Consumer Law

Consumers Are Targets of Skyrocketing Numbers of Debt Collection Suits, Most By Debt Buyers

By Kemnitzer, Anderson, Barron, Ogilvie & Brewer

Consumers in New York City are faced with unprecedented numbers of debt collection suits, according to a new study by the Urban Justice Center (UJC), a provider of free legal services to low-income working poor New Yorkers.

The study's results are shocking. In 2006 alone, debt collectors tried to collect nearly $1 billion from New York City consumers, and got judgments for about $800 million--an 80% success rate. Most of those suits are filed by debt buyers--not the original creditors--and about four out of every five of those suits result in default judgments for the debt collector, in which the consumer never appears in court or enters into a settlement agreement. The study revealed that 99% of the time that debt buyers brought lawsuits, they submitted invalid hearsay "evidence" that would be inadmissible in court if anyone ever challenged it.

What's the reason for the steep rise in consumer lawsuits? One reason is that regulators and courts largely gutted the regulatory schemes governing fees and interest that creditors are allowed to charge, beginning in the 1970s and continuing through the 1990s. A second factor is that these days nearly every consumer has access to credit of some kind or another, but lower-income consumers generally have to pay higher interest rates for their credit. Third, identity theft is on the rise. If a consumer's identity is stolen, she likely doesn't even know about the underlying debt, and probably isn't informed about a debt collection lawsuit either. Finally, the market for the purchase of defaulted debt--including debt that can no longer legally be collected--is exploding. Debt buyers purchase defaulted debt for pennies on the dollar, and then try to collect the full amount, an exceedingly profitable venture if it works.

Full post as published by California Credit Law Blog on November 13, 2007 (boomark / email).