[hannah]

Merry Christmas, Drivel!

It may soon be hard for JDB's to sue in New York...note the bolded parts of the following article. The link may not work for you if you are not a registered member.

Civil Court Adds Safeguards For Consumers Sued for Debt

By Daniel Wise

December 11, 2007


The New York Civil Court is moving to strengthen protections for consumers sued for failing to pay their credit card bills, according to Justice Fern A. Fisher, the administrative judge of the Civil Court.

The Civil Court is set to require specific licensing information about debt buyers and debt collectors, as well as complete affidavits detailing a consumer's debt before default judgments will be approved by clerks, said Justice Fisher.

The judge said she also has asked the court system's policy-making body, the Administrative Board of the Courts, to require that additional notification be given to consumers to avoid defaults.

The changes mirror suggestions made in a study of 600 consumer credit collection cases released by the Urban Justice Center in October.

Based on its sample, the Urban Justice Center projected that the court last year entered judgments totaling $784.3 million in consumer credit collection actions.

The report used court data for four boroughs, and a projection for Manhattan based on that data, and concluded that there has been a dramatic surge in the number of collection cases filed since 2001.

In 2006, the center reported, 320,000 collection cases were filed, representing 51 percent of the 618,000 cases filed that year, excluding housing and small claims cases. By contrast, in 2001, the court citywide handled 248,000 cases other than housing and small claims matters. No estimate is available as to the number of consumer credit collection suits filed in 2001.

According to Deputy Clerk Ernesto Belzaguy, the climb in credit collection actions since 2001 has been significant, even taking into account a 2005 change in the law requiring the filing of complaints before they are served. Prior to September 2005, he said, complaints were only filed after service and may never have been filed if the parties settled.

The Urban Justice survey found that the vast majority of consumer credit collection actions, nearly 90 percent, are not filed by credit card or other companies that extend credit, but instead by firms that have bought debt from those companies.

The survey also discovered that consumers fail to appear to contest claims, and default judgments are entered in 80 percent of the cases filed.

The Civil Court has jurisdiction over lawsuits seeking to recover up to $25,000.

The Urban Justice Center, with an annual budget of $5 million a year and 30 lawyers, works to advance the interest of recipients of government benefits and low-income workers, according to Douglas Lasdon, its executive director.

Justice Fisher said the high rate of consumers defaulting in credit collection actions is driving the changes in the process. Though court data suggests that the default rate may not be as high as the 80 percent projected by the study, it is high enough to warrant corrective action, she said.

According to court data, 40 percent of the cases handled by the court in 2006 (other than housing and small claims) resulted in default judgments, said Mr. Belzaguy, the court's deputy clerk. Though he acknowledged that the default rate in consumer credit actions is higher than in other types of cases, he said the default rate would nevertheless be less than the 80 percent reported in the study.

Anika Singh, the author of the report, said that more research is needed to find out why the default level is so high, but noted that anecdotal evidence suggests the problem is often the result of faulty service.

Ms. Singh spent two years at the center under a program sponsored by Skadden, Arps, Slate, Meagher & Flom. She is now an associate at Wiggin and Dana in New Haven, Conn.

Additional Notice Requested

One rule change requested by Justice Fisher would extend a procedure now used in Housing Court and require that a notice be mailed to consumers who have not contested legal actions against them. The notice would warn defendants that a default is about to be entered and that to avoid serious legal repercussions they should come to court.

A second measure that Justice Fisher said she would implement effective Jan. 1 would be an instruction to the court's clerks not to enter default judgments unless they are accompanied by an affidavit that asserts the original records concerning the debt have been reviewed.

To support a default judgment, Ms. Singh said, CPLR §3215 requires that a creditor make out a prima facie case with respect to each element of its claim that a debt is due and owing.

The affidavit must contain admissible evidence with respect to each element, she said.

The Urban Justice survey found that 97 percent of the default affidavits did not adequately set forth the basis upon which they were made, Ms. Singh said. Many affidavits either contained no assertions as to the basis upon which they were made or vaguely stated that they were based upon "personal knowledge," she said.

In a problem that was particularly acute where the plaintiff was a company that bought debt, Ms. Singh added, the affidavits often only contained a representation from the debt buyer that the seller had "warranted" that the debt information was valid.

Eric M. Berman, the president of the Commercial Lawyers Conference of New York, an association of debt collection lawyers, acknowledged that in a high percentage of cases brought by debt buyers, the default affidavits are supported by summaries of the amount of debt owed by the consumer at the time the debt was purchased. Many affidavits also contain representations that the original creditor had warranted to the buyer that the debt was valid, he added.

But Mr. Berman disagreed with Ms. Singh's legal analysis, and said Justice Fisher's anticipated directive concerning default affidavits is "likely to be subject to legal challenge."

Warranties from the sellers of the debt are admissible as business records, Mr. Berman said, because they are representations made in the ordinary course of business.

In addition, he said, information taken from spreadsheets furnished by the debt seller is the equivalent of a final statement of the amount owed at the time of sale and is also admissible as a business record.

Should debt buyers be required to have access to the original debt records, their business model is likely to be negatively affected, said Steven Cohen, whose four-lawyer firm, Cohen & Krasser engages primarily in a consumer debt collection practice.

If debt buyers must have access to the original bank records, he said, their costs "will likely be higher and their profit margins less."

Gerard J. Felt of Pressler & Pressler, a 23-lawyer debt collection litigation firm, said that requiring access to the original records will place "an excessive burden on the debt buying industry and have "a severe negative impact." Pressler & Pressler, which is based in Cedar Knolls, N.J., handles collection cases in the Civil Court, he said.

Licensing Requirements

Companies involved in debt collection, including law firms, are required to be licensed by the city Department of Consumer Affairs.

Marla Tepper, the agency's general counsel, issued an opinion letter in March stating that firms engaged in debt collection activities must register with the department.

In an interview, Ms. Tepper elaborated, saying that a debt buyer who merely sues to collect a debt but hires law firms or collection agencies to do "traditional debt collection activities," such as sending consumers dunning letters or directly calling consumers, do not themselves have to be licensed by the Department of Consumer Affairs.

The question of whether a debt buyer must be licensed requires a factual determination as to the actual activities the debt buyer is engaged in, and the department has been "aggressive" in interpreting the rule to protect consumers, she said.

Ms. Singh, the author of the report, said that Ms. Tepper's interpretation of the law is too narrow, and that debt buyers who bring litigation to collect debts should be required to be licensed because the litigation itself is a debt-collection activity.

The issue is pending before the Appellate Term, First Department, in MRC Receivables v. Morales, 64334/06, Ms. Singh said. In the Bronx branch of the Civil Court, Judge Mitchell J. Danziger (See Profile) had ruled that a debt buyer who had taken no action to collect a debt other than hiring others and filing suit is not required to register with the department.

A bill was expected to be introduced today in the City Council that would overrule the Department of Consumer Affairs' interpretation of the law. The proposed legislation specifies that a debt buyer who refers cases to an attorney to commence collection litigation must register with the department, said Daniel Pasquini, spokesman for City Councilman Daniel R. Garodnick, D-Manhattan, whose office drafted the bill. The measure is sponsored by four other council members.

In October, Justice Fisher had issued a directive, effective Jan. 1, instructing clerks not to enter default judgments if the complaint failed to contain the plaintiff's Department of Consumer Affairs' license number.

In cases where the complaint does not list a license number, Justice Fisher said, she will issue a supplemental instruction to require that a creditor, in its default affidavit, set forth that it does not engage in any collection activities and is not required to be licensed by consumer affairs. In the absence of such a representation, she said, clerks will be instructed not to enter a default judgment.

Mr. Berman said he had no problem with the way the court is planning to handle information concerning whether debt buyers are licensed.

But he objected to the Department of Consumer Affairs assertion of jurisdiction over lawyers, requiring them to be licensed if they engage in debt-collection activities. There is only one licensing authority with jurisdiction over lawyers and that is the Appellate Division, he said.

- Daniel Wise can be reached at dwise@alm.com.

[jlynn]

Waiting for Drivel.

[Hedwig]

You know he only posts when he's supposed to be working.

[VexatiousLitigant]

NY is gonna compete with TX soon.

[drivel]

If I were a debt buyer in New york city, I might care about this. but since I'm not, I don't.

[centex]

The only people gaining possible protection via a temporary delay are those that couldn't be bothered to file an Answer in the first place. All this does is add a step to the process...

[spinn]

Originally Posted by centex

The only people gaining possible protection via a temporary delay are those that couldn't be bothered to file an Answer in the first place. All this does is add a step to the process...

How is requiring the plaintiff to provide documentation from the original creditor "just another step"?

Especially when it is considered that they dont have said documentation?

"A second measure that Justice Fisher said she would implement effective Jan. 1 would be an instruction to the court's clerks not to enter default judgments unless they are accompanied by an affidavit that asserts the original records concerning the debt have been reviewed."

[VexatiousLitigant]

Oh, put me in the camp that says this will do nothing but put a bandaid on a gaping head wound.

[VexatiousLitigant]

Originally Posted by spinn

How is requiring the plaintiff to provide documentation from the original creditor "just another step"?

Especially when it is considered that they dont have said documentation?

"A second measure that Justice Fisher said she would implement effective Jan. 1 would be an instruction to the court's clerks not to enter default judgments unless they are accompanied by an affidavit that asserts the original records concerning the debt have been reviewed."

*whew*

That's a relief. No self-respecting JDB would just file that affidavit without having actually reviewed the original records. They also wouldn't argue over the meaning of "reviewed the original records" if called on it.

[centex]

Originally Posted by spinn

How is requiring the plaintiff to provide documentation from the original creditor "just another step"?

Especially when it is considered that they dont have said documentation?

"A second measure that Justice Fisher said she would implement effective Jan. 1 would be an instruction to the court's clerks not to enter default judgments unless they are accompanied by an affidavit that asserts the original records concerning the debt have been reviewed."

Very easy...what will happen is that the purchaser will be getting a statement from the original creditor that asserts that the original records are no longer available due to the expiry of records retention guidelines. The same statement will assert that elements of the account remain in the computer and have been reviewed and that $XXXX.YY is an accurate representation of the amount of that was charged off in the matter of Jane Doe on Account Number #12345678. The Court will then be forced to default back to the provisions of the RCP concerning procedures where the original document is no longer available.

Face it...there are so many loopholes in 'original document' provisions that it makes the Holland Tunnel look like a crack in the sidewalk.

[JayinGR]

Originally Posted by centex

Face it...there are so many loopholes in 'original document' provisions that it makes the Holland Tunnel look like a crack in the sidewalk.