Rampant Robosigner, Sewer Service Allegations Targeting Zombie Debt Buyers Draw Attention, Action From Maryland High Court

In Baltimore, Maryland, The Baltimore Sun reports:

• [C]ompanies that buy past-due consumer debts and sue to collect have won judgments against Marylanders even though, advocates and regulators say, the documentation to prove those cases often has been very thin.



• "This is a $100 billion-dollar-a-year industry … the sale of 'accounts receivable,' " said Peter A. Holland, who runs a University of Maryland law school clinic that specializes in debt cases. "It's created a crisis in our small-claims courts. There's tens of thousands of cases filed without proof just in Maryland. Nationwide, it's in the tens of millions."



• Debt buyers say problems are unusual. But as nationwide pressure for reform has mounted, an industry group has begun to call for original creditors to hang on to defaulted-account information longer.



• Now Maryland's highest court is about to consider a change in the rules that would make it clear that debt buyers cannot expect a judgment against a no-show defendant without presenting sufficient evidence to back up their claims. A court committee recommended the move in June at the urging of the Maryland Attorney General's Office and the Department of Labor, Licensing and Regulation.



• The chief judge of Maryland's District Court, where almost all these cases are filed, believes reform is urgently needed. Judge Ben C. Clyburn said small-claims courts sign off on more than 200,000 judgments in contract cases each year. Probably two-thirds, he said, are debt-collection matters.



• Clyburn said some debt-buying companies have treated the courts as an extension of their collections offices, counting on the fact that unsophisticated consumers won't stand up for themselves and judges — hearing no defense — will sign off on claims without realizing they're deficient.



• "They're just playing the odds," Clyburn(1) said. When Marylanders do contest the lawsuits, he said, "generally these debt collectors have dismissed the cases because they know if they go to trial, then they can't provide the necessary evidence of their claim."



• When debt buyers purchase defaulted accounts from credit-card firms and other creditors, they pay a cut-rate price for what usually amounts to "only minimal information regarding each debt and debtor," the Maryland Court of Appeals' rules committee concluded.



• They then swear in affidavits that the information is accurate, though they frequently don't pay to acquire documents — such as signed agreements or a list of purchases — to verify the details in the databases they have purchased, the attorney general's office said.



• Consumer attorneys, regulators and other officials — here and elsewhere — say these are not minor matters. Consumers, they say, have been sued twice on the same debt by different debt buyers. They've been sued on debts discharged through bankruptcy. They've been sued on debts they'd already paid off. And some have been sued for debts incurred by other people with similar names.

For more, see A push for more proof in debt-collection lawsuits (Consumer advocates cheer as Maryland's highest court considers a change in rules).

See Justice Disserved: A Preliminary Analysis of the Exceptionally Low Appearance Rate by Defendants in Lawsuits Filed in the Civil Court of the City of New York for a related report on the use of 'sewer service' to score court judgments on unsecured dubious debt.

Thanks to Deontos for the heads-up on the story.

(1) Chief Judge Clyburn is not the only jurist going on the record observing that zombie debt buyers are "playing the odds" when bringing these flimsy debt collection cases. See NYC Judge: "Rubber Stamp" Method Out-Of-Bounds When Granting Judgment To Zombie Debt Buyers Against Unwitting Consumers; Calls Racket "A Game Of Odds"

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