There have been journalists & researchers who covered these debt collectors at court. When defendants showed up, organised, they usually won.
The debt collectors' lawyers didn't arrive prepared to win, because most people didn't show up. If you can win 85% of cases just by showing up, why bother.
A court system that allows these dynamics to dominate isn't serving well.
In little people law, such as, debt collection, landlord tenant, family law, some bankruptcy/creditor issues, it usually doesn't take much effort to disrupt the volume practitioners.
The volume-based attorneys often exclusively practice in one area and rarely face an attorney. The few times I defended people, it really threw a monkey wrench into the process.
Unfortunately, there is no money in being a white knight in most areas of little people law.
And it only gets to court after harassment hasn't worked. Anecdata: guy I know had a common name. Debt collector fastened on him because he'd lived in the same town as a deadbeat with that name too. Guy would call day and night demanding payment.
Why would a person who legitimately owes a debt win just by showing up?
I had a small unsecured debt that was put into collections and then I was served an order of execution by the marshal to appear in court. I went to court and the judge made me sit down with the debt collectors lawyer and a mediator and we worked out a repayment plan at about 60% of the original balance.
I really don't understand what "win" means in this context besides avoiding a default judgment.
I took a company to small claims court about 10 years ago. In my state at that time, the max you could sue for was a few thousand dollars (now it's $7k, https://www.mass.gov/service-details/small-claims-court). It was run by a magistrate, not a judge, and AFAIK no ordinary citizens who had brought cases (including myself) had a lawyer to represent us. No surprise there ... the small claims courts are designed to work this way, so ordinary people can bring cases if relatively small sums are involved.
Most of the defendants (which were small or large companies, some local and some national) in these citizen-brought cases didn't even show, but those who did typically brought a lawyer to deny the charges, and were usually asked by the magistrate to work out a settlement in the hallway.
Excluding the local small claims plaintiffs such as myself, about half the docket consisted of national credit card companies suing local debtors. The lawyer for say BOA would come in with a list of 10 local people being sued for amounts under the small claims threshhold. Maybe 1 in 4 defendants in these cases did show up, and were asked to work out a settlement in the hallway. If the local person being sued didn't show, the default judgement was for the credit card company with treble damages, putting these people further in the hole.
Many debt collection cases will disappear if the alleged debtor files an answer (in court) to a debt collection complaint.
Filing answers is relatively simple and doesn't cost anything.
Depending on the jurisdiction, filing an answer basically puts the brakes on the case because it is not worth it for the debt collector to pursue it any further. Their business model is based on default judgments.
Eventually, after a year or so, if no action has been taken, the court is likely to dismiss the case (or you can ask them to).
Also, debt collection law has a lot of federal consumer protections and often more protections at the state level. Thus, it is not uncommon to run into debt collectors that are violating fed or state laws. Raising such issues also makes the case go away.
Of course, your mileage may vary depending on local laws and the nature of the debt or contract breach. But when I practiced little people law (before I sold out and went into IP law) I did this a few times and it worked without issue.
Thinking about it now, I guess a debtor-side lawyer should be involved, but defending such cases require hardly any effort on the part of the lawyer, so again I wonder why there are not debt relief orgs doing this. I believe fighting back just a little would significantly reduce the predatory practices of the volume debt collectors.
I imagine debt relief agencies don't fight because I think many are funded by the credit industry. So they direct debtors into payment plans rather than trying to shut down the predators.
> I imagine debt relief agencies don't fight because I think many are funded by the credit industry. So they direct debtors into payment plans rather than trying to shut down the predators.
Or they require money up front to help you. They already know you are (likely) a default risk, so “cash in advance, please”. And as you allude to, a lot of times the “real” value in services like this is relief from the stress of the calls and letters. They’re not passionately involved or connected, they just have the calls directed to them and put up with it and give you a settlement offer that you could have reached in the first place.
The single largest thing we can do is undo the changes to bankruptcy law signed in 2005, it removed bankruptcy as a tool of the poor to discharge excess debt. It's caused there to be very little downside to lending, and lead to an explosion of debt.
I'm begging on hands and knees for everyone in this thread to read Graeber's "Debt: the first 5,000 years." The notion that debts have to be paid is very odd. If I went to a bank and asked for a loan to bet on a horse, they'd laugh me out of the building. But if they knew that no matter what they could get the money back from me, they'd cut the check. That's where we are right now with non-dischargeable debts. Who holds risk for making loans is not an iron clad law of nature; it's a matter of political will that we have changed over time.
The outcome of that will be that lending standards go up substantially. Significantly higher interest rates and required collateral. The eventual end result is fewer people able to qualify to buy a car, buy a house, get a credit card, or go to college. These are significant drivers of economic activity.
Okay, I'm imagining it. So what? There is a debate to be had about what sorts of protections we want to provide to debtors. But that's separate and apart from the existence of companies that specialize in debt collection. The latter is simply an example of economic specialization.
The problem everyone has getting their mind around debt collection is that they focus on the after-the-fact situation, instead of the whole picture. If companies cannot collect on debt, they will be less willing to extend credit. When you "help" one person who can't pay their debt, you're hurting several people in the future who won't be extended credit.
Student loans are a good illustration of this. People clamor to make student loans dischargeable in bankruptcy--citing examples of people with hundreds of thousands of dollars in crippling debt. But the median American doesn't have any student debt, and the median debt for people who do is just $30,000. Now as a practical matter, student loan forgiveness would just impact taxpayers, since almost all student debt is owed to the federal government. But if it was a normal debt market, making student loans--which are offered without any security--dischargeable in bankruptcy would cause student loans to dry up for everyone, even the vast majority of people who take on modest, manageable debt.
There's actually a good startup opportunity here. Many of these debt collectors are unethical. You could buy these bad debts for pennies on the dollar, settle them for a very modest margin, and help the poor people fix their credit without filing for bankruptcy.
I do commercial collections (B2B). The article states, "Unlike most court rulings, these judgments are issued, as the name indicates, by default and without consideration of the facts of the complaint—and instead are issued in cases where the defendant does not show up to court or respond to the suit." I am licensed in California and Texas, and in both states one must "prove-up" a default before judgment is entered by presenting a "prima facie" case. In other words, you must prove your case before a judgment is entered, even if the defendant does not show up.
Generally you don't have to prove your case, you need to provide enough evidence to meet the prima facie threshold. In some cases, a declaration and blurry copy of an invoice will do depending on the state and the stakes.
Still in consumer debt collection, even if they can prove the debt, predatory/volume collection firms tend to fold if an answer is filed. Not always of course, since as you know many factors may come into play.
The article specifically mentions later on that California has stricter proof requirements in order for debt collectors to get default judgments. Unfortunately, most other states apparently don't do this.
I was under the impression that a well-plead complaint was sufficient if the defendant doesn't show up. What rule says you have to actually put on a case to get a default judgment?
It's not surprising when you think about it, but it's still an important problem to think about. It has the potential to cause some problems if state courts become seen as a vehicle for debt collectors more than an authority for righting wrongs.
What a depressing topic. Since one is responsible for his own debt and just forgiving it is unfair to those pulling their own weight perhaps the small amounts the article talks about should play part in setting the height of an initial basic income. If the income is guaranteed it can at least pay the interest over debt. It could become more interesting to get payments rather than sell peoples property and ruin their lives (and potentially their income) with all the burdens on society it brings.
I'd be interested to understand how this works in practice, especially small claims court (which is probably where many credit card debts end up at). From my understanding, small claims judgments are very tough to actually enforce, no longer show up on your credit report, and the court system does nothing to help you collect. Without getting into moralizing and just from a pure P&L perspective- how can it make financial sense for a big company to have one of its attorneys spend the day in court, when you're probably not going to collect on the debt....?
I actually think the current system works well. The only people having a bad time are people who borrow AND don't repay AND refuse to work with their lender AND refuse to come to court.
And remember, there is no free lunch here. Making life easier for borrowers who can pay but won't just means the rest of us have to pay more for out legitimate borrowing.
Seems like there are some money left on the table.
Should someone build a small company to defend all those people solely based on some contingency fee (well a tiny percentage of what they owe or would pay if they lose).
If I owe $5,000, a lawyer takes the case, and prevent me to pay the $5,000 for a $500 fee, and I never hear again about the debt collector, that seems a win-win.
Those debt collector would start to think twice before going to court, and if really working, debt collector would start to think twice before buying debts at the first place.
It could be automated, with a single website, where I enter few details about my case (or the website contacts me based on scrawling the dockets), give me free advices to fight it myself (e.g. ask debt collector for all communication to only be done by mail, as allow by law, ask them for proof of debt, etc.). And if it escalate to court, then a lawyer would be assigned to represent me.
Looks like some software could fight this court scaling issue, by fighting before it goes to court, and then making it less predictable for debt collector to go the court route.
You seem to misunderstand something. Debt collectors aren't winning cases of illegitimate debt. They are winning legitimate court cases that the defendant simply ignored. Even if you bring a lawyer to court that doesn't mean that you won't have to pay the debt. That $5000 debt was probably bought for less than $500 by the debt collector and the debt collector is willing to settle for something like $1000 which is still significantly less than the original debt.
What do you mean "receive the least"? Pretty much all the social programs we have target the poor, not the rich. The poor are the ones that receive the most.
It would be hilarious if it wasn't so tragic. Taking someone to court for not paying a debt and then (if severe enough) sending them to prison ends up costing the state, and tax payer, a lot more than just writing off the debt. It's a vicious circle where (on average) only the debt collector wins. It's one of many scenarios (another being healthcare) that point towards a social (not communist) solution being the only way. Civil War usually starts when a significant portion of a population can no longer feed itself...
[+] [-] netcan|5 years ago|reply
The debt collectors' lawyers didn't arrive prepared to win, because most people didn't show up. If you can win 85% of cases just by showing up, why bother.
A court system that allows these dynamics to dominate isn't serving well.
[+] [-] pnw_hazor|5 years ago|reply
The volume-based attorneys often exclusively practice in one area and rarely face an attorney. The few times I defended people, it really threw a monkey wrench into the process.
Unfortunately, there is no money in being a white knight in most areas of little people law.
[+] [-] JoeAltmaier|5 years ago|reply
[+] [-] verylittlemeat|5 years ago|reply
I had a small unsecured debt that was put into collections and then I was served an order of execution by the marshal to appear in court. I went to court and the judge made me sit down with the debt collectors lawyer and a mediator and we worked out a repayment plan at about 60% of the original balance.
I really don't understand what "win" means in this context besides avoiding a default judgment.
[+] [-] LorenPechtel|5 years ago|reply
[+] [-] ilamont|5 years ago|reply
Most of the defendants (which were small or large companies, some local and some national) in these citizen-brought cases didn't even show, but those who did typically brought a lawyer to deny the charges, and were usually asked by the magistrate to work out a settlement in the hallway.
Excluding the local small claims plaintiffs such as myself, about half the docket consisted of national credit card companies suing local debtors. The lawyer for say BOA would come in with a list of 10 local people being sued for amounts under the small claims threshhold. Maybe 1 in 4 defendants in these cases did show up, and were asked to work out a settlement in the hallway. If the local person being sued didn't show, the default judgement was for the credit card company with treble damages, putting these people further in the hole.
[+] [-] Thorentis|5 years ago|reply
[+] [-] pnw_hazor|5 years ago|reply
Filing answers is relatively simple and doesn't cost anything.
Depending on the jurisdiction, filing an answer basically puts the brakes on the case because it is not worth it for the debt collector to pursue it any further. Their business model is based on default judgments.
Eventually, after a year or so, if no action has been taken, the court is likely to dismiss the case (or you can ask them to).
Also, debt collection law has a lot of federal consumer protections and often more protections at the state level. Thus, it is not uncommon to run into debt collectors that are violating fed or state laws. Raising such issues also makes the case go away.
Of course, your mileage may vary depending on local laws and the nature of the debt or contract breach. But when I practiced little people law (before I sold out and went into IP law) I did this a few times and it worked without issue.
Thinking about it now, I guess a debtor-side lawyer should be involved, but defending such cases require hardly any effort on the part of the lawyer, so again I wonder why there are not debt relief orgs doing this. I believe fighting back just a little would significantly reduce the predatory practices of the volume debt collectors.
I imagine debt relief agencies don't fight because I think many are funded by the credit industry. So they direct debtors into payment plans rather than trying to shut down the predators.
[+] [-] FireBeyond|5 years ago|reply
Or they require money up front to help you. They already know you are (likely) a default risk, so “cash in advance, please”. And as you allude to, a lot of times the “real” value in services like this is relief from the stress of the calls and letters. They’re not passionately involved or connected, they just have the calls directed to them and put up with it and give you a settlement offer that you could have reached in the first place.
[+] [-] Aloha|5 years ago|reply
[+] [-] 1-more|5 years ago|reply
[+] [-] cwhiz|5 years ago|reply
It's hard to put the genie back in the bottle.
[+] [-] ashtonkem|5 years ago|reply
[+] [-] WD-42|5 years ago|reply
[+] [-] rayiner|5 years ago|reply
The problem everyone has getting their mind around debt collection is that they focus on the after-the-fact situation, instead of the whole picture. If companies cannot collect on debt, they will be less willing to extend credit. When you "help" one person who can't pay their debt, you're hurting several people in the future who won't be extended credit.
Student loans are a good illustration of this. People clamor to make student loans dischargeable in bankruptcy--citing examples of people with hundreds of thousands of dollars in crippling debt. But the median American doesn't have any student debt, and the median debt for people who do is just $30,000. Now as a practical matter, student loan forgiveness would just impact taxpayers, since almost all student debt is owed to the federal government. But if it was a normal debt market, making student loans--which are offered without any security--dischargeable in bankruptcy would cause student loans to dry up for everyone, even the vast majority of people who take on modest, manageable debt.
[+] [-] oh_sigh|5 years ago|reply
[+] [-] linuxftw|5 years ago|reply
There's actually a good startup opportunity here. Many of these debt collectors are unethical. You could buy these bad debts for pennies on the dollar, settle them for a very modest margin, and help the poor people fix their credit without filing for bankruptcy.
[+] [-] swarnie_|5 years ago|reply
[+] [-] joshuaheard|5 years ago|reply
[+] [-] pnw_hazor|5 years ago|reply
Still in consumer debt collection, even if they can prove the debt, predatory/volume collection firms tend to fold if an answer is filed. Not always of course, since as you know many factors may come into play.
[+] [-] makomk|5 years ago|reply
[+] [-] beervirus|5 years ago|reply
[+] [-] Finnucane|5 years ago|reply
I might make a guess that the efforts of our corporate overlords to force everyone into nonjuducial arbitration has something to do with it.
[+] [-] D13Fd|5 years ago|reply
[+] [-] SpicyLemonZest|5 years ago|reply
[+] [-] 6510|5 years ago|reply
[+] [-] pests|5 years ago|reply
[+] [-] hash872|5 years ago|reply
[+] [-] LatteLazy|5 years ago|reply
And remember, there is no free lunch here. Making life easier for borrowers who can pay but won't just means the rest of us have to pay more for out legitimate borrowing.
[+] [-] llsf|5 years ago|reply
Should someone build a small company to defend all those people solely based on some contingency fee (well a tiny percentage of what they owe or would pay if they lose).
If I owe $5,000, a lawyer takes the case, and prevent me to pay the $5,000 for a $500 fee, and I never hear again about the debt collector, that seems a win-win.
Those debt collector would start to think twice before going to court, and if really working, debt collector would start to think twice before buying debts at the first place.
It could be automated, with a single website, where I enter few details about my case (or the website contacts me based on scrawling the dockets), give me free advices to fight it myself (e.g. ask debt collector for all communication to only be done by mail, as allow by law, ask them for proof of debt, etc.). And if it escalate to court, then a lawyer would be assigned to represent me.
Looks like some software could fight this court scaling issue, by fighting before it goes to court, and then making it less predictable for debt collector to go the court route.
[+] [-] imtringued|5 years ago|reply
[+] [-] bequanna|5 years ago|reply
[+] [-] brenden2|5 years ago|reply
[+] [-] lykr0n|5 years ago|reply
[+] [-] toomuchtodo|5 years ago|reply
[+] [-] refurb|5 years ago|reply
[+] [-] everybodyknows|5 years ago|reply
Texas leads the USA in judicial transparency! Sacramento, you got some 'splainin to do.
[+] [-] FourthProtocol|5 years ago|reply