by M. Scott Carter
Published: December 15th, 2010
ADA – Debt-laden consumers are now being forced rapidly into court by collection firms as the U.S. debt collection industry increases its use of litigation as a debt collection tool.
Legal experts say the practice is widespread and it’s growing.
According to a report by the U.S. Federal Trade Commission, the system for resolving consumer debts is broken and major industry debt buyers – using data-driven debt processing tools – are now focusing on litigation and the justice system as means of collecting those debts.
This system, attorneys said, lets the corporate debt buyers skip some consumer communication and proceed directly to litigation.
“We’re seeing much more of it now than we ever did,” said Michael Fiffk, an attorney with the Pennsylvania law firm of Welch, Gold and Siegel, P.C. Those lawsuits, he said, highlight the weaknesses in this aspect of the justice system.
“Neither the consumer nor the collection agency are properly served by this approach,” Fiffk said. “Poorly gathered collection data from collection agencies and uninformed, under-represented consumers equals a recipe for injustice: It’s garbage in and it’s garbage out. This is not justice under the law.”
Though the telephone was originally the main tool utilized by collection agencies, many debt buyers have now turned their efforts to the courts to collect funds.
In a report entitled “The Debt Machine,” the National Consumer Law Center, a consumer advocacy organization, said debt buyers and other creditors have learned how to use small claims and other low-level courts “as a low-cost machine for turning claims into judgments against consumers who have fallen behind on payments.”
Officials at Ada-based Pre-Paid Legal Services said the lawsuits are often used to frighten consumers.
“This approach is flawed because it taxes the court system with an overabundance of collection suits and because it’s often utilized as a ‘scare tactic’ against consumers,” said Harland C. Stonecipher, Pre-Paid’s founder and chairman of the board.
Fiffk, whose firm provides services for Pre-Paid, agreed.
“The market for selling default accounts has probably heated up,” he said. “Now companies are more willing to sell – or buy – collection accounts.”
Debt buyers, he said, have more resources than consumers and they have exploited the weakness of the judicial system.
“It’s really a perversion of the way the justice system is supposed to work,” he said. “And the justice system hasn’t recognized that the system isn’t working.”
As an example, Fiffk cited statistics showing that during the first half of 2010, Pre-Paid’s independent provider law firms responded to more than 79,000 legal service requests from their member-customers on collection-related issues. That figure, he said, represents about 7 percent of Pre-Paid’s 1.1 million requests during the six-month period.
In 2009, the Federal Trade Commission reported it had received more than 88,000 consumer complaints about third-party debt collectors. Those complaints, coupled with in-house debt collector complaints, make up about one out of five FTC complaints about the industry.
Because many consumers don’t understand their legal rights – and because they don’t exercise them by going to court – Fiffk said that as many as 85 to 90 percent of the lawsuits result in a default judgment against the consumer.
“There’s a profitable business there,” he said. “And there’s lots of fuel for the fire. Whenever you can file these lawsuits, you’ve figured out that 85 to 90 percent of the time you get a default judgment. It’s an unfair game. It’s like shooting fish in a barrel.”
Credit counselors say industry collection practices became more aggressive as the economy turned sour.
“They are much more aggressive,” said Margo Mitchell, president and CEO of Tulsa’s Credit Counseling Centers of Oklahoma. “That may mean that many creditors are calling customers every day, some of them actually after-hours when they should not be calling and yes, some of them are suing much more quickly than in the past.”
Many consumers, she said, don’t go to court, which results in a default judgment.
“If they would go and make their case, then the collection agency may not automatically get that garnishment, or they may not be on the line for as much, if they go in front of the judge,” she said.
Fighting the process, Fiffk said, is a question of knowing the language and procedures involved in such litigation.
“Many times a customer was never properly notified about the lawsuit,” he said. “There’s a huge disparity on one side of the ‘V.’”
Other times, Fiffk said, debt collection agencies can’t produce proof of the debt.
“In many instances, these debt buyers are counting on uninformed consumers to simply pay up whether the debt is authentic or not,” he said.
In Oklahoma, like many parts of the country, attorneys say the number of collection actions is on the rise.
“We first saw a rise in collection efforts following changes in the bankruptcy laws of 2005,” said Mark Nelms, a shareholder with Riggs, Abney, Neal, Turpen, Orbison and Lewis. “I think there’s been a significant rise, certainly since we’ve had economic issues. And we’ve seen a huge rise in lawsuits filed in general consumer debts and foreclosures.”
Nelms said many consumers don’t understand their rights or lack the resources to take advantage of those rights.
“There is a lot of confusion,” he said. “Then you add on top of that, litigation. Going to court, for most individuals, is complicated and expensive, and what I’ve found over time, when individuals don’t have representation, they don’t respond or appear and then they have a default judgment against.”
Once the judgment is issued, he said, consumers face leans or garnishments or negative credit bureau reports.
Jeff Lippman, an attorney with the Maryland-based law firm of Weinstock, Friedman and Friedman, P.A. believes the problems for consumers are threefold: fear, ignorance and inaction.
“People get nervous when they receive a collection letter,” Lippman said. “This can quickly turn to fear when they are confronted with the prospect of a lawsuit. This may lead to paralysis and inaction. If they would only face the problem, armed with the right information and assistance, they would have a much better chance of resolving or challenging the issue.”
The best defense, Pre-Paid’s Stonecipher said, was legal.
“Talk to your attorney before you talk to theirs,” he said.
Complete URL: http://journalrecord.com/2010/12/15/wolves-at-the-door-law/
Published: December 15th, 2010
ADA – Debt-laden consumers are now being forced rapidly into court by collection firms as the U.S. debt collection industry increases its use of litigation as a debt collection tool.
Legal experts say the practice is widespread and it’s growing.
According to a report by the U.S. Federal Trade Commission, the system for resolving consumer debts is broken and major industry debt buyers – using data-driven debt processing tools – are now focusing on litigation and the justice system as means of collecting those debts.
This system, attorneys said, lets the corporate debt buyers skip some consumer communication and proceed directly to litigation.
“We’re seeing much more of it now than we ever did,” said Michael Fiffk, an attorney with the Pennsylvania law firm of Welch, Gold and Siegel, P.C. Those lawsuits, he said, highlight the weaknesses in this aspect of the justice system.
Though the telephone was originally the main tool utilized by collection agencies, many debt buyers have now turned their efforts to the courts to collect funds.
In a report entitled “The Debt Machine,” the National Consumer Law Center, a consumer advocacy organization, said debt buyers and other creditors have learned how to use small claims and other low-level courts “as a low-cost machine for turning claims into judgments against consumers who have fallen behind on payments.”
Officials at Ada-based Pre-Paid Legal Services said the lawsuits are often used to frighten consumers.
“This approach is flawed because it taxes the court system with an overabundance of collection suits and because it’s often utilized as a ‘scare tactic’ against consumers,” said Harland C. Stonecipher, Pre-Paid’s founder and chairman of the board.
Fiffk, whose firm provides services for Pre-Paid, agreed.
“The market for selling default accounts has probably heated up,” he said. “Now companies are more willing to sell – or buy – collection accounts.”
Debt buyers, he said, have more resources than consumers and they have exploited the weakness of the judicial system.
“It’s really a perversion of the way the justice system is supposed to work,” he said. “And the justice system hasn’t recognized that the system isn’t working.”
As an example, Fiffk cited statistics showing that during the first half of 2010, Pre-Paid’s independent provider law firms responded to more than 79,000 legal service requests from their member-customers on collection-related issues. That figure, he said, represents about 7 percent of Pre-Paid’s 1.1 million requests during the six-month period.
In 2009, the Federal Trade Commission reported it had received more than 88,000 consumer complaints about third-party debt collectors. Those complaints, coupled with in-house debt collector complaints, make up about one out of five FTC complaints about the industry.
Because many consumers don’t understand their legal rights – and because they don’t exercise them by going to court – Fiffk said that as many as 85 to 90 percent of the lawsuits result in a default judgment against the consumer.
“There’s a profitable business there,” he said. “And there’s lots of fuel for the fire. Whenever you can file these lawsuits, you’ve figured out that 85 to 90 percent of the time you get a default judgment. It’s an unfair game. It’s like shooting fish in a barrel.”
Credit counselors say industry collection practices became more aggressive as the economy turned sour.
“They are much more aggressive,” said Margo Mitchell, president and CEO of Tulsa’s Credit Counseling Centers of Oklahoma. “That may mean that many creditors are calling customers every day, some of them actually after-hours when they should not be calling and yes, some of them are suing much more quickly than in the past.”
Many consumers, she said, don’t go to court, which results in a default judgment.
“If they would go and make their case, then the collection agency may not automatically get that garnishment, or they may not be on the line for as much, if they go in front of the judge,” she said.
Fighting the process, Fiffk said, is a question of knowing the language and procedures involved in such litigation.
“Many times a customer was never properly notified about the lawsuit,” he said. “There’s a huge disparity on one side of the ‘V.’”
Other times, Fiffk said, debt collection agencies can’t produce proof of the debt.
“In many instances, these debt buyers are counting on uninformed consumers to simply pay up whether the debt is authentic or not,” he said.
In Oklahoma, like many parts of the country, attorneys say the number of collection actions is on the rise.
“We first saw a rise in collection efforts following changes in the bankruptcy laws of 2005,” said Mark Nelms, a shareholder with Riggs, Abney, Neal, Turpen, Orbison and Lewis. “I think there’s been a significant rise, certainly since we’ve had economic issues. And we’ve seen a huge rise in lawsuits filed in general consumer debts and foreclosures.”
Nelms said many consumers don’t understand their rights or lack the resources to take advantage of those rights.
“There is a lot of confusion,” he said. “Then you add on top of that, litigation. Going to court, for most individuals, is complicated and expensive, and what I’ve found over time, when individuals don’t have representation, they don’t respond or appear and then they have a default judgment against.”
Once the judgment is issued, he said, consumers face leans or garnishments or negative credit bureau reports.
Jeff Lippman, an attorney with the Maryland-based law firm of Weinstock, Friedman and Friedman, P.A. believes the problems for consumers are threefold: fear, ignorance and inaction.
“People get nervous when they receive a collection letter,” Lippman said. “This can quickly turn to fear when they are confronted with the prospect of a lawsuit. This may lead to paralysis and inaction. If they would only face the problem, armed with the right information and assistance, they would have a much better chance of resolving or challenging the issue.”
The best defense, Pre-Paid’s Stonecipher said, was legal.
“Talk to your attorney before you talk to theirs,” he said.
Complete URL: http://journalrecord.com/2010/12/15/wolves-at-the-door-law/
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