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:
What’s the main qualification to be a debt collection lawyer? The ability to sign your name, according to this job posting on Craigslist: “If you … can sign your name, you possess all the credentials required for this job.”
Read Debt Collection Attorney Listing: Attorney Who Can Sign Name is Good Enough on Consumer Law & Policy. [via Lawyerist]
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.
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.
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.”
Martha Kunkle is making the rounds again. The Billings Gazette first wrote about Martha Kunkle in November 2009. That didn’t stop the Wall Street Journal from writing about her just last week, over a year later. A zombie story about a zombie debt collector.
But hey, it’s a good story. A dead woman bilked thousands of consumers out of their money for Portfolio Recovery Associates. Consumer law doesn’t get much cooler.
At least robo-signers actually sign their names, even if they have no idea what they are signing. Some foreclosure law firms have a room full of clerks signing attorneys’ names to foreclosure documents. Bank of New York attorney Gary McCafferty said “many documents his firm submitted to court with his signature had in fact been signed by administrative staff . . . .”
As bankruptcy lawyer Max Gardner explains:
“They have a small number of attorneys and a very large back office,” Gardner said. “The first time an attorney knows anything about a case in these kinds of operations is when someone like me files a response.”
As with the robo-signers, forged signatures have resulted in the dismissal of foreclosure lawsuits in courts across the country. It wouldn’t surprised me if they result in the dismissal of a few lawyers from the bar, as well.
It turns out that a lot of mortgage servicers haven’t been taking legal process very seriously. Robo-signers are employees whose jobs are to sign their name to as many affidavits as possible without reading them, and robo-signing is all the rage among mortgage servicers these days.
Instead of acknowledging that the mortgage industry created this economic and legal disaster, Treasury Secretary Timothy Geithner wants to blame the Legal Aid attorneys who discovered it was happening.