Yesterday, the National Law Journal reported on a new Federal Trade Commission report that highlights a number of concerns with debt collection, and in particular, the debt buying industry. “Debt buying” refers to the rapidly growing business of purchasing charged-off debt from creditors or other debt owners, with the intent to then collect the debt from the consumer or resell it to another purchaser. Such debts are typically sold at a deep discount – on average, 4 cents for every dollar of debt – and are accompanied by a limited amount of corresponding data, the accuracy of which is typically disclaimed by the seller. The FTC’s report examined data from purchased debt portfolios containing more than 90 million individual accounts, concluding that each year, debt buyers seek to collect about a million debts that consumers dispute they actually owe. Yet, for a variety of reasons – including lack of adequate notice of the actions filed against them – roughly 90 percent of consumers sued for debt collection do not end up appearing in court to defend themselves, according to the FTC.
These are findings that do not necessarily surprise many of our consumer clients. Recently, for example, Mr. E came to Legal Aid concerned and confused by an envelope containing court papers that he did not understand. Legal Aid reviewed the documents and explained to Mr. E that he had been sued on an old credit card debt of nearly $9,000. Mr. E was shocked – he did not recognize the company that was suing him, he did not recognize the credit card, and he was sure he never had a credit card with such a high balance. He did not know whether the lawsuit was the result of mistake or fraud, but he was sure that the debt was not his.
To make matters worse, Mr. E was not properly served with the complaint and did not find out about the court case until after the deadline to file a response had already passed. By the time Mr. E came to Legal Aid, the plaintiff had already obtained a default against him.
Legal Aid investigated the case and prepared several documents regarding the improper service of process and Mr. E’s various legal defenses to the action. Legal Aid also reached out to the attorney for the plaintiff to explain the problems with the case and to alert the plaintiff that Mr. E’s sole source of income, social security, was legally protected from garnishment. The plaintiff ultimately decided to vacate the default and dismiss the case.
For Mr. E, the dismissal of the lawsuit was a success and a great relief. But the dismissal had benefits for the plaintiff, too. It prevented the facts of this particular case from getting in front of a judge and exposing the serious problems that exist in debt collection cases with more frequency than the average person might expect.
For every Mr. E who finds justice and relief, countless others do not. Many defendants in debt collection cases are forced to endure the stress of receiving court papers and attempting to navigate the legal process without fully understanding the nature of the lawsuit, whether the claims are valid, and whether they have defenses. Few are likely to have legal representation or to be able to adequately defend themselves on their own. Many are likely to end up with judgments that could have been avoided – or settlements that could have been more fairly negotiated.
In Mr. E’s case, he found free legal representation at one of Legal Aid’s community offices in Anacostia, opened in 2006 in an effort to remove some of the heightened barriers that clients living in poverty may face when trying to meet with an attorney – whether it be cost, transportation, work schedules, or family needs. While Mr. E was able to find Legal Aid in his neighborhood, other defendants with critical legal needs may never walk through the door. In recognition of this fact and in furtherance of its mission, Legal Aid is providing same-day representation to defendants who appear in D.C. Superior Court with debt collection matters being heard that day. We hope this project will work to increase access to justice – and to make justice real – for many more clients to come.