An especially voracious type of predator is on the prowl in low-income communities.
Gregg Lombardi, executive director of Legal Aid of Western Missouri, calls them zombie debt collectors. They have been clogging court dockets in Jackson County and elsewhere, suing poor defendants, who are disproportionately black or Latino, for unpaid debt they may not even realize they have.
Missouri Attorney General Chris Koster says his office received 1,217 complaints about these predatory debt collectors last year. The only practice more reviled is violations of Missouri’s “no call” law.
“The scope of this problem is vast, and there is a growing consensus that reform is desperately needed for our state court system,” Koster wrote in a recent memo to a Missouri Supreme Court commission, in which he proposed some changes that should help curb the abuses.
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Zombie debt collectors purchase debt for as little as three cents on the dollar from credit card companies and other places. They then attempt to identify and sue the borrowers for the principal and interest.
Lawsuits are often filed without the collector properly documenting that money is actually owed and how much. Some of the debt has passed the time frame in which the borrower can be sued for collection. Some has already been discharged in bankruptcy. In some cases, debt collectors sue the wrong people.
As flawed as the lawsuits may be, the mostly low-income defendants are at a distinct disadvantage. Of 5,621 actions filed in Jackson County Circuit Court by the five largest debt collection agencies in 2009, 95 percent of the defendants had no lawyer to represent them, Lombardi said.
Besides not being able to afford an attorney, many of the defendants have trouble getting off work for court dates. The collectors know this, and often seek postponements and other delays, waiting for the defendant to miss an appearance.
These kinds of practices resulted in default judgments being assessed against 70 percent of the defendants who are not represented by a lawyer, Lombardi said. When legal counsel gets involved, the cases almost always disappear.
“The zombie debt collection agencies have a business model that’s premised on the concept that defendants do not have the means to defend themselves, and they take advantage of that to get thousands of judgments every year to which they should not be entitled,” Lombardi said.
To add insult to injury, impoverished defendants also stand a good chance of being socked with the debt collector’s attorneys’ fees and court costs on top of the judgment.
The cases are then turned over to collection agencies that ruthlessly hound consumers, often forcing them to let other bills go unpaid while scrambling to come up with money for old debts. Borrowers often see their paychecks garnished.
Koster said his office had taken action against a few of the most egregious offenders.
In his memo to the Missouri Supreme Court Commission on Racial and Ethnic Fairness, which was created in October, the attorney general proposed three rule changes for state courts that he said should cut down on the abuses.
▪ Debt collectors would have to provide documentation establishing their right to pursue the debt in question at the start of the litigation. This would cut down on invalid lawsuits.
▪ Debt collectors and their attorneys could not use stalling tactics with the objective of taking advantage of defendants who miss a court date. The proposed change would limit the circumstances under which a default judgment could be granted.
▪ The plaintiffs would have to document that attorneys’ fees and legal costs were necessary and legitimate before assessing them to defendants.
Lombardi called Koster’s proposals “a major step forward for Missouri’s consumers.” Debt collectors will find it harder to file phony cases and obtain default judgments they don’t deserve, he said.
The Missouri Supreme Court should enact these changes and look for even more reforms.
Unscrupulous debt collectors have gotten away too long with “using the courts as an instrument of fraud,” as Koster put it. That’s precisely the opposite of what our court system is supposed to be about.