By Tandy Lau
The experience of a Harlem mom has opened the door to helping others who were targeted by an unconstitutional debt collection tactic.
Sharae Banks was prepared to pay back debt she says she never owed. A collection agency pulled roughly $16,000 in student loans from the Harlem single mother’s paychecks over a three-year span, greenlit by a default judgment in which a ruling favors the plaintiff because the defendant fails to respond to a court summons.
But Banks says she never appeared in court for the consumer credit case because she was never notified. The debt buyers purchased tuition she allegedly owed Taylor Business School—a defunct college that she withdrew from in the early 2000s—and claimed they served her with a summons to a Manhattan address formerly belonging to her mom in 2012, according to court documents. The person allegedly served did not match the description of Banks’s mother.
The creditors obtained the default judgment of $16,727.27 in 2013, allowing the agency to pursue legal avenues, such as wage garnishment, to collect the money.
Banks only learned of the judgment in 2016. A year later, the money started coming out of her pay. By 2020, Banks found herself in housing court, struggling to pay rent for her NYCHA unit due to the wage garnishment. There, she learned she could challenge the ruling and was connected to free legal assistance.
Initially, a lower court rejected Banks’s motion to vacate the default judgment, pointing to a 2007 ruling that indicated she waived her right to challenge the case after her wages were garnished for a year. At the time, she worked strenuous hours and felt beaten down.
“I was so drained with the whole situation, I was gonna let them win,” said Banks. “What I mean to say is: ‘Forget it, they took the money from me, I so-called owe this. I’m sick and tired of going back to court…let me just give up. Let me just give them whatever.’
“But I was like, that’s not fair. I never owed that. And I’m sticking with that. I have all my paperwork from when I withdrew and I’ve never owed anything.”
Her experience stems from what her lawyers allege as “sewer service” debt collection. The practice relies on securing default judgments against debtors by ensuring they don’t appear in court, often through improper summons. In addition, Banks thought that financial aid covered her tuition at Taylor Business School, which the NYS Department of Education ordered to shut down in 2006. She left the two-year college believing she didn’t owe a cent.
Banks won her appeal in the Appellate Division, First Department, of the New York Supreme Court earlier this month. Her lawyers from the Legal Aid Society and New Economy Project laud the legal victory as “far-reaching,” and believe that it will open doors for New Yorkers in similar circumstances.
“It’s constitutional due process—the right to have your day in court and defend yourself,” said New Economy Project staff attorney Raquel Villagra. “That proper service and proper notice that you’ve been sued in court is the fundamental thing that needs to happen for the court to have the power to hear the case and go forward. Debt collectors have gotten away with this fraud for years. They sue people, lie about serving them with the court papers, and then they secure hundreds of millions of dollars worth of default judgments and disproportionately in Black and brown communities.
“Ms. Banks’s case, and the decision that we ended up getting, upended over a decade of bad case law that barred people from challenging those default judgments, and it will have a huge impact on future cases, too.”
Legal Aid supervising attorney Tashi Lhewa said sewer service debt collection exploits gaps in legal representation, which occur frequently in Black and brown communities.
“When we talk about consumer debt litigation, more than 95% of the defendants are unrepresented by counsel and nearly 100% of the plaintiffs are represented by an attorney,” he said. “Our current system of litigation is an adversarial system where it’s assumed people with equal resources will fight it out in court and truth will prevail. But if one side does not have equal representation or resources, or is not legally sophisticated, you’re unlikely to prevail.”
Lhewa added that sewer service debt collection often relies on creditors retaining process servers, who deliver legal documents but do not properly serve summons to the debtor before supposed creditors seek default judgments.
State Attorney General Letitia James submitted an amicus brief in support of Banks earlier this year. She wrote that New York has a special interest in sewer service practices, given that almost a million default judgments in consumer credit cases have been entered over the past 20 years. James added that her office “revealed that an extraordinary number of these judgments have been obtained through fraudulent service practices.”
Lawyers representing the debt collectors were not available for comment. Their brief maintained that this case was not an example of sewer service, arguing that her mother’s address was provided on Banks’s Taylor Business School documentation.
Banks said she’s extra-careful with the fine print these days, especially when helping her daughter, a high school senior, with college applications.
“I’m helping her enroll in colleges and I’m reading everything, making sure everything is right,” she said, laughing.