By Sean Lahman
Thousands of Monroe County residents who had their wages garnished by unscrupulous debt collectors may be entitled to compensation.
The settlement in a federal class action suit reached last week will provide $59 million to about 75,000 victims across New York state, and more than 115,000 judgments that the debt collectors obtained in court will be vacated. The lawsuit was brought by the New Economy Project, a Manhattan-based consumer advocacy group.
Debra Greenberger, one of the attorneys representing the victims, said the ruling was a tremendous victory.
“It’s an excellent result for the class,” she said, “and I’m hopeful that this leads to much needed reforms in the debt collection industry.”
Greenberger is a partner at Emery Celli Brinckerhoff & Abady LLP, which is co-counsel in the case with the New Economy Project and MFY Legal Service.
The suit alleged that a group of debt collectors filed false affidavits claiming to have notified individuals that they were being sued for an unpaid debt. It also accused them of telling the court they had evidence of the alleged debt when they did not.
Consumers would not show up in court to defend themselves because they were unaware of the legal action, and that set off a legal proceeding that almost always resulted in a judgment against them.
These consumers often didn’t learn about this sequence of events until their bank accounts were frozen or their wages were garnished.
These judgments would also leave a black mark on individuals’ credit reports, which affected their ability to apply for credit, rent an apartment or get a job.
Greenberger said as many as 5,000 individuals in Monroe County could be eligible for compensation as part of the settlement.
The lawsuit, filed on behalf of four New York City residents, alleged that three companies — a law firm, a debt-buying company and a process service company — engaged in a scheme to fraudulently obtain default judgments against hundreds of thousands of consumers in New York.
That law firm, Mel Harris and Associates, went out of business in September. The other defendants were Leucadia National Corp. and its various subsidiaries, which purchased consumer debt, and Samserv Inc, which claimed to deliver the legal notices to consumers.
The suit alleged that Samserv engaged in a practice called “sewer service,” where it would fail to serve the summons and complaint but still submit proof of service to the court. The phrase implies that rather than delivering the documents, the process servers throw them into a sewer drain, at least figuratively.
New York Attorney General Eric Schneiderman said that this case was part of an ongoing battle to protect consumers.
“I applaud the advocates and plaintiffs for bringing this case, and for achieving a settlement which represents an important victory against debt collectors who use abusive tactics,” Schneiderman said.
Since taking office in 2011, Schneiderman’s office has sued and obtained dozens of settlements with process servers, debt collectors and debt collectors’ attorneys for engaging in sewer service. Those actions have resulted in hundreds of thousands of dollars in restitution to consumers who were victims of deceptive and unlawful practices by debt collectors.
“We remain committed to cracking down on those who use unscrupulous and illegal business practices to make a quick buck,” Schneiderman said.
In a 2009 investigation of another debt collection company, Long Island-based American Legal Process, the attorney general’s office found that the process servers’ own records often proved they couldn’t have done what they claimed.
For example, one individual process server claimed to have made 69 service attempts in a single day in two different New York counties that were 400 miles apart. At 8:19 a.m., he claimed to have attempted service on a defendant in Brooklyn, and one minute later on another defendant in Cattaraugus County. To have made all 69 delivery attempts, the server would have had to drive more than 10,000 miles in a single day.
Not surprising to some
For local consumer advocates, the circumstances of the class action suit did not come as a surprise.
“We have clients who come to us with a judgment or notice but who haven’t been adequately served,” said Destiney Fraguada, counseling supervisor for the Consumer Credit Counseling Service of Rochester.
According to Fraguada, the Mel Harris law firm was one of the largest debt collectors working in Western New York. She said this case highlights the need for people to be vigilant about their own credit records.
“Most consumers don’t pay too much attention because they assume they are OK,” Fraguada said.
She recommended that consumers take advantage of the website AnnualCreditReport.com to get a free copy of their credit report. Those without Internet access can call a toll free number (1-(877)-322-8228) and have a report mailed to them.
What’s most important, Fraguada said, is to be proactive when dealing with debt collectors.
“The typical response is to bury your head in the sand and hope it goes away,” she said. “There’s always an opportunity to resolve a debt issue, even after a judgment has been entered.”
In fact, some of the plaintiffs in the class action suit believed that the debts in question weren’t valid. They would have disputed the claims had they been given an opportunity to do so.
“As the person trying to collect, the burden is on you to prove that the debt is legitimate,” said Greenberger.
But debt collectors often just receive a spreadsheet with a person’s name, Social Security number, and the amount owed to a creditor. When seeking a judgment, they would tell the court they had detailed evidence of the debt — specific dates of retail purchases, for example — when they did not.
Federal Judge Denny Chin gave preliminary approval to the terms of the settlement Nov. 16.
“The expectation is that every person who had money collected pursuant to a judgment will get back all of the money they had taken from them,” Greenberger said. “In addition, there will no more collection efforts made on any of these debts.”
Greenberger says that the settlement covers 195,000 judgments and $800 million worth of collections. It will take several weeks to identify and locate each of the individuals entitled to compensation,
An administrator will start notifying those individuals by mail in early January, with instructions on how to proceed.
As part of the settlement, the defendants also agreed to get out of the debt collection business.