A report released late last week by consumer advocacy group the New Economy Project calls for reforms in New York that would reduce the use of the court system by debt buyers and collectors. The report also urges the Consumer Financial Protection Bureau (CFPB) to more aggressively regulate the ARM industry.
The report, “The Debt Collection Racket in New York: How the Industry Violates Due Process and Perpetuates Economic Inequality,” accuses the debt collection industry of perpetuating “systematic, large-scale fraud against New Yorkers, using the courts as a collection mill and depriving hundreds of thousands of New Yorkers of due process.”
“Each year, thousands of New Yorkers find out they’ve been sued by debt collectors, only after a court judgment’s already been filed against them,” said Susan Shin, a staff attorney with New Economy Project. “The consequences are dire for so many people already living check to check, because debt buyers use these ill-gotten judgments to freeze people’s bank accounts and garnish their wages.”
The report is primarily a statistical analysis of debt collection case filings in New York counties. It notes that debt collectors filed 195,105 lawsuits against New Yorkers in 2011 and that 42% of debt collection lawsuits resulted in default judgments.
The primary recommendation of the report is that the New York legislature should pass and implement the Consumer Credit Fairness Act, which in late April passed the General Assembly and was referred to the state’s Senate.
As a short-term national fix, the New Economy Project called on the CFPB to “hold banks accountable for the sale of charged-off debt” by using “its rule-making, enforcement, and supervisory authority over banks and debt collectors.” The report also called on the Office of the Comptroller of the Currency (OCC) to “use its authority over national banks, to crack down on and prohibit abusive practices in the sale and collection of debts.”
In addition to those recommendations, the report called on the New York State Office of Court Administration (OCA) to implement stronger rules that would prevent debt buyers from bringing suits without the required documentation.
A spokesperson with the OCA took issue with that recommendation in an interview with Reuters. He noted that recent reforms in New York City have greatly improved the situation.
“The report is unfortunate and somewhat misleading, as (NEP) has used old numbers and discounted the very progressive policies in New York City,” he told the news service.