The sleazy world of predatory debt buyers
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NEDAP has an extremely important new report on a particularly evil and sleazy part of the predatory financial universe: debt buyers. These institutions make hundreds of millions of dollars by suing people in low-income neighborhoods, often without properly serving them with notice that they’re being sued. When the alleged debtor doesn’t show up for court, the debt buyers get a default judgment, and start attaching bank accounts and garnishing wages. Often they do this successfully even when the debt is not legitimate.
The debt buyers are massively profitable, despite the fact that they have almost no legal leg to stand on:
When debt buyers purchase debts, they become legal owners of those debts, but obtain very little information about them. Debt buyers usually receive an electronic file that includes only a person’s name and social security number, last known address, the amount allegedly owed, the charge-off date, and the date and amount of the last payment. The portfolio does not include documentation of the debt, such as the governing contracts and account statements. This information is insufficient to ensure that the debt buyers collect the correct amount from the correct person. Debt portfolios are regularly sold on an “as is” basis, without consideration for whether collection of the debts in the portfolio is legal.
Debt buyers’ ability to obtain additional documentation from the original creditor is extremely limited: they may purchase the right to request such documentation in a limited number of cases, or they may not have access to any supporting documentation at all. If the debt is resold to another debt buyer, obtaining such documentation becomes even more difficult, as most second and subsequent sales of debt portfolios do not include any direct access to the additional documentation from the original creditor, which means that those debt buyers almost certainly lack the documentation needed to support lawsuits filed against people whose names appear in their portfolios.
The report makes a number of very sensible recommendations, including a ban on debt buyers filing lawsuits if they don’t have any evidence which proves the debt is owed. More generally, something has to be done to rectify the enormous asymmetry in sophistication and legal ability between the two sides here: as the report says, “many people sued are pressured into unfair and unaffordable settlements that leave them in a worse position than if they had ignored the lawsuits”.
This entire industry couldn’t exist, of course, if it wasn’t for the banks, which tacitly condone this behavior by selling debt buyers utter garbage debt. So while going after the debt buyers themselves is obviously the first order of business, it’s also worth putting pressure on the banks to stop dealing with them. I wonder which bank might like to be first in denouncing these gruesome parasites.
Update: I should add that the report was not just the work of NEDAP: it was co-written with the Urban Justice Center, with help from attorneys at the Legal Aid Society and MYF Legal Services.
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“they have almost no legal leg to stand on” … not exactly…
Collection agencies are an important and legitimate, if unpleasant, part of our economy. I have always paid my bills and have not once in my life been bothered by a collections agency. At least in this instance they have never, ever gone after the wrong man.
Rules should be in place to require complete documentation of debts, you are right.
All due respect, Mr. Hess–are you really saying that because you’ve never been treated unfairly, it’s unlikely that many other people have been? A survey of one is not good statistical evidence, and if I may say so, a myopic way to view the world. Also, you sound like a well-educated person. I suspect the kind of abuse that Felix describes is more often attempted on people less able to defend themselves.
Dan, EconWatcher is right: read the report. The debt buyers don’t go after people like you, because they know full well they would never win or collect. They deliberately target non-English speakers and the very poor.
Mr. Salmon speaks in a democratic vein, quite aside from the question of whether certain deadbeats deserve the pain that is inflicted on them. The toolkit that debt buyers tote is filled with practices that we would rightly condemn as totalitarian, were they to practice their trade within other borders–what else is it to convince indebted people that they have no rights?
Surely you jest.
You expect one gruesome parasite to denounce another?
It sounds like it doesn’t have to be only the poor and non-English speaking who are affected. The part about no proper service (not entirely sure what that means) of the suit is very troubling. That can be used against anyone. And even an educated person could have difficulty following the breadcrumbs of a purported debt.
I wonder how the courts feel about being used in such a shady fashion?
Good story and fantastic comments, thankyou all.
I just read the report and this is my thought:
How about mandatory minimum sentences for these people. That is, if there is proof that someone engaged in “sewer service” or that someone with no personal knowledge of the case filed an affidavit attesting to “personal knowledge of the facts” involved in an assertion of debt. Given the effects these people are having on others’ lives — and the fact that they’re very hard to catch — a five year minimum sentence seems about right to me.
Furthermore every law firm that works with these people should get some kind of a black mark for their association with convicted criminals. That is, judges should be explicitly permitted to take the law firm’s history into account when dealing with future litigation. If this make it too dangerous legally for anyone to hire the law firm after it has been demonstrated that the law firm was associated with this kind of activity, that would be a good result as far as I can tell.
There is no question that some of the people that work in that industry are dirtbags and it takes a thick skin to show up at the office if your job is to try to take away money from poor people.
Still, am I the only one who finds it telling that hardly any of the alleged debtors are contesting these things?
I mean if I honestly think the cable company got my bill wrong I am charging at them filled with righteous indignation. This was doubly true when I was an impoverished college student.
Ok, flame me now!
DanHess: Read the report.
The correct analogy is that the cable company gets your bill wrong, you call them up and sort it out. Then move to a different address.
Five years later you find that your bank account has been frozen. When you investigate why it turns out that somebody is claiming that they bought a $1000 debt of yours. You may or may not figure out that it’s related to that cable bill. In the meanwhile the debt owner has failed to serve you notice of the court case and convinced some clerk — most likely via an affidavit of personal knowledge that you owe the debt — to enter a default judgment against you since you are one of those alleged debtors who don’t contest these things.
Yes, you can get the judgment overturned pretty easily, but that requires (i) the confidence to challenge the court system yourself, (ii) finding a legal aid office well enough staffed to help you out or (iii) investing in legal help yourself. For some people all three options are overwhelming.
Oh Dan.
Nobody likes people owing them money. Not everybody has a mechanism in place to realistically retrieve money actually owed, which makes some debtor situations asymmetrical.
Here we have a case of lethal mechanism in the hands of people who don’t actually care whether you owe them money on the basis of a note sold to them by people who actually didn’t care about the money you may have owed them. They have preferential access to legal remedy, apparently in cases where remedy was more putative than factual. And taking it, come what may, is what they’re all about. They apparently don’t even care where whatever the debt may have been actually came from, enough to document.
Yet they prevail by playing the numbers like Nigerian spammers do, or else they’d stop of their own accord. It appears they need some help in stopping.
Where action on such threadbare basis is permissible, all sort so mayhem is likely to result. As long as some of this rebounded in Byzantine visitation upon the necks of those playing numbers games on the backs of the poor and already downtrodden it could be gladiatorially entertaining. But it’s a one-sided match and therefore not entirely sporting.
It’s like mixed martial arts against the handicapped. Not good sport at all.
Thank you for this article..
How ever it does not “EXPOSE” the Crime that is being foisted upon the american people!
Not only the poor and uneducated, but the other millions of middle class people who now find them selves with jobs, and a steady source of income!
These “PARASITES” the 3rd party debt collectors LIE, Don’t obey the law, and will stop at nothing in securing their judgements, ALL WITH THE COMPLICITY OF THE JUDGES AND COURT CLERKS!!
THE LAW FIRMS set up “SHELL” collection agencies to collect for!
BUT YOU CAN FIGHT THEM!
Email us for more info..
stopthirdpartydebtcollectors@yahoo.com
The law they are trying to collect on is “CONTRACT” law,,which requires them to have “the original signed contract”, and the “deeds of transfer”, indicating your account specifically with the “deeds of transfer”, and a copy or original of your last statement, indicating your last payment on the account, and the “charge Off” amount. Which the original bank “wrote Off” its books.
They never have any of this information, what they present to the court is a hodge podge of information, a pasted piece from an excell spredsheet with your name, address ect, usually 2 pages sideways, “certifications” which are assembled by their own staff on their own computer systems, including usually an amount you owe which they assembled from their own computer system. From this “Budle” they bought for pennies on the dollar!!
The problem is unless you “ANSWER THE LAWSUIT” Requiring you to file an answer to the suit, contesting the “CONTRACT CASE” Pay the $15.00 fee to the court, and Show up on the Date of the court hearing and contest the case by demanding that they supply the original contract, deeds of transfer, and last payment statement,”
indicating your account “specifically” and the “charge Off” amount…
They will request a default judgement from the Judge..and he will grant it!
I have specifically fought 3 cases against me, taking several court dates, time off from work, endless hours of waiting, but they realized
I knew what I was talking about and that they could’t proof their case,
IE get over on me…and they dismissed their suits…
go here….http://www.budhibbs.com/index.html
and here
http://www.presslerclub.com/
and here
http://www.debt-consolidation-credit-rep air-service.com/forums/index.php
and here for a expose on tv
http://www.youtube.com/watch?v=NTVZ4rU2_ 84
you can email us at stopthirdpartydebtcollectors@yahoo.com
for more info!!
Here is the thing people fail to realize. Yes there are a number of unscrupulous debt buyers/collectors. Yes some don’t have the correct docs. However, majority purchase valid in-statue debt, along with all applicable docs. Yes debt buyers do sue, the law suits are in fact used as a collection technique. The reason behind it is simple though, once a default judgment is attained the SOL is reset, and you can collect in most cases up to 20 years. Additionally, a judgment is a more solid financial instrument than a junk debt. Another thing people don’t realize is even though these are purchased at times for 1-2 cents on a dollar, the return isn’t as crazy as people thing. For every debt collected/settled (by the way usually if you get 50% you’re god) there are 3-4 that go uncollected, even with a judgment. State laws govern what can and can’t be levied, and a large number of judgments go unsatisfied. Additionally, what everyone forgets to mention, is that the money that was given to debtor, was taken from a bank. These banks take close to 1 billion in defaults yearly, causing all of their other assets to be at risk. However, the 50″ TV purchased by a person who defaulted, is enjoyed daily in their living room. What would happen if your retirement fund now became insolvent, due to extremely high defaults at the bank administering it? I’m sure your views would dramatically change. So if the debt buyers/collectors are to go to prison, should the credit card/auto/mortgage/etc contracts include a “default jail” clause? The credit industry needs debt collectors, buyers, etc. I do on the other hand agree that reform is very much needed. FDCPA is almost 20 years old, and needs a desperate update. Also, the debt buyer and collector need to be separated. Where as a debt buyer is subject to rule A, collector to rule B, and buyer/collector Rule C. I also think that an agency in the likes of a databank, should be created to house all docs relative to consumer file from origination to closure.
The Minnesota Attorney General estimated that approximately two percent of people who are served with a summons in a collection lawsuit hire a lawyer to defend them. Minnesota’s response rate is probably slightly lower than other states’ because Minnesota allows service of process by mail and imposes substantial filing fees before defendants can answer the complaint.
Assuming the consumer works up the courage to respond to the lawsuit, the courts are overburdened with collection lawsuits and often overlook deficiencies in the evidence that the debt buyers present to support their claim against the consumer.
The debt buyers who file collection lawsuits do not have first hand knowledge of the original creditors’ records — the debt buyer’s “evidence” is hearsay which is inadmissible IF the consumer shows up and properly contests the debt buyers’ evidence.
If a consumer hires an attorney to defend the lawsuit, the debt buyer will usually dismiss the lawsuit but only on the eve of trial in order to run up the consumers’ legal fees which the consumer can, under the laws of 18 states, pursue from the debt buyer who sued and then dismissed.
In default situations, the debt buyers aggressively pursue the purported debts.
The WSJ recently covered the affidavits purportedly signed by Martha Kunkle on behalf of Providian Bank and/or its successor, Washington Mutual Bank. The WSJ alleged that it appeared that Martha Kunkle died in the 1990′s and yet the debt buyers continued to use affidavits she purportedly signed until as late as 2008.
It turns out that Martha Kunkle had a daughter who also worked at Providian/Washington Mutual who purportedly signed the affidavits. Many questions about the Providian Martha Kunkle affidavits used by Portfolio Recovery and other debt buyers remain unanswered :
http://www.fdcpa.me/portfolio-recovery-a ssociates-zombie-robo-signer/
The Attorney General of the State of Minnesota recently filed a lawsuit against Midland Credit Management alleging that Midland Credit (or other affiliates of Encore Capital Group) employed “robo-signers” who signed up to 400 affidavits per day without knowledge of the original account records.:
http://www.fdcpa.me/midland-junk-debt-m/
Many states need to amend their consumer finance codes to provide that if a contract provides that one party (usually the bank, no surprise) is entitled to receive attorney’s fees if it prevails, the other party (usually the consumer who accepted the adhesion contract) will also be entitled to attorney’s fees if they prevail.
This leveling of the playing field would do much to reduce the number of unnecessary bankruptcies which injure commerce, and preventable garnishments and judgments.
I don’t think this article is fair to the collection industry as a whole, if more people were paying their obligations than there would be less of a need for this industry. I think as in any business there are people that take shortcuts or run their business in less than savory manner, but for the most part the collection industry is made up of good professional people. I know that in the years that I have been in the industry, those that are characterized in this “sleazy” manner don’t last as they wouldn’t in any industry. As a collector I always had more luck when I treated the debtors with respect and worked with them to resolve their debts. I blog about this a lot at http://buyingdebt.org if anyone has more questions.
Truth is debt buyers have no business in your personal business. When the original creditor accepts payment from the debt buyer, sometimes for as little as six cents on the dollar, the original creditor has been paid in full. You have no contract with the debt buyer unless you do contract with them. In no case are they entitled to receive more than they paid for the debt. Never have I seen a chain of assignment or ownership presented. They have no first hand knowledge. Only thing they have is hearsay. Remember, they can not misrepresent the debt in any matter. Just by stating that you owe the entire debt when they bought it for pennies on the dollar is misrepresenting the debt. Truth is very few attorneys are going to rock the boat and if we represent ourselves we must be very careful not to lose because of a procedural error. The lawyer may get away making mistakes, but not us the consumer.
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