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A Project of The Annenberg Public Policy Center

Stretching the Facts in Idaho

A hard-hitting TV ad from Rep. Mike Simpson of Idaho goes a little too far in its attacks on challenger Bryan Smith’s debt collection business:

  • The ad says Smith’s business “targeted veterans and the disabled.” The Simpson campaign provides a detailed example of a disabled vet who was sued for default. But there is no evidence the firm specifically “targeted” those groups, and leaves the misleading impression that it does.
  • The ad also says a state judge called Smith’s business “excessive” and “unconscionable.” The judge was talking about a case where the interest was allowed to compound over many years to the point where it was more than four times the outstanding principal. But the original lender set the rate and allowed it to compound. Court records show Smith’s firm purchased the debt at a discount and filed suit to collect it, but did not continue to charge interest.

The Simpson-Smith race has attracted national attention. The May 20 primary features an incumbent Republican backed by the Chamber of Commerce against a tea party challenger backed by Club for Growth. Simpson is an eight-term congressman. Smith is an attorney at the firm Smith, Driscoll & Associates.

In the ad “Collection,” the Simpson campaign takes aim at Smith’s debt collection businesses, Diversified Equity Systems and Medical Recovery Services. Also, his law firm, Smith Driscoll & Associates, provides legal representation for DES. When we contacted the Smith campaign, it did not dispute that Smith has a financial stake in the businesses, but it did take issue with some of the ad’s claims, as we will see.

The ad starts by saying “Excessive. Unconscionable. That’s how one Idaho judge described Bryan Smith’s debt collection business.” In a 30-page document on Smith’s business dealings, the Simpson campaign cites the comments of state Judge Patricia Young during a July 3, 2013 hearing with lawyer Bryan Zollinger of Smith, Driscoll & Associates. The Simpson campaign notes that it got the information from a summary of the hearing, which was held via the telephone, not from a court transcript.

The Smith campaign provided us with audio of the hearing, and took issue with the claim that the judge was referring to Smith’s business when she used the words “excessive” and “unconscionable.” We reviewed the transcript and listened to the audio, and agree with the Smith campaign that the evidence does not show that the judge was referring to Smith’s debt collection business.

In the hearing, the judge handled two cases: Diversity Equity Systems v. Esther Garcia and Diversity Equity Systems v. Michael Kelly. In discussing the Kelly case, Young tells Zollinger: “I find this particular amount in this particular case exceedingly excessive based upon the original amount that was borrowed.” Young goes on to question why legal action wasn’t taken much earlier to avoid the interest from mounting so high for such a long time. She says in her experience it is common to file suit after three months or so. In this case, the judge said, Kelly made his last payment in 2008. The suit wasn’t filed until March 8, 2013.

The lawsuit shows the outstanding principal was $2,431.99 and the interest was $10,132 for a total due of $12,563.99. The final default judgment approved by the judge was for $13,349.99, including $600 in legal fees and $186 in court fees. No additional interest was charged after the suit was filed in March until it was settled in July.

Zollinger tells the judge that he files lawsuits as soon as he gets the cases. He said generally his client, Diversity Equity Systems, buys the debt “and it is already four to five years old and that is why they get a discount buying the debt.” The judge asks, “So, the original lender is what you are suggesting is holding onto them?” Zollinger responds by saying, “That is what I would assume. They are trying to get payment and they finally give up after a few years. That is when my client buys them and they are already at this point.”

Young doesn’t let Zollinger off the hook. She tells him, “But during the whole time interest was compounding, there were late payments, there were insufficient checks that kind of thing, but a lot was paid and I just — I just don’t get these from anybody else except you.” Moments later she says, “I just ask that you really look at these, Mr. Zollinger, because I really do think they are unconscionable.”

So, the judge is talking about the high interest rates charged by the original lender and allowed to compound for years by the original lender when she uses the words “unconscionable” and “excessive.” She does note, though, that she handles a lot of cases and “I just don’t get these from anybody else except you.”

Sarah Nelson, an adviser to the Simpson campaign, says the company bears some responsibility because it bought the outstanding loans and had the ability to waive the outstanding interest charges. “We believe it’s fair to state that they have a responsibility in the amounts being ‘exceeding[ly] excessive,'” she said. But that’s her opinion and it’s not what the judge said and not what the ad claimed.

The ad claimed that the judge called Smith’s business “excessive” and “unconscionable.” She didn’t.  It would be accurate, however, for the Simpson campaign to say that Smith’s business sued to collect “excessive” and “unconscionable” debt payments.

The ad goes on to say that Smith’s business “targeted veterans and the disabled who’ve struggled to pay medical bills.” That suggests that the business was singling out veterans and the disabled, but the evidence suggests that the firm was targeting people who had an outstanding debt — regardless of veteran status or disability.

The Simpson campaign says Diversity Equity Systems and Medical Recovery Services filed thousands of suits, but the 30-page document it provided listed just two involving veterans. When we asked the Simpson campaign whether it had evidence that veterans and disabled people were being targeted, it sent back details on the case of Medical Recovery Services v. Billy M. Carnes, which involved a counterclaim filed by the defendant that Smith’s law firm “unlawfully” took $1,640. But that’s just one case out of thousands. Nelson, Simpson’s campaign adviser, says that on that day Carnes was “targeted.” Yes, but the Simpson campaign presented no evidence that veterans and the disabled were targeted as a group.

The Smith campaign also took issue with the claim in that Smith’s business “charged interest rates as high as 99 percent.” Carrie Brown, a spokeswoman for the Smith campaign, says “DES does not charge any interest on the loans.” She points to the discussion between Young and Zollinger about the Kelly case, where DES bought the debt, sued in court for default and did not charge any additional interest on the loan after the suit was filed. “They are discussing the interest on the loan that was already agreed to by the lender. The attorney also notes that if the debtor pays the principle on the loan, DES forgives the interest that was added by the lender,” Brown said.

That’s all accurate. But the Simpson campaign is referring to a different case.

The Simpson campaign points to Diversified Equity Systems v. Jack Riggs. In that case, Riggs signed a contract with a lender called CashCall that included an agreement to pay a prejudgment interest rate of 99.24 percent. (Prejudgment interest is “a component of general damages, to compensate for the time that the plaintiff was denied use of the money or property in dispute.”) DES bought the debt from CashCall (although it’s not clear when) and filed suit on May 21, 2012, for default. Smith, Driscoll & Associates filed a motion Nov. 1, 2012, on behalf of DES to seek payment not only for the outstanding debt and interest but also to enforce the prejudgment interest agreement from June 1, 2008 to Oct. 29, 2012 — five months after DES filed suit and at least five months after DES bought the debt. On Nov. 23, 2012, the court agreed and awarded a total default judgment of $18,268.99 — including $11,054 in prejudgment interest and $4,526 in legal fees. The outstanding principal was only $2,523.72.

So, yes, the 99.24 prejudgment interest rate was set by the original lender and agreed to by Riggs. But DES won court approval to continue to charge the high rate months after buying the debt and filing suit.

Smith doubly benefited from such settlements, because of his financial stake in the law firm. On his personal financial disclosure statement required of all congressional candidates, Smith reported that he earned $208,480 from Jan. 1, 2012, to June 5, 2013, including a little more than $52,000 from DES.

We take no position on Smith’s business practices. That’s up to voters to decide. But the characterization in the ad of some of his business deals is not entirely accurate. It’s incorrect to say Smith’s debt collection business specifically “targeted veterans and the disabled,” and a state judge did not call Smith’s business practices “excessive” and “unconscionable.”

— Eugene Kiely