In the News
The City: Debt Collectors Freeze Funds of New Yorkers Struggling in Pandemic
By Rachel Holliday Smith
As the coronavirus crisis unfolded in New York, Robert McNamara thought he should take some money out of the bank, just to be safe.
On March 19, the substitute teacher and father of two figured he’d be out of work for a while. Public schools had just closed, possibly for the rest of the spring. Plus, with big swings on the stock market, he wanted a bit of cash on hand.
He went to his bank in Woodside, Queens — and had to wait in line for an hour just to get in the door.
“I really started thinking, ‘Is this a run on banks?’” he told THE CITY. “I mean, I’ve never experienced it. I’ve seen it in the movies, from the Depression.”
But when he tried to take out money, he couldn’t. Bank staff told him his account had been frozen.
He was shocked. McNamara, 53, has student loans and other debts, and has missed payments in his life. But he had never experienced an account freeze, and had no idea where it came from.
“It was sort of this feeling of like … everything is going upside down. I can’t send my kids to school. I can’t work. And now this,” he said.
McNamara is one of thousands of New Yorkers who legal advocates say are dealing with dual crises: the very real financial fallout from the COVID-19 outbreak, and the collection of sometimes phony debts.
For McNamara, the bank freeze stemmed from an alleged debt of over $5,000 a company claimed he owed on credit cards he didn’t know about.
In a letter he received just days before he visited the bank — but left unopened until after — the creditor, Cavalry SPV I, LLC, said it had served him legal papers alerting him to the claim. But that notice couldn’t have gone to him, he said, because the letter said the papers were delivered to an address where he had not lived since 2008.
Hounded and Harrassed
It’s a common problem, according to Sarah Ludwig, co-director at the New Economy Project, which helped McNamara and runs a legal hotline for low-income New Yorkers seeking help with debt cases. Process servicers, the people hired to deliver legal notices, have developed a reputation after repeated fraud investigations, she noted.
Her group often hears from individuals being sued or harassed over “debts people don’t in fact owe,” she said.
In December 2016, the federal Consumer Financial Protection Bureau found that 39% of complaints to the agency nationwide were for debts no longer owed, or alleged debts for which there was no documented proof.
“The research shows that a lot of people don’t actually owe the debt,” Ludwig said. “They don’t even know what this is. It can’t be substantiated.”
Scott Morris with Stephen Einstein & Associates, the law firm representing Cavalry, said in a statement that “privacy and compliance laws prohibit any comment on an individual’s specific circumstance.”
But the company says it shares concerns “as to how debt collection can impact individuals with health and economic hardships during this COVID-19 pandemic.”
“Our firm, and Cavalry, have and continue to be sympathetic to all individuals during these trying times,” Morris said.
Pressing for Change
Cases like McNamara’s have led a slew of advocates, attorneys and elected officials to push for changes that will protect New Yorkers from debt collection enforcement in the midst of the virus-related economic crisis. And they’re redoubling efforts as stimulus checks hit New Yorkers’ bank accounts.
Calls for Gov. Andrew Cuomo to institute a full moratorium on all debt collection in the state began more than a month ago, as THE CITY has reported. Some changes to the system followed, including the shutdown of state courts that effectively hit pause on all new debt cases and procedures in ongoing cases.
But the part of the system that leads to frozen bank accounts or wage garnishment is still intact.
That’s because, in New York, attorneys acting on behalf of creditors have the ability to tell banks to freeze accounts when they’ve received a money judgment made by a court, according to Carolyn Coffey, director of Litigation for Economic Justice with Mobilization for Justice.
With a subpoena, attorneys tell the banks “if you find a match with this consumer, then you’re automatically ordered to restrain the bank account,” she said.
“That’s where the power is,” she said.
Legal advocates for those struggling with debt judgments said their best bet rests with the governor, who has the authority to temporarily suspend debt enforcement during the COVID-19 emergency.
Governors in other states have already made that move. According to research by the National Consumer Law Center, Illinois, Iowa and Washington have already implemented executive orders suspending debt collection, and many other states have limited collection activities through state courts or their attorneys general.
Call for Cuomo Action
In late April, the New York City Bar Association asked the governor to place a moratorium on all enforcement of consumer debt money judgments.
Shanna Tallarico, a consumer debt attorney with New York Legal Assistance Group and the chair of the bar committee that worked on the issue, said that even during normal circumstances, debt collection is “a threat to people’s stability.” Now, with “a record amount of people out of work,” she says, Cuomo’s action is needed urgently.
“People need that money to pay for essential things in their life, such as, rent and utilities and healthcare bills,” Tallarico said. “It’s just not the time to be satisfying consumer judgments.”
Cuomo spokesperson Jack Sterne pointed to the governor’s previous order pausing court-related deadlines, which allows for the temporary suspension of new debt cases.
He offered no direct response regarding advocates’ request for a suspension or moratorium of ongoing debt collection enforcement.
The state’s Department of Financial Services, which oversees banks and financial institutions, did not respond to a request for comment.
The Bar Association also asked Cuomo to protect the CARES Act stimulus payments from debt collection, as some other states have done.
The governor wrote a letter to Treasury Secretary Steve Mnuchin on April 11 urging the federal government to protect stimulus checks. At the same time, state Attorney General Letitia James threatened debt collection companies, telling them she would prosecute them if they try to garnish those payments.
On Tuesday, the City Council held a hearing on a bill that would prohibit sheriffs and marshals from executing money judgments until the end of the state of emergency — and until April 2021 for New Yorkers “impacted by COVID-19.”
A city-based bill, however, would not cover judgments made from outside the five boroughs, as is the case for a woman from The Bronx with a frozen bank account who spoke with THE CITY about her case on the condition of anonymity.
The woman was working as a housecleaner until the pandemic hit. She and her husband, who works in food prep, are now supporting their three daughters on his income.
To make matters worse, she has been unable to access her bank account since the last week of February, when her debit card was declined at a pharmacy.
“I immediately went to the bank because I wanted to know why I was having trouble. They told me that there was a problem,” she said in Spanish, translated by her legal services attorney.
With help from the legal group, she found out a judgement had been made against her by a landlord in Yonkers who alleged she owed about $3,500 in rent.
But that didn’t make any sense: “I have never rented an apartment there,” she said.
Normally in a case like this, an attorney could file an emergency petition in court to try to get the judgement reversed, which her legal advocate did. But Westchester court officials told her it is a non-essential filing and wouldn’t allow the case to be heard. Now, she and her family may have to wait until court proceedings resume before the account can be unfrozen.
All through March and April, the family has struggled to keep up with bills — and had to borrow money.
“It’s tough and we’re behind on things,” she said. “Right now, we’re paying April’s rent.”
Looking for Some Humanity
As the crisis continues, the largest debt-collection trade group, Receivables Management Association International, is encouraging its members “to actively listen for consumer hardships,” according to guidance published April 13.
“Work with and be sensitive to consumers who have encountered unforeseen circumstances,” the guidance reads.
Recommendations include temporarily or permanently suspending collection activities, ceasing collection upon learning a person’s only source of income is from “exempt sources” such as Social Security, and considering other forms of help, like reducing a balance or suspending interest.
“It is critical for debt collectors to understand the situation the consumer is facing,” said Jan Stieger, executive director of RMAI, in an email.
In Queens, McNamara’s situation has resolved somewhat. The teacher said that after his legal advisors made inquiries about his case to Calvary, the company unfroze his account, and may drop the debt case against him.
“During this pandemic, there’s so much uncertainty and so much anxiety, whether it be for our health or for our economic welfare,” he said. “I almost felt like, okay, they’re coming after the money now because people are vulnerable.”