Debt Buyers and the “Shadow of Smoke

A recent article in the ABA Journal (a magazine for attorneys published by the American Bar Association), “The Debt Buyers” by Terry Carter, extensively documented the tactics of collection agencies who buy up debt around the country and rely on lax evidential standards and court procedures to rack up default judgments against alleged debtors. As Carter put it, “what had been accepted as evidence seemed to have no more substance than the shadow of smoke”.

The largest debt collection firm, Encore Capital Group, and its various subsidiaries made more than $1 billion in revenues last year. The top three firms in this industry purchased more than 80 percent of all the credit card debt sold in the country.  Carter writes about abuse of process by these “Big 3”:

“All have been tagged for widely publicized problems concerning abuses, including lawsuits filed with little or no documentation of the debt or its assignment to a buyer; mistaken identity in pursuing payment; suing for time-barred debts; and seeking high amounts in fees and interest for which there is no proof or accounting”

Although this comes as no surprise to attorneys who practice debt defense, it may be worrisome news for financial consumers who are facing lawsuits. Fortunately, some justice was served by the Consumer Financial Protection Bureau, which forced two of the Big 3 to refund about $60 million to consumers who they had wronged. There has also been progress made in Virginia:

“In 2008, the Fairfax County General District Court addressed due process issued raised by the spate of debt-buyer suits, adopting ‘best practices’ for default judgments, primarily requiring more documentary proof.”

Judge Mayne of the Court made a telling remark – “if a defendant shows up for trial, I’d say it’s generally nonsuited, and if they ask for a bill of particulars and supporting documents, they’re mostly nonsuited, rarely tried”. What this means is that defendants who show up to hearings and challenge debt buyer lawsuits in Virginia have a very good chance of avoiding a costly judgment.

With new, stricter rules and court practices in place, many debt buyers will improve their business models and become more careful about when and how they file lawsuits. But there will no doubt remain some debt buyers out there who still find it worthwhile to sue on inaccurate or unverifiable debts with little more than the shadow of smoke.  Virginia consumers who are facing such lawsuits should always remember their right to challenge the debt buyers and make them prove their case.