Consumer Law & Policy Blog

A Journalist Writes About His Experiences as a Debt Collector

by Jeff Sovern

Back in 2008, Fred Williams, a reporter for the Buffalo News who had written stories about debt collectors, worked as a debt collector for an upstate New York debt collection firm.  Williams was not exactly undercover--he disclosed that he had written the stories--but it sounds as if he was treated as any other employee: he went through training and later had to prove himself to advance to a permanent position.  In 2011, Williams published a book about the experience.  Though the title of the book makes it sound like a primer for consumers being pursued by debt collectors--Fight Back Against Unfair Debt Collection Practices--and the book does include advice for consumers, what makes the book special is Williams's account of his experiences. I read the book to learn more about the industry for the debt collection materials to appear in the next edition of our casebook, and I thought I would say a bit about it here as well.

While some have portrayed debt collectors who cross legal lines as sadists who enjoy abusing others (see, e.g., the testimony of Richard Bell in the third edition of our casebook), Williams offers a different take.  Williams reports that he met few collectors who enjoyed threatening consumers but nevertheless describes numerous interactions in which collectors approached or stepped over the line demarcating improper behavior.  According to Williams, debt collectors face incentives to employ inappropriate tactics because of the need to collect enough debts to retain their jobs and earn the approval of other debt collectors. Williams argued that collectors employed illegal tactics because they work.  He also claimes that collectors are hardened by frequent interactions with dishonest consumers who leave the collectors jaded and cynical.

As for the rules imposed on collectors by the federal Fair Debt Collection Practices Act, Williams's experiences are not always consistent.  The agency where he worked seemingly followed some of the FDCPA's strictures faithfully; for example, collectors were not permitted to call consumers more than once a day. But other rules seemed to go by the wayside.  Collectors largely omit the so-called "Miranda warning of FDCPA § 1692e(11). Alternatively, he reports that some collectors leaving messages for consumers hang up in the middle of the Miranda warning: “I am legally required to inform you that this is an attempt [click]” and then claim that the call was cut off. Some collectors claim that they are calling from the fraud department, a false statement which violates § 1692e.  Still another collector creates the impression that a collection matter will end up in litigation by asking for the consumer's lawyer's phone number. If the consumer denies having a lawyer, the collector replies "Don't you think you're going to need one.?" Though the agency had a compliance department, Williams reports that collectors are told when Compliance is monitoring their calls so they know when to avoid violating the FDCPA.  The result, according to Williams, was that the compliance department was a sham.  So why are some rules followed slavishly and others ignored?  My speculation is that excessive calling can be proved by obtaining phone records while the proving the contents of unrecorded phone conversations devolves into a credibility contest.

Williams's book reads fast and is entertaining.  For those who want a better understanding of the debt collection industry, it is a must-read. 

 

Debt Buyer's Guide: Small Claims Court is "the Vehicle That Flushes Out Payment"

Not that I want to generate sales of the book, but here is an ad for a guide for debt buyers that contains the statement above  (HT: Gina Calabrese).  

Debt Collection Litigation Tidbits

by Jeff Sovern

I've been pulling together some materials for a section in the next edition of our casebook on debt collection litigation.  Here is some of what I've found:

1. From FTC, Reparing a Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration i (2010): “The system for resolving disputes about consumer debts is broken.” 

2. From Centurion Capital Corp. v Guarino, 35 Misc.3d 1219(A), 951 N.Y.S.2d 85 (N.Y.City Civ.Ct. 2012):

[D]ue process requires that this judgment should be vacated and the case dismissed. The plaintiff filed more than 13,700 cases in New York City Civil Court and in all of them, as this one, lacked the legal capacity to bring and maintain any of those actions. The fact that the plaintiff corporation is neither an authorized domestic corporation nor an authorized foreign corporation makes this underlying action defective. * * *

Added to this is the problem that there is no copy of the actual assignment submitted, and no proof that the defendant's account was included in the assignment of debts if it was a bulk assignment.

* * *

The complaint fails to set forth what state law governed the underlying credit card agreement. There is no statement as to what is the applicable statute of limitations and whether this action was timely commenced. There is no indication as to when the agreement was entered into, when the credit card issued or the date of the last payment. There is no indication as to how that amount due was calculated. There is no indication that Wolpoff & Abramson was licensed as a debt collector as required by the New York City Administrative Code § 20–490.

In the interests of brevity, I have left out other problems reported in the opinion.

3. In LVNV Funding Llc v. Guest, 35 Misc.3d 1232(A), 2012 WL 1957715 (N.Y.City Ct. 2012), the court imposed a $10,000 sanction on attorneys for a bringing debt collection case without sufficient proof and considered, but ultimately decided against, holding them in contempt.  The court wrote: ‘The Court trusts that plaintiff's counsel shall commence actions on behalf of assignee creditors in the future only after having received sufficient documentary or verifiable proof of the alleged claim and that they will adhere to future directives issued by any court before which they appear. Any future failure by plaintiff's counsel to comply with an order of this Court will not be tolerated.” 

4. One debt collector, perhaps dissatisfied with judicial reactions (like those above) to his cases, created a fake courtroom in which he issued illegal judgments against debtors.  See Ed Palattella, Erie Judge Bans Ex-Unicredit Chief From Debt Collection, Erie Times-News (July 12, 2012).  The collector later defaulted in a suit brought against him by the Pennsylvania Attorney General, was barred from collecting debts in Pennsylvania, and filed for bankruptcy. 

HufPo Report: Suit Charges Debt Collector Told Disabled Vet He Should Have Died

Here.  An excerpt from what the collector supposedly said:

"F--- you! Pay us your money! You can't afford an attorney. You owe us. I hope your wife divorces your a--. If you would have served our country better you would not be a disabled veteran living off social security while the rest of us honest Americans work our a-- off. Too bad; you should have died."

Paper on Forum Shopping in Debt Collection

Judith L. Fox of Notre Dame has written How Forum Determines Substance in Judicial Debt Collection, 31 Banking and Financial Services Rev. 11 (August 2012). Here's the abstract:

In an email to the Small Claims Task Force, a committee appointed by the Indiana Supreme Court to investigate allegations of abuse in the Marion County Small Claims Court, an Indiana attorney claimed that collection attorneys were forum shopping in Indiana small claims court. In its subsequent report, the task force confirmed that some forum shopping is occurring in Marion County Small claims courts. This study takes that allegation a step further and looks beyond the small claims courts of Marion County to examine the forum shopping practices of collection attorneys throughout Indiana. The evidence suggests that collection firms do forum shop between courts in individual judicial districts. This article takes a closer look at forum shopping by exploring the possible motivations for the forum shopping and its implications for consumers.

Times Report: Debt Collectors Harness Prosecutors

by Jeff Sovern

Today's Times has a story headlined "In Prosecutors, Debt Collectors Find a Partner."  An excerpt:

The letters are sent by the thousands to people across the country who have written bad checks, threatening them with jail if they do not pay. They bear the seal and signature of the local district attorney’s office. But there is a catch: the letters are from debt-collection companies, which the prosecutors allow to use their letterhead. In return, the companies try to collect not only the unpaid check, but also high fees from debtors for a class on budgeting and financial responsibility, some of which goes back to the district attorneys’ offices.

* * *

Consumer lawyers have challenged the debt collectors in courts across the United States, claiming that they lack the authority to threaten prosecution or to ask for fees for classes when no district attorney has reviewed the facts of the cases. The district attorneys are essentially renting out their stationery, the lawyers say, allowing the companies to give the impression that failure to respond could lead to charges, when it rarely does.       

Two comments: first while the Fair Debt Collection Practices Act, in § 1692p, provides that under certain circumstances operators of check diversion programs are not automatically debt collectors, the exception applies only if the company "does not exercise independent prosecutorial discretion" and if the prosecutor determines that "probably cause of a bad check violation under State penal law exists, and that contact with the alleged offender for purposes of participation in the program is appropriate. . . ."  If no prosecutor is involved, it seems unlikely that those criteria are satisfied, meaning that the company operating the program can qualify as a debt collector and would be subject to the FDCPA's requirements. Section 1692e of the FDCPA bars the use of false or misleading representations, which includes the "false representation or implication that the consumer committeed any crime" and falsely representing a document as issued by state officials.

Second, the sequence of events makes me wonder what the debt collectors are paying the District Attorneys for.  The DAs don't seem to conduct the class, the fee for which generates the payment for the DA.  Nor are the DAs making the determination of who should take the class. 

Articles in Today's Times on Dischargeability of Student Loan Debt.

Here is a report on the pain involved in satisfying the "undue hardship" standard for discharging student loans in bankruptcy and here is a story about the case Scott Michelman blogged about earlier this week addressing debt collector liability for misleading borrowers about the dischargeability of student loans.

Times Report on Problems in Collecting Credit Card Debt and Column on Refinancing Mortgages

The debt collection report is here. An excerpt:

The same problems that plagued the foreclosure process — and prompted a multibillion-dollar settlement with big banks — are now emerging in the debt collection practices of credit card companies.

As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.

Lenders, the judges said, are churning out lawsuits without regard for accuracy, and improperly collecting debts from consumers. The concerns echo a recent abuse in the foreclosure system, a practice known as robo-signing in which banks produced similar documents for different homeowners and did not review them.

“I would say that roughly 90 percent of the credit card lawsuits are flawed and can’t prove the person owes the debt,” said Noach Dear, a civil court judge in Brooklyn, who said he presided over as many as 100 such cases a day.

Meanwhile, on the opinion pages, Nobel laureat Joseph Stiglitz and frequently-quoted economist Mark Zandi published The One Housing Solution Left: Mass Mortgage Refinancing.

Debt Collection Video

Here or click on the embedded video below. (HT: Gina Calabrese)

 

Debt Collection Attorney Listing: Attorney Who Can Sign Name is Good Enough

From Craig's List.  The third paragraph is particularly interesting.

We are a collection agency/debt buyer. What we are looking for is a part time attorney to work for us as our corporate counsel, on our payroll, about 5 to 6 hours a week. This is a short term employment arrangement, no longer than 90 to 120 days.

Your job will be to sign pleadings, praecipe for entry of appearances, praecipe for writ of execution, and garnishment orders. Our paralegal will prepare all paperwork for your signature. This is very standard stuff for us.

If you are an attorney looking for challenging legal work, this is not for you. WE DO NOT NEED F LEE BAILEY- we are fee shopping. If you passed your boards with a D+, and you can sign your name, you possess all the credentials required for this job. If this opportunity interests you, please feel free to reply to this email with a brief description of who you are, when you got your law license, and what you will be needing from us in the way of compensation.

I hope that any attorney who works for them will tell them that an attorney who does no more than sign his or her name to documents someone else prepared would violate the federal Fair Debt Collection Practices Act.  That statute, as interpreted by numerous cases, requires attorneys to engage in a "meaningful review" of the file before signing documents in a debt collection matter.  Meaningful review entails exercising independent professional judgment.  Sounds like if the employer doesn't hire a competent attorney, it will soon need an attorney to defend a law suit. (HT: Gina Calabrese)

UPDATE: A commenter raises the question of whether the listing might be for a job outside the US, meaning that the FDCPA would not apply.  In fact, the listing states the location to be "Pittsburgh west."