Third-Party Debt Collectors Misusing Courts To Increase Profits

The Chicago Tribune writes that “More than 119,000 civil lawsuits against alleged debtors are clogging [Chicago] courtrooms,” but since collection agencies make money off of volume business, the suits filed are based on too little information. The result: cases based on mistaken identities, or for debts already settled, or against debtors who have made good-faith efforts to work out repayment plans. “The system is out of control,” one attorney tells the paper.

Third-party collectors, who buy old debts for pennies on the dollar and are the largest source of complaints to the FTC, are also the companies most likely to sue. The courtroom approach works in their favor: defendants often don’t have lawyers, and a new law passed last year in Illinois and “pushed by creditors’ lawyers” took away a judge’s power to limit the amount that could be garnished from wages. It’s at least partly why the third party debt collection industry raked in around $15.5 billion in 2006.

Consumer groups say the high number of default judgments can mask flaws with the lawsuits. Credit agreements and payment histories are often not included when suits are filed. Instead, debt collectors file an affidavit attesting to the validity of the debt, and it’s not unusual for that affidavit to be erroneous, said Bob Hobbs, deputy director of the National Consumer Law Center.

Andersen acknowledged that there is ambiguity about the minimum evidence needed to verify a debt. In New York, an Urban Justice Center study in 2006 found that in 99 percent of a sampling of default judgments that the evidence used to obtain the judgment did not meet the state’s legal standards.

“Debt collectors pushing to get their day in court” [Chicago Tribune]
(Photo: Getty)