About 18 months ago, lawyers in Spokane, Wash., volunteered to defend consumers in debt-collection lawsuits. Since then, they have won hundreds of cases.
They've lost only two.
Their success rate can be traced to the simple fact that debt collectors didn't have signed contracts and other original documentation to prove to a judge that the consumers owed the debts, said Scott Kinkley, one of the volunteer lawyers.
And those cases were won with 5 minutes of case review in a courthouse hallway on the day of the hearing. "It's speaks to the lack of quality," Kinkley said.
Consumer advocates seized on such anecdotes yesterday to persuade the Consumer Financial Protection Bureau to crack down on the debt-collection industry and make its members prove the delinquencies they are trying to seize are legitimate.
The federal agency headed by former Ohio Attorney General Richard Cordray announced yesterday that, on Jan. 2, it will begin supervision and enforcement of the 175 largest debt-collection companies operating in the United States. The agency will have great power to examine exactly how debt-collection companies operate.
As part of that oversight, the agency sought input from consumer advocates, industry insiders and the public at a hearing yesterday to help identify new rules for debt collection that will be written in the coming months.
Throughout the two-hour hearing, Cordray took notes as speakers made suggestions.
Debt collectors want a clear definition of how many times they legally can call a consumer. The Fair Debt Collection Practices Act says only that they can't call "repeatedly or continuously." They also want the ability to contact consumers on their cellphones or through social media.
Consumer advocates want transparency.
Sally Mary DeLeon, a single mother of two from Seattle, just wants the debt collectors to leave her alone because she doesn't owe them anything.
Her financial troubles began when she left an abusive husband and ultimately declared bankruptcy in 2010, she said. Then her situation got worse. Debt collectors called nonstop to collect on debts that had been erased by her bankruptcy.
"Every time the phone rang," DeLeon said yesterday, "I felt like I was being abused again and needed to cower and hide."
The goal of the new oversight is to level the playing field for debt collectors and consumers, Cordray said.
"What stands out most clearly in my mind today is how important it is for us to succeed in our task of fixing the debt-collection market. Doing so is clearly in everyone's best interest," he said.
The industry is represented by ACA International, the Association of Credit and Collection Professionals based in Minneapolis, which is worried about the long-term effects.
"ACA members embrace consumer protection, but it has to be balanced with the industry's ability to do their jobs in recovering rightfully owed consumer debt," ACA chief executive Pat Morris said in a written statement. "Repayment of consumer debt is the lifeblood of America's credit-based system and helps ensure that affordable credit is available and goods and services remain affordable, sustains jobs, and supports keeping taxes low."
But consumer advocates noted that debt collectors need to pursue those debts with accurate information.
"The people who buy and sell this debt know the information is unreliable," said Richard Rubin, a consumer-law attorney in New Mexico. That's why debts are bought for pennies on the dollar, he said -- because that's the value the market has placed on them.
In its ongoing investigation into financial credit scars, The Dispatch earlier this month reported on the practices of some debt collectors who pursue consumers for invalid, erroneous and fraudulent debts. More than 16 percent of 235 debt-collection lawsuits filed during one week in 2011 in Franklin County Municipal Court lack any proof that something was owed other than a statement created by the debt-collection company.
The pattern is similar in New York City, said Carolyn Coffey, a legal-aid attorney who spoke yesterday. She told of clients who couldn't access their bank accounts after debt collectors seized them through court-ordered judgments on bogus debts, and of debt collectors trying to take the only source of income for elderly and disabled clients -- their Social Security checks.
"We have a widespread system problem that desperately needs reform," she said.
Cordray said that accuracy is a chief concern for the agency and will be a central theme when examiners delve into a debt-collection company's practices to correct wrongdoing.
"When this market works as it should, consumers are treated fairly, they retain their dignity and they are prompted, appropriately, to pay their legitimate debts," Cordray said. "We all have the right to demand and expect as much."
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