More Consumers Step Up, Take On Zombie Debt Buyers In Court As Credt Card Collection Lawsuits Lacking Proper Documentation Continues

In Lackawanna County, Pennsylvania, The Scranton Times Tribune reports:

• A New Jersey company recently dropped credit-card debt litigation against a Dunmore man after a Lackawanna County judge ordered the business to prove it owned the account.
  
  Velocity Investments, a collection agency near Asbury Park, had sought $1,543 in overdue credit-card debt, interest and fees from Michael Kahanic. Velocity filed suit in Lackawanna County Court in 2011 after acquiring Mr. Kahanic's MasterCard account that had originated at British banking conglomerate HSBC, court records show.
  
  Velocity's complaint included copies of Mr. Kahanic's 2004 credit-card application and a MasterCard billing statement from February 2010. The company withdrew the suit after Judge Terrence Nealon ordered Velocity to furnish documents showing it had authority to collect the debt.
  
  "Debt buyers don't usually have all the documentation to support the original agreement," said Adelle Zavada, an attorney with North Penn Legal Services(1) in Scranton who represented Mr. Kahanic. "We have had good success in being able to defend these cases."
  
  The case reflects nationwide troubles over debt-collection practices. Many companies file debt-related suits with insufficient records, faulty documents and questionable claims.
  
  "All debt collection is under the microscope," said Chris DeRitis, Ph.D., a consumer credit expert at Moody's Analytics, a West Chester economic research and consulting firm. "A lot of this debt gets traded three, four or five times. It's a messy business."
  
  The issue has similarities to abuses in the foreclosure process that led to the 2010 "robo-signing" scandal, in which banks seized thousands of homes without adequate proof of documentation. Five major banks in February agreed to pay $26 billion to settle the matter.
  
  Allegheny County Judge R. Stanton Wettick has presided over hundreds of cases in which banks sold delinquent credit-card accounts to debt buyers who filed litigation to recover the money.
  
  "There is a fair amount of chaos in all this," Judge Wettick said. "Once the paper has moved on, you really don't have anyone who knows much about the transaction. You don't know if, in fact, they are the owner of the debt."
  
  In the local case, Ms. Zavada argued that Velocity's complaint against Mr. Kahanic lacked dates of credit-card transactions, amounts charged or descriptions of items purchased. Velocity argued it needed only to provide the 2010 billing statement in order to collect.
  
  Mr. Kahanic, 51, who could not be reached for comment, never contested the alleged amount of the obligation.
  
  The company withdrew the suit after Judge Nealon in May demanded copies of the original credit-card agreement, its terms and conditions, and the assignment or sale of Mr. Kahanic's account to Velocity.
  
  "The judge asked us to produce a document that no longer exists," James Mastriani, Velocity's president, said of the demand for the original agreement. "What we had, we felt and still feel was sufficient." Mr. Mastriani said the company bought the account in December 2010 from a debt-trading concern that had acquired it from HSBC.
  
  "You have all sorts of cases where the debt buyer bought the debt and didn't get all the information," Dr. DeRitis said.
  
  The Federal Trade Commission issued a report in July 2010(2) calling the debt-collection system "broken" and urging reforms to improve fairness to consumers. The report recommended states adopt measures making it more likely for consumers to defend themselves in credit-card cases and called for states to require collection companies to include more information about the alleged debt in court filings.
  
  Ms. Zavada said she has handled more than 230 collection cases in the last five years at North Penn Legal Services, which provides free counsel to low-income citizens. Debt buyers filed many of the cases, she said. "They are playing the odds," Ms. Zavada said.
  
  Debt buyers in some cases fail to follow legal procedures, even though they have a right to collect. "Sometimes, the affidavits don't appear to be signed by the right people," Judge Wettick said.
  
  "Some companies are doing this more responsibly than others," Dr. DeRitis said. "There are cases of fraud where unscrupulous debt collectors put charges on people's accounts."
  
  U.S. consumers are delinquent on $18.5 billion in credit-card debt, about 3 percent of the total amount owed, according to the most-recent Federal Reserve statistics.
  
  Debt collectors frequently prevail easily in court because many defendants in credit-card suits do not contest the action. "People put their head in the sand. They don't know what to do," Ms. Zavada said. "If 100 get filed, 75 turn into default judgments," Judge Wettick said.
  
  Default judgments enable debt collectors to freeze a consumer's bank account or garnish wages to recover obligations.
  
  More consumers, though, are taking on debt collectors in court and fending them off by challenging the evidence, Judge Wettick said. "For a lot of companies now, if someone shows up and contests it, it may not be worth their while to pursue it," he said.

Source: More people challenging credit card debt collection.

(1) North Penn Legal Services is a regional non-profit provider of civil legal representation to low-income people in over a dozen counties in Pennsylvania.

(2) See Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration.