Legal Experts Indict Flaws in Anti-ARM Report

Collection industry officials say that a report excoriating the ARM industry is full of statistical flaws. The report, released by The Legal Aid Society, MFY Legal Services, Inc., NEDAP, and Urban Justice Center, charges debt buying companies with debt collection abuses that particularly target low-income New Yorkers and people of color.

Industry experts also suggest that many of the report’s concerns could be better addressed if there were less restrictive rules for communicating with debtors.

The report alleges that debt purchasers in New York City routinely violate New York law by filing meritless lawsuits against low- and moderate-income New Yorkers without having proof of their claims and without notifying people that they have been sued (“New Report Exposes Systematic Debt Collection Abuses,” May 26). Debt buyers nevertheless prevail in more than 9 out of 10 cases.

The report based its findings on an 18-month study from 2006-2008, when debt buyers won $1.1 billion in judgments against New Yorkers, the vast majority of whom lived in low-income communities and communities of color. The report also documents a strikingly uneven playing field in which only 1 percent of people sued were represented by legal counsel.

“The report misperceived the data before it,” said Barbara Sinsley, general counsel for debt buying trade group DBA International. “It says that debt buyers are targeting minorities by looking at the locations of consumers and making those with more minorities a target area. It’s not a function of the debt buyers targeting minorities, it’s a function of the amount of debt in the area.”

Sinsley called “unsubstantiated” the report’s findings that 70 percent of consumers had no support when sued. “There’s no quantitative support for that statement. I could take the same resources and write a report about how debtors are being supported in New York City.”

Fred Blitt, president of the National Association of Retail Collection Attorneys (NARCA) added: “I think this uses a very broad brushstroke to paint the entire industry. They say that debt purchasers target low-income people and people of color. Why would I want to target low-income people? I want to be able to collect. And I don’t know if a person is green or black or white, and why would I care?”

Blitt noted that low-income people lack the resources to hire an attorney, so naturally they would go to local legal aid offices, which was the genesis of the report.

Sinsley and Blitt added that many of the lawsuits are due to a debt collector’s inability to contact the debtor.

“The problem isn’t with the debt buyers, it is with the lack of communication,” Sinsley said. “Perhaps consumers don’t communicate because they have no money or perhaps because they don’t know what they should be doing.”

Laws restrict the forms and types of communications that collectors can make, Sinsley added. So there is less liability if the collection firm files a lawsuit.

Blitt added that there would be far fewer lawsuits filed by ARM companies if debtors would contact collectors once they receive a demand letter. If the debtor doesn’t respond to communication attempts, the only recourse is a lawsuit.

The report also cited the case of a person who had been sued but didn’t owe the debt in question. Blitt said mistakes do occur, but only in a very small percentage of cases. “We do serve people properly and do follow state laws,” he noted.

“The new laws in New York are another problem when it comes to communication,” Sinsley said.

DBA International highlighted the details of the law that became effective for New York City collectors on April 24 in a Member Alert:

1. When providing verification:

Documents must be a copy of the “debt document issued by the original creditor” or an “original written confirmation evidencing the transaction resulting in the indebtedness.
Itemization: A final statement from the original creditor must be given along with an itemization of principal and other charges.

2. Disclosing a Debt is Past Statute

A debt collector must disclose that the time limit to sue has expired.
A debt collector must disclose that new payments could restart the statute of limitations.

3. Written confirmation of payment schedules

Including the name of the original creditor.
The name of the employee or supervisor that made the arrangement.
The specific amount and due date for each payment.
Identification of payment of multiple accounts.
Mailing confirmation of satisfaction of debt.

4. Record to be maintained for six (6) years, including:

All written communications with the consumer
Recordings of all conversations or 5 percent of all calls made or received.
Copies of all service of process contracts.
Copies of all actions by government agencies that resulted in revocation or suspension or a court order.
Copies of all training manuals.

5. Call back number must be to a natural person