And
that's brought some heavy hitters out: AARP and a cadre of other
consumer advocates, including the National Association of Consumer
Advocates, and the National Consumer Law Center have come out swinging
for change, filing a Friend of the Court Brief with the Second Court of
Appeals in New York seeking to end debt collectors' dirty practices.
It's
not uncommon, every year; millions of people are sued in state courts
for billions of dollars in debts they don't owe, according to a study
from the Federal Trade Commission ("FTC"), one of the federal agencies
that enforce the Federal Fair Debt Collection Practices Act.
"Banks
sometimes sell debt that is not valid, has been paid in part of in
full, or that is not owed by the person they say owes it because it
resulted from identity theft or unauthorized use," says Julie Nepveu, Sr.
Attorney at AARP Foundation Litigation. "People fear being put in jail
if they get sued, or they don't have documents to prove they don't owe
the amount claimed, if anything. Many feel pressured into paying even
if they think they don't owe a debt."
Here's how it works:
Debt buyers pay, on average, only 4 cents on the dollar for huge portfolios of delinquent debt. The price is so low because banks sell the debt portfolios subject to explicit contractual warnings that the information they sell is not accurate and should not be relied upon. Additionally, they don't sell any documentation to allow anyone to verify the claimed amounts. The only information a debt buyer purchases is an unprotected Excel spreadsheet with a debtor's personal information and an approximate amount allegedly due. This is inadequate to permit the debt buyers to prove they own the debt, are suing the right person, and for the right amount.
Debt buyers obtain default judgments en masse
by deceiving courts into believing that the information they are suing
upon is reliable and that they have served the lawsuit upon the alleged
debtor. They convince the court, based on computer generated affidavits
that no human being even reads, swearing untruthfully that the
information they have about the debt is accurate and has been personally
verified. In fact, the lawsuits are based on inherently unreliable
summaries of old credit card accounts that cannot be verified by any
means, even by the banks that sold the accounts. The result is that
millions of judgments are entered every year, worth billions of dollars.
The debt buyers succeed only because most lawsuits they file end in
default judgments or settlement. They rarely have to prove their claims,
and often just dismiss the lawsuit if an alleged debtor appears to
defend.
The New York case at the heart of it:
The case is Sykes v. Mel Harris, LLC, et al., on appeal from the Southern District of New York. Ms. Sykes and other plaintiffs filed a class action lawsuit claiming that Defendants, Mel Harris, LLC, a debt collection law firm, Leucadia Credit Recovery, a third party debt buyer who purchases delinquent debt only from other debt buyers, and Samserve, a process server that allegedly frequently fails to serve notice of the lawsuit on the alleged debtor but files falsified affidavits of service with the court, are engaged in a scheme to fraudulently obtain default judgments in violation of state and federal laws, including the Fair Debt Collection Practices Act and the Racketeer Influenced Corrupt Organizations Act.
The Federal District Court for the Southern District of New York
granted Syke's motion to certify a class action to challenge the
alleged practices. The defendants appealed certification of the class to
the Federal Court of Appeals for the Second Circuit.
AARP's
friend of the court brief urged the appeals court to affirm the
certification of the class. Banks that sell debt and debt buyers
nationwide have been exposed for engaging in widespread robo-signing
practices—like those used to lie about foreclosures—in order to obtain
default judgments. Recent enforcement and regulatory actions against
banks and debt buyers regarding their collection practices demonstrate
that the affidavits are frauds and no judgment should be entered based
on information sold as explicitly inaccurate and unverifiable.
"It
is not too much to ask that a debt buyer show the court that it owns
the debt, it is suing the right person, and for the right amount, using
the actual contracts and account documents instead of a false,
self-serving affidavit," added Nepveu. "Collection abuses can cause
serious emotional distress, force people to pay money they don't owe,
ruin reputations, make credit and insurance more expensive, make it hard
to find a job or rent an apartment, and pinch people who cannot even
afford to buy food or medicine."
SOURCE AARP New York
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