of detailed questions sent by reporters. Spokesperson Brynn Guster said in an email that the company is “focused on managing affordability for our customers” and that selling closed customer accounts lowers the burden on other customers.
The company’s debt sale practices are unusual. Outlier and ProPublica surveyed the 11 other investor-owned electric utilities that each serve at least 400,000 customers in the Great Lakes states of Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. All of them, including Consumers Energy, Michigan’s second largest utility company, said they do not sell debt. Five of the utilities also said they do not directly sue their customers over debt. The ones that do said they do so only on rare occasions.
Regulators in Michigan have paid little attention to DTE’s debt practices, even though utilities must receive the state’s approval for many other financial decisions. Outlier Media and ProPublica used a combination of publicly available disclosures, local court records and interviews with DTE customers to understand the scope of DTE’s debt sales.
These new findings follow a March investigative report by the news organizations that examined how DTE shut off customers’ power for nonpayment during the pandemic. DTE’s disconnection rate outpaced all other Michigan utilities owned by private investors and regulated by the state, according to this first-of-its-kind analysis.
Matt Helms, a spokesperson for the Michigan Public Service Commission, the state agency that regulates utilities and approves rate increases, said the commission is prohibited by state law from making management decisions for utilities, such as how they handle debt.
“Given statutory limitations, our focus is on ways to help customers from falling behind in the first place, avoiding situations where unpaid bills may end up in collections,” Helms said in an email.
U.S. Rep. Rashida Tlaib, who represents part of Detroit, has advocated for financial assistance that would help low-income people pay off utility debt. Informed of the reporters’ findings on DTE, she responded in an email: “Utility companies should not be in the business of selling consumer debt to debt collectors.”
DTE, which serves Detroit and nearby areas where large numbers of low-income customers struggle to afford utilities, did not reveal to the regulatory commission which company or companies were buying its debt — only that the debt had been sold. Through a search of court records, reporters identified Jefferson Capital Systems, a Minnesota-based company that buys all kinds of consumer debt, as the purchaser of at least some of it. ProPublica and Outlier made numerous attempts to contact Jefferson, which is owned by a private equity firm, but the company did not respond.
Collection companies that aggressively use the courts rely heavily on the fact that many people do not show up for their initial court hearings or show up without a lawyer to argue the facts of the case. Creditors then win the case swiftly through a default judgment and, in Michigan, this allows them to garnish wages and state income tax refunds.
Experts familiar with these types of legal cases said some people ignore legal notices because they don’t recall a debt from years before or don’t recognize the name of the debt collection company.
For these collection companies, volume is important, according to attorneys and researchers familiar with debt collection. The more lawsuits the companies file, the more default judgments they are likely to get, and the better their chance to collect via wage garnishments. Even while shut-offs for nonpayment of bills were briefly paused in Michigan in 2020, Jefferson Capital’s lawsuits didn’t stop.
It “happens every day. Happens hundreds of times a day,” said Charissa Potts, a Michigan bankruptcy lawyer who worked briefly for a third-party debt collector. “That’s the basis of third-party collection. That’s the business model.”
In Detroit’s 36th District Court alone, the state’s largest, Jefferson Capital filed more than 1,000 cases related to old DTE debt in the first six months of the pandemic, including the suit against Dailey that June.
Years before, she had been shut off by DTE. She then moved in with her partner, and he put the utilities in his name, though she still helps pay that bill. When she was sued in 2020, Dailey was pregnant and working at an industrial-pump-making factory, where her job was considered exempt from the state’s stay-at-home order.
Court records say Dailey was notified in person of the lawsuit by a process server, but she disputes that she was ever informed. After the default judgment against her, she eventually negotiated a payment plan with Jefferson Capital that suspended the garnishment and reduced her monthly payments slightly. But that was not enough to make up for the months where 25% of her paycheck was gone. Day care costs allowed for very little room in her budget, and shefell behind on her car payment.
“It threw me so far behind on bills, I’m still trying to play catch-up,” she said. “Even now I can’t pay the amount I’m supposed to pay.”
An unusual tactic
DTE handles customers’ debt in a variety of ways, working with them on payment plans or pointing them toward financial assistance opportunities. It routinely outsources debt collection to private companies, which is not unusual for a large utility. In general, those collection companies call and mail customers and then keep a portion of what they collect but return most of the proceeds to the company that hired them.
Unlike many of its peers, DTE uses yet another tactic, one that can lead to a court judgment: selling uncollected old debt to third-party debt collectors. In a statement, Guster said the majority of the debt in the sale that affected Kristal Dailey was at least two years old. Guster also said DTE only sells debt from “closed” accounts, meaning after a customer is shut off or moves away from the service area.
Although most of DTE’s debt sale information is private, reporters found a few details in financial disclosures the utility filed with the Michigan Public Service Commission. Those records show that DTE has sold debt at least three times in the past 15 years.
Soulardarity, an energy justice group in Highland Park, a city surrounded on all sides by Detroit, has begun to push back at the commission, calling attention to the toll debt sales take on Detroit-area residents.
“It feels like there’s this long cobblestone pathway of financial hell that they are exacerbating and encouraging the existence of,” Rafael Mojica, program director for Soulardarity, said of the commission. “We find it unacceptable, and MPSC needs to find it just as unacceptable.”
Helms, the commission spokesperson, said in an email that the question of whether utilities should use debt sales is something the state legislature would have to address. In an interview, Dan Scripps, chair of the Michigan Public Service Commission, said the agency’s focus is keeping customers out of debt in the first place and that sales are “fairly rare.” But while the sales may be rare, they have included the debts of hundreds of thousands of ratepayers throughout the Detroit area.
Reporters searched thousands of pages of utility commission filings and found mention of three DTE debt sales, in 2008, 2014 and 2017. Jefferson Capital is not mentioned in those records.But Outlier and ProPublica were able to verify the sale of some DTE debt to Jefferson Capital, one of the largest collection firms of its kind, through an examination of court data from Detroit’s 36th District Court.
In response to a request for debt lawsuits brought by DTE or Jefferson Capital on behalf of DTE, the 36th District Court provided records showing Jefferson Capital filed more than 3,100 cases between January 2019 and April 2022. That number does not include cases where DTE isn’t named in the court’s electronic records. Reporters were able to find additional cases like these by observing virtual court hearings.
By contrast, 36th District Court records did not show any cases where DTE directly sued its customers over debt during those three years. Guster, DTE’s spokesperson, said DTE does not directly sue current or former customers over debt.
The lack of uniform court data makes analysis of Jefferson Capital’s lawsuits throughout the entire DTE service area impossible, according to a spokesperson for Michigan Courts.
Using the courts to target large numbers of people is typical in the debt buying industry, said Jeff Reichman, a data scientist with January Advisors and a collaborator of the Debt Collection Lab, a Princeton University project that tracks and visualizes debt collection lawsuit data. “These debt buyers have a legal operation across the country where they can file cases like a machine,” he said. Reichman said the volume of cases means judges have less time to spend examining them for flaws, such as debt that is too old to collect or debt that is owed by another person.
To show regulators how debt sales affect customers sued by Jefferson Capital, Soulardarity asked one of its volunteers, Stephanie Johnson, to testify at a utility commission hearing in January where DTE was seeking a rate increase that would bring in an additional $388 million in annual revenue from ratepayers.
Johnson racked up her debt to DTE over more than a decade beginning in the early 2000s. She said she was raising a family and then went back to college to finish her degree. Johnson had a payment plan that kept her utilities on as long as she paid DTE a fixed amount each month, but the payments weren’t enough to keep her from building up a big debt.
In 2016, when she was no longer able to keep up with her bill, she said, she fell off her payment plan, and her entire balance of more than $5,000 came due, as is typical when such payment plans fall apart. When she couldn’t pay, she said, she closed her account and her husband took over the utility bill.
A lawsuit from Jefferson Capital, which had purchased her old debt, followed four years later. Johnson suddenly had to scramble to find money.
Following a default judgment, she said, Jefferson told her it would accept a lump sum payment of $3,600 to satisfy the debt. She borrowed the money from her mother.
Johnson, who works at a social service agency, is incredulous DTE sold her debt for a fraction of its face value so that Jefferson Capital could make a profit.
“When I really reflect on it, all DTE had to do was reach out to me and say, ‘If you can pay this much?’” she said. “Instead they sever the relationship with you, and then they sell your debt.”
She added: “You’re just trying to keep your life going. We are so dependent on electricity.”
All utilities have some portion of debt they determine is unrecoverable and write off their books. Utilities can then ask regulators to allow them to increase rates to cover these costs. The unpaid debt doesn’t make or break DTE’s bottom line. The amount that remains unrecovered is equivalent to less than 1% of the company’s average annual revenue, according to testimony on behalf of Michigan’s attorney general before the MPSC.
Consumers Energy, which serves about 1.8 million customers in Michigan, said it stopped taking customers to court over debt in 2019. The reason, a company spokesperson said, was the company “thought it was in the best interest of our customers.”
A spokesperson for ComEd, which delivers electricity across Northern Illinois, including Chicago, said the utility rarely takes residential customers to court over debt and can recover more money by continuing to collect on the debt than it would make in a one-time debt sale. Customers’ experience is another factor.
“ComEd wants all of our current and former customers to be treated fairly and with respect,” Tom Dominguez, communications manager for ComEd, said in an email. “By keeping this dialog open, we also have a chance to find one of our many bill-assistance options that can help these customers remain in service in the longer term.”
Dragged into court
Iris Foster-Ray joined her Zoom court hearing in May from her living room, alone, facing off against Jefferson Capital.
She ended up there after she lost control of her DTE debt during a period where one of her twin daughters was ill and her family was struggling with high medical bills. She said her daughter, who is now 20, has a rare circulatory disease, one that gives her heart palpitations and makes her prone to fainting. It took years of medical evaluation to properly diagnose her and, to help treat her condition, she needs to follow an expensive special diet.
Foster-Ray planned to explain all this to the judge, as well as how these financial stresses were worsened by Jefferson’s garnishment of $600 per month, which had begun in January. Foster-Ray, who works in billing at a local children’s hospital, was falling behind on her car payments, and her husband needed to pick up a second job.
Judge Ronald Giles sent her to a digital breakout room with an attorney representing Jefferson Capital. When they returned a few minutes later, they had not reached an agreement.
“I can’t afford that amount they’re taking out of my check,” Foster-Ray told the judge. “I have a disabled child, and I have a lot of medical —”
Giles cut her off.
“Hold on, hold on. I understand, but none of that deals with the issue,” he said.
That’s when reality set in. It was too late for Foster-Ray to defend herself against the original judgment, which had come at the initial hearing in the case.
Foster-Ray hadn’t been there that day. After she found the notice of the lawsuit on the door of her home in Detroit’s West Side, she didn’t know what to do. She’d never heard of Jefferson Capital and didn’t think it would be collecting on such old debt. Even after calling the company, she said, she still thought it might be a scam. So she ignored Jefferson’s notice.
With Foster-Ray absent from that initial hearing, the court had ruled in favor of Jefferson Capital by default. Foster-Ray spent half a day at the courthouse to file an objection to the garnishment. She thought she’d have the chance to explain her circumstances to a judge.
But the May hearing had one focus and it wasn’t whether she had to pay Jefferson Capital.
The court had already decided that; the only question on that day was how much she was going to pay each month.
An official from Detroit’s 36th District Court, who asked not to be named because they did not have permission to speak on this issue, said Foster-Ray’s experience is not unique.
The official understands how some people conclude that they don’t need to show up in court but emphasized how important it is to be there. “If you get something in the mail from Jefferson Capital, the first thought in your mind is ‘I’ve never done business with Jefferson Capital, why am I going to respond to this?’” the official said. “I think that’show some of our litigants get into a little bit of confusion.”
There are few protections for people who get sued by debt collectors. No state requires legal representation for defendants in private consumer lawsuits, leaving many people to fend for themselves. The National Consumer Law Center rates Michigan worse than all but four other states, giving it an F for failing to protect its residents in debt cases because it allows wide latitude for creditors to seize Michiganders’ property and income.
“Listen, the system sucks,” said Sergei Lemberg, the founder of Lemberg Law, a consumer law firm representing debtors in 29 states. “It’s the haves against the have nots.”
Collectors are “hiring people who know what they’re doing, against ordinary people. And they’re prosecuting people in the courts, and people are helpless,” he said.
Kristal Dailey, who also filed an objection to her garnishment, certainly felt helpless. At a garnishment hearing, she negotiated a payment plan, but it still left her overburdened. She quickly fell behind in payments, and Jefferson Capital went back to court to garnish her wages again. She is looking for part-time work on top of her factory job to pay off the $800 she still owes.
“You don’t have options,” Dailey said. “You have DTE or you have nothing, and it’s unaffordable, but you don’t have a choice.”
In Foster-Ray’s case, she and Jefferson Capital agreed to a payment plan at her court hearing: $150 a month. If she misses a payment, the company can resume garnishing her wages.
Foster-Ray accepts responsibility for falling behind on her DTE bills, but said she wishes the utility hadn’t sold her debt to a third party.
“I could have done a little bit more at the time,” she said of not paying off her original debt after her utilities were shut off in 2017. “I did push it back to the back burner because my child was sick.”
Jefferson Capital recently placed a lien on her house that will remain there until her debt is paid off. In addition to the money she pays Jefferson Capital every month, she must also still cover the cost of DTE’s service.
Her family’s July bill for gas and electricity — paid through her husband’s account since hers was closed — came to more than $500. She’s considering filing for bankruptcy.
“It’s like I’m going to work just to pay them,” she said.
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