Debt buyers’ mass lawsuits: Oh evidence, where art thou?

03/07/2014 4:44 PM

03/08/2014 6:19 PM

Marge (not her real name), an elderly widow, was sent to my law office by a local TV reporter. She had been sued for $1,500 on a bank credit card account for which she never applied.

She thought it was somehow linked to the theft of her purse some years ago. It wasn’t the bank that was suing her. It was a debt buyer that had purchased the account from the bank and then sued Marge without warning.

When she protested to the judge and the debt buyer’s lawyer that the account was bogus, the case was set for trial. The debt buyer’s lawyer then served formal written requests, demanding that she admit to the debt.

She was frightened, unable to afford a court battle. Her only income was from Social Security, and she feared losing her meager savings. So she asked for the advice of a church friend.

After helping her to formally deny the requests, he contacted the TV reporter. The reporter called the debt buyer’s lawyer, asking for a copy of the signed credit card agreement.

Knowing no such proof existed, he dropped the lawsuit like a hot potato. When Marge sued the debt buyer back, we learned a lot about this multibillion-dollar “industry.”

What looked like a credit card statement stapled to the suit papers was completely fake.

Although it had a dotted line across the bottom, saying, “Detach and send with payment,” the debt buyer admitted in a deposition that no such statement was ever mailed.

The debt buyer just made it up to fool the judge. We have since learned from other cases that debt buyers purchase large batches of credit card debt for 4 cents to 7 cents on the dollar, or as little as $60 for a $1,500 account.

The debt buyer then sues for the whole $1,500, plus interest. The accounts, often sold in batches of thousands, are listed in a spreadsheet, one per line. The line contains a name, address, Social Security number, balance amount and little else.

Based on nothing more than this, thousands of lawsuits are filed. The debt buyer gets only the spreadsheet, no actual signed credit card agreements (if any exist).

Banks’ agreements with debt buyers discourage requests for documentation. They also contain clauses saying the bank doesn’t vouch for the accounts — that some may represent identity theft, others may be bankruptcy discharges, some may be too old to sue on, others may be disputed, etc.

These cases aren’t rare. It is not uncommon for a debtor to pay one debt buyer and then later be contacted by another for the same debt. In Marge’s case, even after the debt buyer dropped its lawsuit, it resold the non-existent debt to another.

Last year in Missouri, more than 20,000 lawsuits were filed by debt buyers. To get a sense of how utterly thin the evidence is underlying the judgments in these kinds of cases, just Google my name and the words “green cheese.” It will take you to a New York Times article that will say more than space here allows.

The Consumer Financial Protection Bureau is currently considering rules to rein in this “industry.”

Perhaps some radical requirement — like making debt buyers base their cases on actual evidence — will result.

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