I have a quibble with this quote from the New York Times‘s Jessica Silver-Greenberg, which she uses to set the stage for her reporting on the Encore Capital Group settlement:
The same problems that dogged the foreclosure of homes — and prompted public outcry and a multibillion-dollar settlement by some of the nation’s biggest banks — are increasingly showing up in the practices of large buyers of bad consumer debt.
Debt buyers were engaging in assembly-line litigation long before the foreclosure firms started. I’ve been writing about it here for years, but it’s just never gotten the same kind of exposure as the foreclosure industry’s callous disregard for the courts briefly did.
Under the terms of the settlement reached in several class actions against Midland Funding for its (apparently past) practice of employing robo-signers to execute affidavits for debt buyer lawsuits, each class member would receive under $20 — and that’s it. The Sixth Circuit rightly decided this was unfair (pdf).
Unfortunately, the Sixth Circuit seemed to think the settlement was unfair primarily because the named plaintiffs (i.e., those whose names actually appeared on the complaints) would receive $8,000 plus the elimination of their debts. The class members who opted into the settlement just got $17.38 each, and still owed their debts:
I’ve said as much, and the Minnesota Attorney General thinks so, too. Well, actually, she thinks “a debt buyer should have admissible evidence” to back up its claims. That’s not really a higher burden; it’s what the law requires. Except in cases of default, which is what debt buyers really want, after all.
The reason this is even an issue is that debt buyers often file thousands of lawsuits without the ability to back up their claims. They often have faulty information, and frequently get default judgments, which gives them the right to garnish bank accounts.
The ability to garnish bank accounts is serious. It gives debt buyers the right to freeze money in a defaulted defendant’s account before the court is even aware of the lawsuit. This is too serious to allow without knowing whether or not the debt buyer can even produce evidence to support its claims.
In order to administer any kind of justice, our court system requires two parties participating in a lawsuit. When that doesn’t happen, plaintiffs generally prevail, even if they haven’t produced any proof of their claims. Ordinarily, a default is a bad thing for a plaintiff, because there is little or no chance of getting paid.
Defaults are just what debt buyers want, though, because they have thousands of lawsuits to file and little or no proof in any of them. And debt buyers are willing and able to pursue collections on a massive scale—garnishing salaries and bank accounts to satisfy all those default judgments. Essentially, the debt buyer industry has found a loophole in the court system—a way to exploit the default rules.
That’s why courts need to raise the bar for debt buyers. When the usual result of a debt buyer lawsuit is a deprivation of property, courts should endeavor to make sure it doesn’t happen unless the debt buyer has shown some right to that property.
The Maryland Court of Appeals recently decided just that. Since last week, debt buyers must show actual proof that the defendant owes the debt and that the debt buyer has actually purchased the debt. The court also made it clear that it does not trust the robo-signed affidavits that debt buyers routinely attach to their lawsuits.
It’s a step in the right direction, and I hope more states will follow suit.
In Maryland, the Court of Appeals just approved rules that will prevent debt buyers from getting a default judgment with nothing more than a name and a dollar amount. From now on, ” target=”_blank”>debt buyers will actually have to provide proof of ownership and indebtedness.
This may sound like common sense, but Maryland is—unfortunately—being a bit revolutionary, here. In most states, a debt buyer does the equivalent of writing a number and a name on a napkin, and walks away with the right to garnish wages and bank accounts.
Assignment is the foundation of the debt-buying industry, and the industry is built on sand. Or a swamp. Because assignment is also the industry’s weak spot, and the reason why most — if not all — debt-buyer lawsuits should fail.
In order to collect a debt legally, a debt buyer must prove it has the right to collect it. To do this, it must show an unbroken, valid chain of assignment back to the original creditor. Most debt buyers cannot do this.
Today the Minnesota Attorney General sued Midland Funding, one of the country’s largest debt buyers, for robo-signing thousands of affidavits in Minnesota. I think AG Lori Swanson best sums up what Midland Funding was doing:
The company put its thumb on the scale of justice to unfairly tilt the collection process in its favor.
Also revealing is this data on what Midland and its parent company, Encore Capital Group, pay for the debts they collect:
Midland and Encore have paid more than $1.8 billion to obtain 33 million customer accounts with a face value of about $54.7 billion, or an average cost of about three cents on the dollar, Swanson said.
It’s about time someone cracked down on the debt buyer robo-signers. Until now, only the foreclosure industry has come under real scrutiny, but it is the debt buying industry that invented the practice, as far as I can tell.
Randall Ryder is a consumer rights attorney in Minnesota. I am especially pleased to welcome Randall to the Caveat Emptor directory because I have worked with him extensively, and I know him to be an excellent lawyer and consumer advocate.
Randall is an even-tempered but aggressive consumer advocate who gets great results for his clients. He sues debt collectors and defenses people who are sued by debt collectors in Minnesota. He takes cases on contingency and uses innovative unbundled services arrangements to get clients the help they need without breaking the budget.
If you are dealing with debt collection abuse or a debt collection lawsuit in Minnesota, contact consumer rights lawyer Randall Ryder.
The secondary debt market—credit cards and mortgages included—has relied on made-up legal terms and suspect justifications for years in order to turn the usually slow-moving court system into a speedy tool of business. It worked, probably because few consumers put up a fight. But more people are fighting back now, which means debt buyers are scrambling for legal footing.
It isn’t working, at least not in Pennsylvania, where the state court of appeals recently said “we reject [the] ‘This is how the industry does it’ mantra.”