Implications of News Report on Problems with Credit Card Debt Collections

The New York Times reports today that credit card debt collection practices have just the same problems that emerged in the foreclosure crisis:

The same problems that plagued the foreclosure process — and prompted a multibillion-dollar settlement with big banks — are now emerging in the debt collection practices of credit card companies.

The scope is beyond amazing:

“I would say that roughly 90 percent of the credit card lawsuits are flawed and can’t prove the person owes the debt,” said Noach Dear, a civil court judge in Brooklyn, who said he presided over as many as 100 such cases a day.

And the system is apparantly leting the credit cards basically get away with it.

The errors in credit card suits often go undetected, according to the judges. Unlike in foreclosures, the borrowers typically do not show up in court to defend themselves. As a result, an estimated 95 percent of lawsuits result in default judgments in favor of lenders. With a default judgment, credit card companies can garnish a consumer’s wages or freeze bank accounts to get their money back.

The Times article makes it sound hopeless:

Many judges said that their hands are tied. Unless a consumer shows up to contest a lawsuit, the judges cannot question the banks or comb through the lawsuits to root out suspicious documents. Instead, they are generally required to issue a summary judgment, in essence an automatic win for the bank.

“I do suspect flaws,” said Harry Walsh, a superior court judge in Ventura, Calif. “But there is little I can do.”

As they work through a glut of bad loans, companies like American Express, Citigroup and Discover Financial are going to court to recoup their money. But many of the lawsuits rely on erroneous documents, incomplete records and generic testimony from witnesses, according to judges who oversee the cases.

Not so fast.

Let me suggest that a system that produces error (or even the risk of error) in 90% of cases has to violate due process as explained in Turner v. Rogers See also this article.  After all, there was not objection at trial to the lack of adequate procedures in Turner,  but the Supreme Court reversed because of the lack of error minimization procedures.

And there are alternative procedures to reduce this risk.  As courts have found in the foreclosure situation, putting in place rules putting the burden of production of detailed evidence on the plaintiff, as well as requiring personal knowledge attestation by an identified and responsible individual, can have a major impact on forcing plaintiffs in these kinds of cases to more carefully assess their cases.  See here, and here.  It also has the potential to put greater penalties on those who seek to exploit the ignorance of those without the underlying knowledge.

While one might argue about what steps are best and fairest to deal with this problem, how can any access to justice commission, or the members of any court Rules Committee concerned about access, sleep at night unless they have investigated a system with a risk of 90% error?

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About richardzorza

I am deeply involved in access to justice and the patient voice movement.
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