County Credit

Taking aim at debt vultures

Tue, 13 May 2014

 

j=0215_JUDICIARYPAUL BUCKOWSKIGo get 'em.
 

The state’s chief judge, Jonathan Lippman, used his annual Law Day speech last week to announce a crackdown on unscrupulous debt collectors. About time.

For years now, bottom-feeding collection firms and their lawyers have been hijacking the courts to bully and rip off unsuspecting consumers — many of whom don’t actually owe any money.

The firms file boilerplate legal claims based on incomplete, inaccurate or outdated records. Many times, they fail to properly notify the alleged borrowers — or sloppily go after the wrong people.

And when no one shows up to dispute these bogus claims, judges, following long-established practice, assume they’re valid — and sign court orders to freeze the targets’ bank accounts and garnish their wages.

Like many victims of these grossly abusive tactics, 58-year-old Zeola Randall of Rosedale, Queens, had no clue she had been targeted until she was in the checkout line at Target last June — and her purchase wouldn’t go through.

It turned out her savings account — holding $2,001.14 — had been frozen by LVNV Funding. Although Randall was careful about paying her bills, the firm claimed she owed more than $6,000 for an old credit card debt.

Legally blind since birth and dependent on Social Security Disability Income, she had no money to pay the claim or hire a lawyer.

Randall was lucky enough to find MFY Legal Services, where staff attorney Ariana Lindermayer took her case for free. Soon, LVNV dropped the claim, and the bank unfroze her account.

Much the same thing happened to a professional colleague of mine in a disturbing case of mistaken identity. The collection firm confused him with someone else with a similar name and managed to freeze his bank account without so much as sending him a letter. Only because his son was a lawyer could he get the mess cleaned up without spending thousands on legal fees.

These happy endings are the rare exception, consumer advocates say. Far more often, victims buckle to the court-assisted pressure and settle bogus debts to get their lives back — or live with wrecked credit ratings.

A study by the New Economy Project found that of the 195,105 New Yorkers sued by debt collectors in 2011, only 2% had legal representation.

And far more than half of such cases end with default judgments — meaning the targeted consumers never disputed the claims. All too often, Lippman says, that’s because the firms failed to send them paperwork as required, then filed false affidavits asserting otherwise — a practice called “sewer service.”

Unbelievably, that is not a crime, but a civil violation, one that all too often goes undetected and unpunished.

The attorney general’s office has repeatedly gone after the worst offenders, but it can’t catch all of them. The state Department of Financial Services has proposed new rules for debt collectors — but they cover cases that are not yet in court. And bills that would toughen laws against abusive debt collection have gotten bogged down in the Legislature.

To his credit, Lippman took matters into his own hands. “The integrity of the court process is at stake,” he told me.

Under his proposed new rules, the courts will double-check that consumers receive the necessary paperwork — and coach them through the intimidating process of defending their rights.

The courts will further insist that debt collectors thoroughly back up their claims, by documenting the original loan and all subsequent transactions.

Some of these reforms were already pioneered in New York City and are now being spread statewide. Others are being imposed for the first time — and go further than what any other state has done.

Debt collectors are predictably squawking.

But Lippman is only doing what should have been done long ago — making sure, as best he can, that courts give average New Yorkers a fair shake.

whammond@nydailynews.com

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