Monday, June 7th, 2010 at
It isn’t a surprise that a recent study issued jointly by the Legal Aid Society, Neighborhood Economic Development Advocacy Project, MFY Legal Services, and Urban Justice Center found that debt buyers are abusing the legal system to prey on lower-income New Yorkers.
Debt buyers are companies that purchase debt from original creditors who have written off unpaid balances as “uncollectible.” Debt buyers buy this bad debt for pennies on the dollar, and then turn around and put the squeeze on consumers to pay the full amount.
The report explains that publicly traded companies like Asset Acceptance Capital Corp., Asta Funding, Encore Capital Group, and Portfolio Recovery Associates have to reveal more about their practices than private companies, which the study says number around 500. It notes that debt buyers often don’t have the documentation to back up their claims against consumers, saying, “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.”
In New York, debt buyers are filing an unprecedented number of lawsuits against consumers – disproportionately lower-income consumers – without ever providing people with legally mandated notifications. The result? People never know they’re being sued, so they don’t show up for court. When they don’t show up for court, the judge rules in the debt buyers’ favor and people have their wages garnished, their bank accounts cleaned out, and their credit ruined.
The study found that these “default judgments” happen over 94% of the time, and that 95% of those who have default judgments against them live in low or moderate income neighborhoods. Even more outrageous is that only 1% of consumers in New York City who are sued by debt buyers are represented by an attorney.
Reading the study will make your blood boil, but it’s a crucial first step in putting an end to these predatory practices. You can download a copy of the report at Urban Justice Center.