FORUM
Why thousands of average citizens couid
get dragged into court by controversial
"debt buying" legislation
Rob
Schofield
Guest
Columnist
'Debt
buying' legis
lation is
threatening
consumers
with court
system spam
If you
thought that
the ignominy of being sued for "bad debt"
and all the fun things that come with it is a
phenomenon that only afflicts poor people
and/or those desperate or gullible enough
to get sucked into the vortex of predatory,
high-cost loans, it may be time to think
again.
Indeed, if the sponsors of two bills in
the General Assembly and the giant
national debt collection outfits behind
them get their way, the "excitement" of the
experience could soon be a part of your
life and/or someone you know or love. In
many parts of the country with weak con
sumer protection laws, this is already the
case.
f
The "debt buying" industry
At issue is the subject of predatory
"debt buyers" - multimillion dollar collec
tion mills that buy up old debts (both real
and fictitious) and try to collect (i.e.
squeeze out) what they can.
Here's the rather polite way the busi
ness was described in a 2014 report from
the Center for Responsible Lending [1]:
"Debt buyers are specialized compa
nies that purchase charged-off or other
delinquent debt from credit card compa
nies, banks, and other creditors for pen
nies-on-the<lollar. These companies then
attempt to collect the debts themselves or
through collection agencies or law firms.
Some debt buyers also repackage and sell
the debt they have bought to another debt
buyer, either almost immediately or after
already having attempted to collect the
debt."
The report goes on to explain that
while credit card debt is the debt buying
industry's bread and butter, these outfits
also purchase student loans, medical debt,
utility and phone bills, tax liens, car loans,
and mortgage and auto deficiencies.
"So what's the problem?" you ask.
"Isn't this just good old American capital
ism working its magic?"
Not exactly.
The problem - as it is in so many
industries - isn't necessarily the basic con
cept; it's how the business has come to
work in practice. Again, here's the Centei
for Responsible Lending report:
"When debt buyers acquire portfolios
of charged-off debt, they rarely purchase
documentation of the debts, but instead
purchase an electronic file containing lim
ited information on all of the debts in the
portfolio. These portfolios are typicall)
sold "as is"; often, account information is
inaccurate, outdated, or missing, particu
larly if the debt is resold multiple times
The inaccuracies and lack of basic infor
mation?as well as the collection tactics
used by debt buyers?result in consumers
being harassed and wrongly sued for debts
they do not owe or have already paid or
settled, and courts around the country are
overwhelmed by a flood of cases filed
against consumers."
An article on the international news
website Reuters ("The sleazy world of
predatory debt buyers" [2]) put it less gen
tly back in 2010:
"These institutions make hundreds of
millions of dollars by suing people in low
income neighborhoods, often without
properly serving them with notice that
they're being sued. When the alleged
debtor doesn't show up for court, the debt
buyers get a default judgment, and start
attaching bank accounts and garnishing
wages. Often they do this successfully
even when the debt is not legitimate"
In other words, the debt buyers aren't
really immersing themselves in the details
of these debts and exploring in great detail
how to target genuine deadbeats with a
real ability to pay. Instead, they simply buy
up old debts "by the gross" (often from
other debt buyers), throw a vast number of
claims at the wall (the courts system) and
see what "sticks." Many of the "debts"
aren't even valid. The whole thing is akin
to a kind of justice system "spam."
The situation iri
North Carolina
Right now in North Carolina, thanks to
a bipartisan 2009 consumer protection law
that is one of the strongest in the country,
the worst industry practices are kept away.
1 Prior to that time, debt buyers flooded
North Carolina courts with lawsuits even
where they had no actual proof that the
1 consumer owed the debt. Many suits were
filed against the wrong people, or people
I who had already paid or settled the debt.
Many of these debts were old and way past
: the statute of limitations (the date set by
' law after which a right to sue expires),
i That these practices resulted in big
cash for debt buyers isn't surprising. In
many instances, debtors simply did not
understand why they had been sued, or '
what they needed to do to defend them
selves. Most consumers, of course, either 1
could not afford an attorney or find one to !
take such a case. In the majority of cases, 1
the debt buyer simply got a "default judg
ment" (which is what happens when the i
consumer fails to respond to the lawsuit) :
or a "summary judgment" when the con
sumer appeared unrepresented.
The bipartisan 2009 law, however,
changed things. North Carolina became
the first state in the nation to protect con
sumers from these frequently frivolous
lawsuits with some basic, common sense
protections. The law simply requires that,
before debt buyers come into our court
system, they must have proof that the con
sumer owes the debt, how much they owe,
and how the total is calculated. Before they
can get a "default judgment" or "summary
judgment" in court, even if the consumer
has failed to appear, they have to prove
that they are entitled to the amount they
claim is owed.
? Rolling back the protections?
Yesterday (Tuesday, April 28), the
House Banking Committee heard an
industry-driven proposal [3] ( [4]see the
Senate version) that would roll back these
protections. Under the bill, instead of
proving that the consumer owes the
amount claimed, the debt buyer would be
able to submit a "charge-off" statement.
Such statements merely summarize the
amounts on the last credit card statement.
There is nothing to explain how much was
incurred for purchases, how the interest
was calculated, or what the fees were that
the consumer agreed to pay.
As consumer advocates noted at the
hearing, the proposal would allow debt
buyers to submit unreliable or fabricated
evidence to the court. Under current North
Carolina law, debt buyers have to go by the
rules of evidence applicable to any litigant
before they submit documents to the court.
The new legislation removes that require
ment.
The results that such changes would
produce are predictable. A recent review of
ourt records in New York (where laws are
nuch weaker) found that some lawsuits
iled by debt buyers included fabricated
redit card statements created years after
iorrowers' relationships with the creditors
n question had ended.
But wait, it gets worse. The proposed
egislation also allows a debt buyer to con
act consumers on debts that are past the
tatute of limitations. Debt buyers claim
hat this provision will help consumers so
hey can get old debts cleared off their
:redit reports, but as consumer advocates
ightfully point out, paying off a debt that
ippears on a credit report does NOT clear
t off the report?it actually makes it stay
m the report even longer.
Cause for optimism going
forward?
One small bit of good news surround
ing this issue is that no vote was taken in
yesterday's committee. Rather than simply
ramming the bill through as is so often the
pattern in the General Assembly these
Jays, the committee, which is chaired by
Rep. Julia Howard (an occasional maver
ick on some issues - especially consumer
protection), actually took some time to
hear significant outside testimony.
Let's hope lawmakers got the message
and now recognize the danger in subject
ing their constituents to this particular
brand of legal system spam.
Rob Schofield, director of research and
policy development at N.C. Policy Watch,
has three decades of experience as a
lawyer, lobbyist, writer, commentator and
trainer. At N.C. Policy Watch, Rob writes
and edits frequent opinion pieces and blog
posts, speaks to various civic groups,
appears regularly on TV and radio and
helps build and develop movements for
change. Contact him at rob@ncpolicy
watch.com or 919-861-2065.
Article printed from NC Policy Watch:
http://www.ncpolicywatch .com
URL to article: http ://www.ncpolicy
watch.com/2015/04l28lthreatening-con
sumers-with-court-system-spamJ
URLs in this post:
[1] a 2014 report from the Center for
Responsible Lending: http://www.respon
siblelending .org/ state-of -
lending/reports/11 Debt-Collection pdf
[2] ("The sleazy world of predatory
debt buyers":
http://blogs.reuters.com/felix
salmon/2010/05/25/the-sleazy-world-of
predatory-debt-buyers/
[3] an industry-driven proposal:
http:llwwwncleg.net/gascriptslBillLookU
p/BillLookUp.pl?Session=2015&BilllD=
H541
[4] here:
http ://wwwncleg .net/gascripts/BillLook U
p/BillLookUppl?Session=2015&BilllD=
S511
Copyright ? 2014 NC Policy Watch.
All rights reserved.
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$400 million surplus will test McCrory's leadership ability
Chris
Fitzsimon
Guest
Columnist
The unexpected good
news last week that the
state will have a $400 mil
lion surplus at the end of
the fiscal year presents
another interesting test of
Gov. Pat McCrory's leader
ship ability.
McCrory wants to use
part of the surplus to rein
state the tax deduction for
medical expenses for sen
iors, give raises to prison
guards and other select
groups of state employees,
restore the state historic tax
credit program, and fund
infrastructure projects.
House leaders seem
inclined to go along with
the proposal from
McCrory, who also wants
to put a significant percent
age of the surplus in the
state's savings account.
Senate leaders are all
for the savings idea, but
don't seem too thrilled with
restoring the tax deduction
for medical expenses and
have said many times they
1 i
oppose bringing back his
toric tax credits even
though the program creates
jobs and is popular with
developers and conserva
tionists alike.
McCrory has been
crisscrossing the state for
months trying to build sup
port for the tax credit pro
gram but key senators have
so far been unwilling to
soften their opposition.
And the problem isn't
money anyway; it is philo
sophical. Senate leaders are
resisting any changes to the
2013 tax reform package
that ended several credits
and deductions while giv
ing corporations and
wealthy individuals huge
tax breaks.
\
Despite McCrory's
effort to reinstate the his
toric tax credit, the battle
over the medical deduction
for seniors may be the most
explosive politically.
Lawmakers were flooded
by calls from seniors
around Tax Day upset that
the end of the deduction
meant they were paying
more in state taxes despite
the claims by legislators
that everybody received a
tax cut.
Restoring the deduction
would cost roughly $40
million a year.
One other factor com
plicating McCrory's
request is that the budget
surplus is one-time money
that shouldn't be used to
pay for ongoing expenses
like tax credits and salary
increases.
Lawmakers could use
some of the projected rev
enue growth in next year's
budget to pay for
McCrory's ideas and save
the surplus for one-time
expenses, which would be
the more prudent course.
But that would still
mean that senators would
have to soften their philo
sophical opposition to the
tax credits and deductions,
and there's no sign of that
on the horizon.
And all this comes as
McCrory continues to
flounder in his Number
One objective: to convince
lawmakers to approve a
package of incentives to
help attract new jobs to the
state. .
McCrory made it clear
before the General
Assembly session began
that he wanted the House
and Senate to approve
incentive legislation in the
first two weeks of the ses
sion that began in January.
It is now May and no new
incentive legislation has
reached his desk.
The House has passed a
plan that includes much of
what McCrory is seeking
in the short run, but the
Senate hasn't passed any
incentive plan, despite
numerous hearings before
the Senate Finance
Committee.
McCrory's supporters
are working hard to counter
the conventional wisdom
that McCrory is not really
in charge in Raleigh and is
often overpowered by leg
islative leaders.
The new talking point
is that he has exerted him
self more with the General
Assembly this year, "get
ting his sea legs" as one
GOP political consultant
put it in a recent story in
the National Journal.
But that's hard to see
given that Senate leaders
continue , to reject
McCrory's top priorities
and ignore his deadlines.
The newly realized
budget surplus gives
McCrory some momen
tum. Let's see if he can use
it to finally take charge of
the state he was elected to
lead.
Chris Fitzsimon is the
Founder and Director of
NC Policy Watch - a pro
gressive public policy think
tank that is a special proj
ect of the N.C. Justice
Center. You can reach hint
a t
chris@ ncpolicywatch .com.