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.