Using largely anecdotal evidence, Human Rights Watch has published a report that claims the debt buying industry is taking advantage of the legal system in pursuing consumers who have defaulted or delinquent debts and that judges and the court system should be doing a better job of protecting consumers.
Called “Rubber Stamp Justice,” the report, issued yesterday, attempts to analyze the debt buying industry based on “more than 100 interviews” with a “broad range of litigants, public officials, independent experts, and other stakeholders in a dozen US states, with diverse perspectives on debt buyer litigation. These include judges, clerks, and other court personnel; plaintiff and defense attorneys; consumer rights advocates; debt buyer industry representatives; federal policymakers; academic experts; and people who have been sued by debt buyers.”
Representing the industry appears to be DBA International and two executives from Encore Credit. The report looks at settlements between the federal government and JPMorgan Chase, and consent orders issued by the Consumer Financial Protection Bureau and Encore and Portfolio Recovery Associates, as examples of how the industry is using the legal system to take advantage of consumers.
Human Rights Watch does not argue that debt buyers or other creditors should be barred from pursuing claims against people simply because they are poor. Rather, this report simply argues that because of the devastating financial impact a successful debt buyer lawsuit can have on people struggling to make ends meet, policymakers and the courts have a compelling interest in ensuring that the cases have merit and that justice is done. Courts should certainly take care to ensure that debt buyer plaintiffs are not able to secure judgments against the wrong people, for the wrong amounts, or in pursuit of debts that are not legally enforceable.
The report even issues a number of recommendations — to state governments, state court systems, individual courts adjudicating debt buyer cases, the federal government, banks and other creditors, debt buyers, and DBA International, but opted not to include consumers in that list. Among the recommendations for debt buyers and DBA International were:
- Refrain from adding interest to, and from collecting post-judgment interest on, the balance of purchased debts.
- Bar all attorneys litigating plaintiffs’ claims from engaging in direct negotiations with unrepresented defendants on court premises unless these take place in the presence of judges, neutral mediators, or other designated officers of the court.
- Refrain from purchasing any debt or portfolio of debt unless the seller is willing to provide all of the warranties enumerated in the DBA International certification standard.
- In all communication with alleged debtors, clearly indicate the provenance of the debt at issue and the date on which it was purchased.
- Amend DBA’s Certification Program to require member companies to adopt policies that operationalize the recommendations to debt buying companies outlined above. Incorporate these new membership requirements into DBA’s certification standard.
- Adopt a policy prohibiting member companies from accumulating pre- or post-judgment interest on purchased debts.
I don’t think that any participant in the debt buying industry will say that the system is perfect. But what’s interesting after reading this report is that none of actions taken by debt buyers is being labeled as illegal. Debt buyers are doing what they are allowed to do under the law. In numerous conversations that I have had with industry professionals — and what is clearly missing from this report — is the responsibility that consumers must bear for their situation. They took out the loan. They made the purchases. They received summonses. They were asked to appear before a judge or to show up. By not mentioning that consumers must bear some of the burden for the large number of default judgments is a glaring omission that removes much of the legitimacy from this report.