The Chief Judge of the Court of Common Pleas in Delaware has issued an administrative directive that requires debt buyers to submit detailed proof with each collection lawsuit. The order mandates that debt buyers include the name of the original creditor, the last four digits of the account number, the name of the debt buyer purporting to currently own the debt, a complete list of every prior owner of the debt, and an itemized breakdown of the balance sought. Debt buyers are also required to attach a copy of the original contract and the complete chain of assignments from the original creditor to the current debt buyer. If a debt buyer fails to include the required information and documents, the directive gives the court the power–on its own initiative–to dismiss the debt buyer’s lawsuit.
These requirements may seem like common sense, but debt buyers often obtain judgments without submitting any proof that: (a) the consumer owes the debt; and (b) that the debt buyer is the rightful owner of the debt. This usually happens when the consumer fails to properly respond to the lawsuit, which happens in the majority of debt buyer lawsuits.
The Minnesota legislature has flirted with bills that require debt buyers to submit similar proof with their lawsuits, but as far as I know, Delaware is the first state where the judiciary has taken this matter into their own hands.
Federal Judge allows a RICO case against debt collector, debt buyer, and process server to proceed
January 13, 2011 by Todd Murray · Leave a Comment
The Racketeer Influenced Corrupt Organization act–or RICO–is a federal law most famously used to prosecute members of the Mafia and other organized crime groups. But a judge in the Southern District of New York recently allowed a consumer-class action lawsuit, based in part on RICO claims, to proceed against a debt collection law firm, its debt buyer client, and a process serving company.
According to this Daily Finance story, the lawsuit alleges that the defendants’ business model is as follows: (1) buy debt with little documentation that the debt is accurate; (2) file lawsuits claiming personal knowledge of the debt but using robo-signed affidavits instead; (3) deliberately fail to tell the “debtor” that the lawsuit is pending (a practice called “sewer service”); (4) get a “default” judgment against the debtor when she fails to show up in court to defend herself; and (5) enforce the judgment, including by freezing the debtor’s bank account.
Points 1, 2, 4, and 5 are the basic formula used by debt buyers and their attorneys across the country. Where this case differs is the added allegation of an organized “sewer service” scheme. In his ruling, Judge Denny Chin ruled that there was enough evidence that the three defendants colluded to effect sewer service on unsuspecting consumers to bring the defendants under the RICO definition of a criminal enterprise.
A Lawsuit That Dirty Debt Collectors Should Be Worried About | Daily Finance | 1/4/11 (via Consumerist)
The Star Tribune just ran an in-depth story about the surge in debt buyer collection lawsuits. The article does a great job of highlighting the major problem with debt buyers’ lawsuits: their lack of information and evidence to prove that the consumer actually owes the debt. As the story explains, the problems created by this lack of information are magnified when combined with debt buyers’ aggressive litigation practices and the guilty-until-proven-innocent attitude that they treat consumers with.
To me, the important thing for people to take from this story is to understand that the debt buyer industry is built on the premise that consumers will not answer their lawsuits, which results in thousands of default judgments for them. By obtaining the overwhelming majority of their judgments by default, debt buyers can get away with not having sufficient–or any–evidence that the consumer owes the money. But as the story shows, if the consumer fights back, many debt buyers will either walk away from the case or get roundly defeated in court.
If you live in Minnesota and want help answering a debt collection lawsuit, feel free to contact me by using the contact form in the upper right corner of this page. I offer a number of flexible representation options, so even if you can only afford to pay a few hundred dollars, I might be able to help you.
Phantom debts, real anguish | Star Tribune | June 30, 2010
The Minneapolis Star-Tribune recently ran a story about a draft bill in the Minnesota Legislature that would require debt buyers that sue people to collect debts to provide various documents that prove the person actually owes the debt. Debt buyers, of course, are companies that buy past-due accounts from the original creditor for pennies on the dollar and then try to make a profit by collecting the debts themselves. Reportedly, the bill proposes a private cause of action and a penalty of up to $2,500 if debt buyers do not provide the required proof.
In response, the collection industry has (predictably) resorted to its favorite scare tactic. The story quotes David Cherner of ACA International, who said that “[b]ased on a preliminary reading, this could have very significant implications as to the flow of credit to consumers.” What Cherner doesn’t explain is how regulating debt buyers–who by definintion don’t issue credit themselves–would impact the availability of consumer credit one iota.
This legislation is a step in the right direction. As usual, though, the devil will be in the details. It remains to be seen exactly what documents will be required. For example, will a mass-produced affidavit be enough? Will a single billing statement, produced long after the account became delinquent be enough? I’ll be watching closely in the coming months as these details get fleshed out.
Bill helps consumers against debt buyers | Star-Tribune | February 10, 2010