MESSAGE
| DATE | 2015-11-17 |
| FROM | Ruben Safir
|
| SUBJECT | Subject: [Hangout-NYLXS] Bad Debt Collectors and Their Prey
|
NY Times
FWIW
Bad Debt Collectors and Their Prey
By THE EDITORIAL BOARDNOV. 17, 2015
All states have laws that are intended to prevent debt collectors from
driving families into destitution. But those laws, some of which date to
the distant past, have been rendered ineffective by debt collectors
using new and devious ways to win court judgments that allow them to
seize debtors’ paychecks or bank accounts.
Last week, a network of debt collectors agreed to pay $59 million to
settle a class-action suit brought on behalf of people in New York, many
of whom had their paychecks garnished or their bank accounts frozen. The
lawsuit, filed in 2009, accused the companies of filing false affidavits
in court claiming that they had properly notified people that they were
being sued. The plaintiffs charged that after they failed to show up in
court, the debt collectors applied for a default judgment, making it
possible to get access to the people’s bank accounts and paychecks.
A multiyear investigation by the New York State attorney general’s
office into the debt collection industry uncovered this tactic and other
improper practices. For example, companies that buy up consumer debt for
pennies on the dollar from creditors and then try to recover the full
debt for themselves often pursue people for debts that are too old to be
legally collected or fake documents intended to show that the debt is
authentic. A recent investigation by ProPublica, a nonprofit news
organization, found that debt suits were being disproportionately used
against minority communities.
The federal Consumer Financial Protection Bureau has also become engaged
on this issue. It recently ordered two big debt-buying companies to pay
nearly $80 million in refunds and penalties, stop collection on debts
totaling about $128 million and amend illegal practices.
The National Consumer Law Center, a policy and advocacy group, has
recommended that states adopt a model law that, among other things,
would prevent debt collectors from seizing so much of a person’s
paycheck that they dropped below a certain income floor; allow the
debtor to keep a used car of average value; and preserve at least $1,200
in the bank to pay rent, utilities and transportation to work.
Most states don’t come close to meeting these standards. Vermont, for
example, allows the debtor to keep one cow, two goats and three swarms
of bees, but only a vehicle worth $2,500. The Pennsylvania law covers
items like Bibles, school books and sewing machines, military uniforms
and only $300 in other property. In Alabama, Delaware, Kentucky and
Michigan, debt collectors can seize virtually everything a debtor owns,
including the minimal assets needed to keep a job. Even in states with
relatively strong laws, a debtor must often file court papers or attend
hearings to prevent seizure of his or her bank account — a process that
could take weeks. During this period, the account is frozen, so that
rent, mortgage or car payments go unpaid.
Weak debtor protections also encourage predatory lending by creditors,
who know that if a debt goes bad, they can seize nearly all the debtor’s
assets. Until the states strengthen these laws, their corrosive effects
will continue to mount.
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