Debt Collection Racket Updated

8/13/2019 Debt Collection Racket Updated

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TABLE OF CONTENTS

1 Introduction

3 Debt Collection Lawsuits in New York State

5 Impact on Communities of Color

6 Regional SnapshotsMaps:

7 Buffalo

8 Capital District9 Nassau County10 New York City11 Rochester12 Syracuse

13 Recommendations

14 Endnotes / Methodology

The Debt Collection Racket in New York: How the Industry Violates Due Process and PerpetuatesEconomic Inequality

Copyright 2013 New Economy ProjectAll Rights Reserved.

This report was produced by New Economy Project.

Authors: Susan Shin and Claudia WilnerEditors: Sarah Ludwig and Josh ZinnerMaps and Production: Ben HagenResearch Analysis: Alexis Iwanisziw and Claudia Wilner

About the organization:New Economy Project (ormerly NEDAP) works with community groups in New York City to promoteeconomic justice and to eliminate discriminatory economic practices that harm communities andperpetuate inequality and poverty.

New Economy Project would like to thank the ive New Yorkers who shared their personal storieswith us: D.B., Brian P., Christine R., Rosetta R., and Parvez S. We would also like to thank theollowing people or their generous assistance: Gail Miller and Alan Simms, NYS Office o CourtAdministration; and our colleagues, Lauren Breen, Vera Cedano, Carolyn Coffey, Evan Denerstein,Peter Dellinger, Ruhi Maker, Matthew Parham, Gary Pieples, and Nasoan Shefel-Gomes.


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Over the past decade, the number o debt collection lawsuits iled in New Yorks courts has exploded,with upwards o 200,000 cases iled in 2011 alone. Creditors and debt buyers engage in an arrayo raudulent and deceptive debt collection practices that siphon billions o dollars rom New

Yorks low-income neighborhoods and communities o color. Abusive debt collection alls alonga continuum o discriminatory inancial practices that pervade low-income neighborhoods andcommunities o color, long targeted by high-cost and predatory inancial services providers.

The creditors and debt buyers that bring these lawsuits routinely engage in sewer service alselyclaiming to the courts that they have served people with court papers. They also engage in rampantrobo-signing mass-producing raudulent documents that they then submit to the courts. Debt

buyers companies that buy old, charged-off debts or pennies on the dollar ile more than halo all debt collection lawsuits in New York, and systematically lie to the courts about key inormationthat they do not in act have.

Creditors and debt buyers engage in this raud to obtain automatic, or deault, court judgments,which they then use to reeze peoples bank accounts or garnish their wages. The judgments alsoappear on peoples credit reports, blocking them rom housing, employment, and credit access.Consequences have been especially dire or low-wage workers, elderly and disabled New Yorkers onixed incomes, single mothers, and domestic violence survivors and now also New Yorkers affectedby last years hurricane.

Debt collection abuses stem largely rom structural problems related to the buying and selling o old,

charged-off debts. When selling the debts, creditors, including the countrys largest banks, disclaimvirtually all liability or inaccuracies in the scant inormation they provide. When purchasing debts,debt buyers obtain only extremely limited inormation and cannot substantiate the debts in court.

The courts have long been on notice that debt buyers routinely ail to submit the legally-requireddocumentation, and bear signiicant responsibility or allowing debt buyers to get away with raud.Although New York City courts recently have taken some corrective measures, the courts overallcontinue to grant debt buyers hundreds o thousands o deault judgments in violation o New Yorklaw.

INTRODUCTION

Christine R., of Glens Falls, NY: I was planning to buy a car, so I checked my credit report, and

I saw there was a judgment rom a company Id never heard o. I was in shock. The judgmentwasnt valid. I never even lived where they said they served it. Everything about it was illegal.They dont go afer the people who have money. They go afer the disabled, elderly, poor,whoever cant ight them. I ought them and won, but I was an exception.


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This study analyzes debt collection lawsuits iled across New York State, and builds upon previousresearch that ocused on New York City.1 New Economy Project analyzed two data sets or thisreport: (1) data obtained rom the New York State Office o Court Administration on civil lawsuits,including debt collection lawsuits, iled against New Yorkers in 2011; and (2) 90 randomly-selecteddebt buyer lawsuits iled in six regions throughout the state: Buffalo, the Capital District, NassauCounty, New York City, Rochester, and Syracuse.

The report includes key data indings, along with personal accounts rom aggrieved New Yorkers andmaps that show the disproportionate impact o abusive debt collection lawsuits on communitieso color throughout New York State. According to our analysis, creditors and debt buyers that bring

abusive debt collection lawsuits continue to deny due process to huge numbers o New Yorkers. Onlytwo percent o all New Yorkers sued in debt collection cases had legal representation and almosttwo-thirds o lawsuits brought by debt buyers resulted in deault judgments, or example.

Abusive debt collection practices are a product o our undamentally unair inancial system.Structural change is needed to bring about an economy based on principles o equity, airness, andinclusion. There are straightorward measures New York can take now, however, to signiicantly curbabusive debt collection practices and ensure due process or New Yorkers. Our state legislature,courts, and regulators along with their ederal counterparts should act immediately to endthese abuses.

INTRODUCTION

Brian P., of Queens, NY: Im a small business owner, and a lot o my work equipment wasdamaged during Superstorm Sandy. Last December I applied or disaster relie rom theSmall Business Administration so I could try to replace my equipment, but the SBA denied myapplication because o two judgments that were apparently on my credit report. I didnt evenknow that I had ever been sued, because I never got notice. I was even more shocked when Ilearned that the same debt buyer had actually sued me twice over the same supposed debt. WhenI went to court to challenge the judgments, the debt buyer didnt have any inormation about thecases and couldnt even tell me where the debt came rom. Now, six months later, Im still trying toget this inormation off my credit report so I can qualiy or an SBA loan. I temporarily had to go onunemployment afer Sandy, and am slowly getting back on my eet, but its really hard without my

equipment.


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DEBT COLLECTION LAWSUITSIN NEW YORK STATE

New Economy Project obtained statewide data rom the Office o CourtAdministration concerning debt collection lawsuits iled in city andcounty courts (Statewide Data).2 We supplemented the StatewideData with a detailed analysis o 90 lawsuits that debt buyers iled incourts across New York State (Debt Buyer Data). (See Methodology.)

We ound that debt collection lawsuits particularly those iled bydebt buyers wreak havoc across New York State, depriving hundredso thousands o New Yorkers o due process and subjecting them tocollection o debts that in all likelihood could never be legally proven.

Our analysis o the Statewide and Debt Buyer Data showed that thetotal number o deault judgments entered in 2011 was extremely high.That year:

Debt collectors iled 195,105 lawsuits against New Yorkers.

Debt collection lawsuits accounted or 8 out o 10 o all deaultjudgments entered.

Overall, 42% o debt collection lawsuits resulted in deaultjudgments but debt buyers obtained deault judgments inan estimated 62% o their cases.

Only 2% o all New Yorkers sued had legal representation.

Debt buyers brought more than hal o all debt collectionlawsuits.

Debt buyers obtained an estimated $230 million in judgmentsagainst New Yorkers.

Among the 90 debt buyer lawsuit iles examined, not a singlecase went to trial or was resolved on the merits.

Debt buyers virtually never prevailed in contested cases,but relied on winning cases by deault or by intimidatingunrepresented people into making settlement agreements.

DEBT BUYERS VIRTUALLY

NEVER PREVAILED IN

CONTESTED CASES, BUT

RELIED ON WINNING

CASES BY DEFAULT

OR BY INTIMIDATING

UNREPRESENTED PEOPLE

INTO MAKING SETTLEMENT

AGREEMENTS.


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DEBT COLLECTION LAWSUITSIN NEW YORK STATE

New Yorks courts bear considerable responsibility or this state oaffairs. In 2007 and 2010, legal services and community advocacygroups issued reports on debt collection lawsuits iled in New YorkCity courts, which showed that debt buyers routinely obtaineddeault judgments rom the courts, even though they almostalways ailed to submit evidence o the debt as the law requires.3

Our research shows that nothing has changed. In our sample, forexample, no application by a debt buyer for a default judgmentcomplied with New York law. The court nevertheless improperlygranted deault judgments on 97% o the applications.4

Our research also uncovered evidence o rampant robo-signing oaffidavits, indicating pervasive due process violations and raud onthe courts:

In 9 out o 10 cases, an employee o the debt buyer whohad no connection to the original creditor raudulentlytestiied to acts that only the original creditor couldpossibly know.

In 4 out o 10 cases, the affidavit in support o a deaultjudgment was completed beore the deendants time to

answer had expired, in expectation o a deault that hadnot yet occurred.

Finally, we observed signiicant differences in outcomes betweenlawsuits iled against New York City residents and those iled againstNew Yorkers outside New York City. New York City courts had a lowerdeault judgment and higher answer rate than non-NYC courts.5This difference is likely attributable to two key actors: First, peoplesued in New York City are more likely to receive notice due to anadditional notice requirement that the New York City Civil Courtadopted in 2008.6Second, New York City residents beneit rom arange o ree programs some offered by the court itsel and someby the private bar or legal services offices designed to assistunrepresented litigants sued by debt collectors. Unortunately, ewsimilar programs exist outside New York City.

To obtain a deaultjudgment under NewYork law, a debt buyermust provide proo othe acts constitutingthe claim, the deaultand the amount due.This proo must beestablished by an

affidavit rom a partywho has personalknowledge o the actso the case. Under theirbusiness model, debtbuyers cannot meetthis standard. Theyhave no connection tothe original creditor, noaccess to the originalcreditors booksand records, and no

personal knowledge othe acts to which theyattest.

NY CPLR 3215();Joosten v. Gale, 514N.Y.S.2d 729 (1st Dept.1987).


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IMPACT ON COMMUNITIESOF COLOR

Rank Zip Code Neighborhood % Non-White

1 12207 Greater South End, Albany 80%

2 14215 Kenield, Buffalo 86%3 11422 Rosedale, Queens 95%

4 12202 Arbor Hill, Albany 75%

5 11411 Cambria Heights, Queens 99%

6 11412 Jamaica, Queens 100%

7 14211 Schiller Park, Buffalo 84%


9 11420 South Ozone Park, Queens 93%


Chart 1 shows the ten zip codes in New York State with the highestconcentrations o deault judgments in debt collection lawsuits,and indicates that communities o color disproportionately bear thebrunt o abusive debt collection lawsuits.

Some o the most severely-affected communities are locatedoutside New York City, in predominantly non-white, low-incomeneighborhoods in Albany and Buffalo. Six o the ten zip codes areclustered in predominantly middle-income black communities insoutheast Queens, urther underscoring the connection between

abusive debt collection and race. These are the very communitiesthat banks redlined or decades, and that in more recent years havebeen at the epicenter o the predatory lending and oreclosure crisis.Abusive debt collection practices are directly linked to broadereconomic discrimination, inancial distress, and wealth inequality.

Chart 1. NYS zip codes with highest concentrations of defaultjudgments (per 1,000 residents)

ABUSIVE DEBT

COLLECTION PRACTICES

ARE DIRECTLY LINKED

TO BROADER ECONOMIC

DISCRIMINATION,FINANCIAL DISTRESS, AND

WEALTH INEQUALITY.


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Chart 2 shows that debt collection lawsuits across the state overwhelmingly result in deaultjudgments. Across the board, in all six regions highlighted, a staggeringly low percentage only 2% o New Yorkers sued in debt collection lawsuits had legal representation.

Chart 2. Summary of Debt Collection Lawsuits and Civil Court Filings, in Six New York Regions(2011)

BuffaloCity Court

CapitalDistrict

citycourts

NassauCountydistrictand citycourts

New YorkCity Civil

Court

RochesterCity Court

SyracuseCity Court

Total Civil Filings 11,747 7,030 19,324 370,924 8,032 7,222

Debt CollectionFilings 8,963 5,389 8,899 134,980 7,148 3,428

Total Deault Judgments 5,082 3,364 5,893 65,202 3,688 4,260

Debt Collection DeaultJudgments 4,870 2,872 4,284 51,086 3,386 2,133

Total Answers Filed 568 359 766 24,535 591 231

Total Attorney AnswersFiled 171 59 221 2,966 128 58

% o All Cases Filed ThatWere Debt CollectionLawsuits

76% 77% 46% 36% 89% 47%

% o All Deault JudgmentsEntered That Were romDebt Collection Lawsuits

96% 96% 73% 78% 92% 50%

% o All Debt CollectionCases Resulting in DeaultJudgments

54% 54% 48% 38% 47% 62%

% o People Sued in DebtCollection Lawsuits WhoHad Legal Representation

2% 2% 2% 2% 2% 2%

The ollowing maps show that throughout New York State, in every region examined, debt collectiondeault judgments are disproportionately concentrated in neighborhoods o color. New Yorkerswho live in neighborhoods o color are thereore more likely than people in predominantly whiteneighborhoods to have their wages garnished and bank accounts rozen, and their propertyencumbered by liens. The deault judgments appear on peoples credit reports, blocking them romair access to employment and housing.

REGIONAL SNAPSHOTS


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Allentown

DelawarePark

Riverside

Canalside

SchillerPark

Kaisertown

Lake Erie

Source: New York State Office of Court Administration (2012); U.S. Census (20Non-white population: Total population excluding non-Hispanic wh

Number of Default Judgments per 1,000 Residents, by Zip Code

Buffalo, NYDefault Judgments in Debt Collection Lawsuits

Population > 35% Non-W2 - 5 5 - 8 8 - 13.10 - 2 Buffalo City Court Jurisdiction

2013www.nedap.org

D.B., of Akron, NY (outside Buffalo): I just learned earlier this year that a debtbuyer had gotten a judgment against me in 2008 or a debt on a HouseholdFinance loan. Ive never taken out a Household Finance loan, but Ive since learnedthat my abusive ex-husband may have taken out the loan out in my name yearsago without my knowledge. I also ound out that the debt buyer claimed to haveserved me with court papers at the house I used to share with my ex-husband,though Im now divorced and havent lived there since 2006.


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Capital District, NY

Default Judgments in Debt Collection Lawsuits

Albany

Schenectady

Troy

Sources: New York State Office of Court Administration (2012); U.S. Census (20Non-white population: Total population excluding non-Hispanic wh

Number of Default Judgmentsper 1,000 Residents, by Zip Code

0

1 - 3

3 - 7

7 - 14.4

City Court Jurisdictions

Population > 35% Non-White

Northside

ArborHill

Lansingburgh

2013www.nedap.org


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Nassau County, NY


Freeport

Hempstead

ValleyStream

Hicksville

PortWashington

Massapequa

Syosset



0 - 2

2 - 4

4 - 5

5 - 7.1

Nassau County Court Jurisdictions


2013www.nedap.org


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Manhattan

Bronx

Brooklyn

StatenIsland

New York, NY


Queen

Sources: New York State Office of Court Administration (2012); U.S. Census (20

Non-white population: Total population excluding non-Hispanic wh

MarinersHarbor

Canarsie

Jamaica

Bedford-Stuyvesant

Wakefield

Parkchester


2013www.nedap.org

NYC Civil Court Jurisdiction


6 - 7

0 - 6

7 - 8

8 - 12.6


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Lake Ontario


14621

19th Ward

Maplewood

NorthWinton VillageCenter City

Rochester, NYDefault Judgments in Debt Collection Lawsuits

Sources: New York State Office of Court Administration (2012); U.S. Census (20Non-white population: Total population excluding non-Hispanic whi

Population > 35% Non-W0 - 2 2 - 5 5 - 7 7 - 9.4 Rochester City Court Jurisdiction

2013www.nedap.org

Parvez S., of Brooklyn: I lost my job and my home afer September 11. I was also a victim oidentity thef. I just ound out that three debt buyers got judgments against me, even though I nevergot notice o the lawsuits. Even though Ive lived in Brooklyn or over 10 years, two o the debt buyersclaimed to have served me at addresses in the Bronx, and the third claimed to have served me at anaddress in Westchester County. I only learned o the judgments when I was being considered or anentry-level job as a messenger with an investment banking irm. Afer the irm ran a credit check, Iound out that these judgments were on my credit report. The irm gave me 30 days to vacate the

judgments and clear them rom my credit report, but I couldnt clear the judgments in time, so Ididnt get the job. Ive since cleared two o the judgments and am still working to vacate the third so Ican hopeully get a job.


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OnondagaLake


Northside

SaltSprings

Lakefront

South Valley

UniversityHill

Strathmore


Syracuse, NYDefault Judgments in Debt Collection Lawsuits

Population > 35% Non-W0 - 2 2 - 4 4 - 7 7 - 10.7 Syracuse City Court Jurisdiction

2013www.nedap.org

Rosetta R., of Syracuse: I didnt even know that I had ever been sued until late last year, when Iound out that my wages were about to be garnished. Then I learned that two debt buyers had suedme years ago and gotten judgments against me, even though they never served me with the courtpapers. One o the debt buyers claimed to have served me at an old address that I wasnt living atany more, and the other used a process server that the Attorney General had sued or lying aboutserving people with court papers. Also, the debt buyers sued me in a name I havent used since Icame here rom Jamaica 14 years ago, so I dont think these debts are even mine, and Im worried

that I may have been the victim o identity thef.


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Debt Collection Racket Updated

Documents

Transcript of Debt Collection Racket Updated