New York City Civil Court Adds Safeguards For Consumers Sued for Debts
December 14, 2007
The New York Civil Court is moving to strengthen protections for consumers sued for failing to pay their credit card bills. The Civil Court is set to require specific licensing information about debt buyers and debt collectors, as well as complete affidavits detailing a consumer’s debt before default judgments will be approved by clerks. Judge Fisher is also asking the Administrative Board of the Courts to require that additional notification be given to consumers to avoid defaults.
Of the requirements being placed on creditors, the most rigorous and likely to result in headaches for them is the requirement of an affidavit. Most collection lawsuits are brought by bottom-feeding debt buyers who purchase credit card debt for as little as $0.10 on the dollar. The companies receive, for their purchase price, a computer file with information on the debt but nothing more. Debt buyers who seek additional information such as documents proving the validity of the debt are required to pay significant additional sums to the originating credit card companies, which is why most times they do not bother doing so. Rather, they gamble that the consumer will default on the lawsuit and allow a judgment to be taken without any proof.
The assumptions and business model of these debt buyers is borne out by the numbers. The Urban Justice Center projected that the court last year entered judgments totaling $784.3 million in consumer credit collection actions. In 2006, the center reported, 320,000 collection cases were filed, representing 51 percent of the 618,000 cases filed that year, excluding housing and small claims cases.
The Urban Justice survey found that the vast majority of consumer credit collection actions, nearly 90 percent, are not filed by credit card or other companies that extend credit, but instead by firms that have bought debt from those companies.
The survey also discovered that consumers fail to appear to contest claims, and default judgments are entered in 80 percent of the cases filed. According to court data, however, 40 percent of the cases handled by the court in 2006 (other than housing and small claims) resulted in default judgments. But in either event, this is a significant default rate that is the result in large measure of consumers believing that if they are sued they will automatically lose.
As of January 1, 2008 court clerks will not be permitted to enter default judgments unless they are accompanied by an affidavit that asserts the original records concerning the debt have been reviewed.
Eric M. Berman, the president of the Commercial Lawyers Conference of New York, an association of debt collection lawyers, acknowledged that in a high percentage of cases brought by debt buyers, the default affidavits are supported by summaries of the amount of debt owed by the consumer at the time the debt was purchased. Many affidavits also contain representations that the original creditor had warranted to the buyer that the debt was valid, he added.
Should debt buyers be required to have access to the original debt records, their business model is likely to be negatively affected, said Steven Cohen, whose four-lawyer firm, Cohen & Krasser engages primarily in a consumer debt collection practice.
Gerard J. Felt of Pressler & Pressler, a 23-lawyer debt collection litigation firm, said that requiring access to the original records will place “an excessive burden on the debt buying industry and have “a severe negative impact.” Pressler & Pressler, which is based in Cedar Knolls, N.J., handles collection cases in the Civil Court, he said.
Severe negative impact for whom? The consumer, who is dragged into court on nothing more than a computer printout? It used to be that a plaintiff in a lawsuit was required to prove up a case in order to be granted a judgment - and this move by the New York City court system does nothing more than reinforce that rule.
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