FTC heeds Franken’s call for review of debtors being thrown in jail
July 19, 2010 by Todd Murray · Leave a Comment
Last week, Minnesota Senator Al Franken issued a press release calling for a review of the practices and procedures that are causing increasing numbers of consumers to be thrown in jail in debt collection cases. Here’s the press release:
WASHINGTON, D.C. [07/15/10] – U.S. Sen. Al Franken (D-Minn.) called on Federal Trade Commission Chairman Jon Leibowitz to take immediate action to address possible illegal activities by debt collection firms in Minnesota and across the country.
“Right now, Minnesotans are struggling to make ends meet. The last thing they need is to become victims of debt collection abuse,” said Sen. Franken. “Recent reports raise serious questions about whether our current laws go far enough to protect consumers, and I want to make sure Minnesotans aren’t at risk of being harassed or improperly jailed.”
Recently the Minneapolis Star Tribune published two articles detailing the disturbing practices of some debt collection agencies in Minnesota. The article cites a sharp rise in the use of arrest warrants against debtors, resulting in an increasing number of Minnesotans finding themselves behind bars for old or minor debts. The paper attributes the rise in arrests to the growing debt-buying industry that profits from buying people’s debts and the poor economy. Agencies can then use the court system to collect debts, as bail is frequently set at the amount the debtor owes.The Star Tribune also discovered that Minnesotans are more frequently finding themselves pursued by debt collection agencies for debts that they don’t actually owe or debts that they already paid.
Sen. Franken’s letter to Chairman Leibowitz can be read here.
You can read the Star Tribune’s articles, “In Jail for Being in Debt,” and “Phantom Debts, Real Anguish” on their website.
In response to Franken’s letter, the Federal Trade Commission has agreed to take a harder look at the process for potential abuse.
“We’re trying to identify what the practices are, under what conditions people who may have consumer debt collection claims against them may be jailed, and whether such practices are in conformity with federal law,” said Julie Bush, a staff attorney in the FTC’s division of financial practices. She said the inquiry was not a formal investigation.
Bravo to Chris Serres at the StarTribune, who’s excellent article has been the catalyst for political action (or at least lip service about political action).
Banks now need your permission to enroll you in overdraft protection
July 2, 2010 by Todd Murray · Leave a Comment
Starting today, banks have to get your permission to enroll you in an overdraft protection program. This is one of the many consumer-friendly provisions of the CARD Act passed earlier this year.
As many of you know already, an overdraft protection program links your checking account to your savings account, so when you overdraw your checking account, the money is automatically transferred from your savings account to cover the overdraft. Of course, banks charge a fee to do this, usually around $40, even if you only overdraw your account by a few dollars. This is one reason why some commentators have referred to overdraft protection as the “$40 cup of coffee.” Before the enactment of the CARD Act, banks didn’t have to get your permission to enroll you in this program. Now they do. So if you’re asked if you want to enroll in the overdraft protection program, consider whether you’re willing to pay $40 for a cup of coffee before saying yes. Or better yet, keep your checkbook balanced.
Banks Must Now Ask You To Opt In To Debit Card Overdraft Plans | The Consumerist | July 2, 2010
(photo: 2Tales)
New report on debt buyer lawsuits
June 14, 2010 by Todd Murray · Leave a Comment
Last month, a team of organizations that provide legal help to low-income people issued a report on debt buyer lawsuits in New York City. The study draws on a sample of debt buyer lawsuits brought by 26 different debt buyers from 2006 to 2008. The study refers to this as the “Court Sample”. The study also draws some data from a sample of callers to New York City’s Neighborhood Economic Development Advocacy Project. The study refers to this as the “Client Sample”. Here are some of the study’s key findings:
- Debt buyers won more than 90% of the lawsuits they filed, most of them by default judgment.
- Not a single person in the Court Sample was represented by a lawyer. Overall, only 1% of people sued by debt buyers were represented by an attorney.
- Only 10% of the people sued by debt buyers answered the lawsuit.
- At least 71% of the people in the Client Sample were either not served with the lawsuit or were served improperly.
The first three findings don’t surprise me in the least. It’s long been known that debt buyers have a difficult time obtaining evidence for their case from the original creditor. They get away with filing so many lawsuits only because most of the people that the debt buyers sue can’t afford to hire a lawyer and don’t know enough to answer the lawsuit. So they win the case by default, not because they have strong evidence. And while I suspected that there were frequent issues with bad service in debt buyer cases, I’m a little shocked by how high the rate in this study actually is.
Based on its findings, the study makes the following recommendations:
- Prohibit debt buyers from filing suits without evidence.
- Ensure judicial review of default judgments
- Increase legal representation for people sued by debt buyers.
- Aggressively monitor and regulate process servers.
These are all excellent suggestions. Here in Minnesota, the state legislature is currently working on a bill that would require debt buyers to provide certain documents proving their claim before the court grants them a default judgment. But because of state budget shortfalls, it’s unlikely that Minnesota will see judicial review of default judgments or increased state funding for legal representation for low-income people any time soon. I strongly believe that someone needs to introduce a bill that calls for greater oversight and tougher regulations for Minnesota process servers. One of the fundamental tenets of our judicial system is proper notice to all of the parties, and based on the findings in this study, many people that are sued by debt buyers don’t received proper notice. It remains to be seen whether this is deliberate or sloppy, but I have my suspicions.
Debt Deception: How Debt Buyers Abuse the Legal System to Prey on Low-Income New Yorkers (PDF) | May 2010
If you live in Minnesota and have been sued by a debt buyer, feel free to download and use my free Answer form and instructions. And if you would prefer to have an attorney defend you against a debt buyer lawsuit, feel free to contact me.
Star Tribune story on people being put in jail by debt collectors
June 9, 2010 by Todd Murray · Leave a Comment
Over the weekend, the Star Tribune ran a story about people that have been put in jail by debt collectors. As I’ve written about in the past, these people are not being put in jail for not paying their debts. Instead, they’re being jailed for not filling out a court-mandated form or for not appearing at a court hearing. But as the story points out, the problem is that many of these people: (a) never received the court forms or notices; or (b) had no idea that they could go to jail if they didn’t follow the rules.
This is yet another example of debt collectors using court rules to bully and intimidate people to make a buck. And while I agree that there should be penalties for not following court rules, this is going too far. No one should end up in jail from a debt collection case. Ever. Period. End of story.
In jail for being in debt | Star Tribune | June 9, 2010
Is jailing debtors the same as debtors jail? | Star Tribune | June 9, 2010
What to know: Avoiding warrants | Star Tribune | June 9, 2010
Top five companies using debt arrest warrants | Star Tribune | June 9, 2010
(photo: mksfly)
Rethinking the garnishment exemption process
June 7, 2010 by Todd Murray · Leave a Comment
I’m often asked whether a creditor can garnish a bank account that contains social security (or other exempt money). The answer–at least in Minnesota–is that creditors can garnish your bank account containing exempt money. They just can’t keep the exempt money if you properly claim an exemption. Unfortunately, the account can remain frozen for a couple of weeks while the exemption process plays out. Obviously, not having access to an account for a couple of weeks results in bounced checks, unpaid bills, and bank fees for most people.
Despite the flaws, creditors argue that this is the fairest approach because the creditor doesn’t know whether exempt money is in the account. Only the debtor has that information, so it makes sense to put the burden for proving the exemption on the debtor. While true, this argument completely ignores the role of the third party to the garnishment process–the bank. Many consumer advocates have long argued that banks get an unjustified free pass in this situation. And this argument makes some sense, especially in an age where most federal benefits are delivered electronically to a person’s account. Here are some of the suggestions bouncing around:
- Give debtors an opportunity to claim an exemption before their accounts are garnished.
- Require banks to review the account in question, and refuse the garnishment if all the funds in it are exempt. If the exempt money is commingled with non-exempt money, the bank should allow the garnishment to reach only the non-exempt money. Banks, of course, will argue that this places too high of an administrative burden on them. But it’s hard to take this argument at face-value when you consider that banks are making a bunch of money by charging consumers a fee each time their account is garnished.
- Along the same lines as the previous suggestion, force banks to create a separate account for the exempt money. This way, it will be easy for the bank to determine if the debtor is receiving exempt money and how much.
- Prohibit bank garnishments if the account balance is below a certain dollar amount. Creditors will obviously argue that this creates the potential for abuse by debtors, but there is some legal justification for it. For example, most states have laws that allow only a certain portion of a person’s wages to be garnished. These laws recognize that people need some money to live on. Why can’t we apply this principal to bank garnishments too?
I think the third option is probably the fairest compromise, and I often recommend that my clients take the initiative and open a separate account to put their exempt money into. This approach allows consumers to have unrestricted access to exempt money, minimizes the administrative burden on the bank, and still gets the creditor all the money they’re entitled to.
What do you think? Share your thoughts below.
Feel free to download my free guide: How to Survive Garnishment. It’s packed with information and tips for handling garnishment. And if the guide doesn’t answer your questions, I offer 30 minute garnishment consultations for $150.00. Please click here to contact me and set one up.
(photo: suavehouse113)
