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Buffalo News: Debt-Collection Settlement from Class-Action Lawsuit could Benefit More than 7,000 in Erie County

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By Matt Glynn

More than 7,000 Erie County residents could benefit from a class-action settlement with a debt-collection firm accused of using deceptive tactics to win judgments against unsuspecting individuals.

The settlement arose from a lawsuit filed in 2009 targeting Leucadia National Corp., which owned debt-collection subsidiaries, the Mel S. Harris & Associates law firm, and Samserv, a process-serving agency. The suit contended that the defendants, all of New York City, bought old debt for pennies on the dollar and filed affidavits claiming that they had served proper notice informing debtors of the cases, when they had not. As a result, the victims did not appear in court to defend themselves. When the debt collector won judgments in court, victims had their wages garnished or bank accounts frozen.

“This not just particular to these parties,” said Josh Zinner, co-director of the New York City-based New Economy Project. “This is something that is actually a big problem nationally.”

The New Economy Project filed the suit along with Emery Celli Brinckerhoff & Abady and MFY Legal Services, all of New York City.

The settlement, filed in federal court in New York City, calls for creating a $59 million settlement fund. The funds, excluding attorneys’ fees and administrative costs, will be distributed to victims as restitution, but the money is not expected to start flowing until sometime next year.

About 75,000 members of the class-action suit had judgments entered against them and money extracted by the debt collector, Zinner said. How much each member of the suit will receive depends on how many people file claim forms, Zinner said.

In addition, about 195,000 default judgments, with a face value of about $800 million, will be vacated via the settlement, Zinner said. The New Economy Project said that nearly 7,400 debt-collection cases were filed by LR Credit – a subsidiary of Leucadia – in Buffalo City Court since 2005. The organization said that a “vast majority” of those cases filed ended up in a default judgment.

About 353,320 people in New York State with LR Credit debts – including the 195,000 judgments in the class-action suit – will have their debts wiped out, Zinner said.

The victims were harmed by the judgments in ways beyond having money extracted, Zinner said. “These come up on people’s credit reports, and it affects their ability to get jobs and housing. These judgments really have a profound effect on people’s lives.”

Leucadia, a publicly traded company with diverse business holdings, is leaving the debt-collection industry, Zinner said.

In court documents, the company said: “The Leucadia defendants deny all wrongdoing in connection with the allegations made against them in this action, but nevertheless have agreed to the settlement because it avoids burdensome litigation and resolves all of the claims made against them.”

The Harris law firm ceased operating in September, according to court documents.

As large as the settlement was, Zinner said advocates are hoping for far-reaching changes in the debt-collection industry.

“This is not just an isolated scheme,” he said.

“This is really a business model that is hopefully on the way out because it is a predatory business model that really particularly takes advantage of lower-income people and people of color.”

The state Department of Financial Services and Office of Court Administration have implemented rules designed to thwart the practice, and the federal Consumer Financial Protection Bureau, as well, is looking at writing rules about the debt-collection industry, Zinner said.