Exploring the Debt Collection Industry

July 2, 2009

Join Us on New Consumer Forums!

Over the past year or so we’ve taken to using a forum format instead of the blog, so we’ve decided to close the blog to further comments. Instead, please come join the forum discussions about arbitration and debt collection:

Arbitration Justice

Debt Collectors Exposed

We look forward to seeing you there!

August 18, 2006

Debt collector gets jail for extortion

Filed under: News — budhibbs @ 10:48 am

Threats included arrest, deportation By Ray HuardUNION-TRIBUNE STAFF WRITER August 14, 2006  

Strong-arm tactics were standard procedure for a
La Mesa man who ran a debt collection business out of
El Cajon, posing at times as a lawyer or investigator for the district attorney.

Edward Mitchell Davis told people he contacted that police were on their way to arrest them and the only way to avoid jail was to pay him immediately for debts the people often didn’t even owe, prosecutors said.   If he thought they were immigrants,
Davis told them they could be deported if they didn’t pay or could be arrested at the airport when they next returned from a trip abroad, according to court records.
Davis,55, was sentenced to 270 days in jail, fined $499 and placed on probation for five years on Aug. 4 after pleading guilty in October to extortion and attempted extortion, prosecutor Tricia Pummill said.

As part of a plea agreement,
Davis promised to repay $40,864 to people he pressured to pay, Pummill said.
Davis also agreed to repay anyone else who comes forward with proof that they made payments to his company, ARM Financial, because of extortion.

Davis “was collecting bills too aggressively,” said his lawyer, William McGuigan.

“He’s not a violent person or an evil person,” McGuigan said. He said
Davis has repaid money he collected improperly.

The debts
Davis collected “were all legitimate but some were too old,” McGuigan said.

Pummill said the unpaid debts
Davis collected often were on long-dormant or inactive accounts, some going back more than 10 years.

“Most of these people didn’t even have debts,” Pummill said. “It had been paid off or forgiven or they (debtors) had declared bankruptcy and it had been discharged.”  

Davis’ undoing came from a former employee who was sick of pressuring people to pay and a man
Davis threatened with arrest and deportation to get him to pay an old bill.

Investigators first learned of
Davis in December 2003 when a man called prosecutors to complain about what he considered coercive collection practices.

The man said that someone who identified himself as a lawyer by the name of Ed Smith called him about a $1,500 debt from 1991, according to court records.  

The so-called lawyer, later identified by investigators as
Davis, told the man that he was facing criminal charges over the unpaid debt and had to pay $7,000 to cover the debt and court fees, according to the records.

While investigators were investigating his complaint, a man who once worked for Davis called the District Attorney’s Office in April 2004 to alert it to what he said were unfair business practices Davis instructed him to use.  

The former employee said he told debtors to call
Davis’ company about a debt.
Davis would then tell the debtors that the court action could be stopped if they made immediate arrangements to pay the debt through

Pummill said
Davis’ high-pressure, illegal debt collection practices are all too common.

“It’s a huge problem,” Pummill said.

August 10, 2006

NJ Supremes Strike Down Consumer Class Action Ban: ‘Unconscionable and Unenforceable’

Filed under: News — budhibbs @ 10:45 am




Jonathan Hutson, TLPJ, 202-797-8600 x246
F. Paul Bland, Jr., TLPJ, 202-797-8600 x223
Michael J. Quirk, Williams, Cuker & Berezofsky, 215-247-1448

New Jersey Supreme Court Strikes Down Consumer Class Action Ban as ‘Unconscionable and Unenforceable’

TLPJ Wins Nationally-Significant Ruling Against Payday Lender Preserving Consumer Class Actions

In a consumer rights victory of national significance, the New Jersey Supreme Court agreed with Trial Lawyers for Public Justice and a team of consumer rights advocates today that corporations cannot insert and enforce class action bans in their consumer agreements to get a free pass from consumer protection lawsuits. In Muhammad v. County Bank of Rehoboth Beach, Delaware, the Court ruled that a payday lender’s provision that barred borrowers from bringing class action claims violates the public interest protected by New Jersey’s Consumer Fraud Act and is “unconscionable and unenforceable.”

“This is an enormous victory for low-income consumers who were charged interest rates of 600 percent and higher,” said plaintiff’s counsel Michael J. Quirk of Williams, Cuker & Berezofsky in Philadelphia (and formerly of TLPJ), who argued the case before the New Jersey Supreme Court on February 14, 2006. “By allowing these borrowers to bring their claims for class-wide relief, the Court ensured that payday lenders and others who violate consumers’ rights can be held accountable under New Jersey’s consumer protection laws.” Lead counsel in the case are Mark Cuker, also of Williams, Cuker & Berezofsky, and Donna Siegel Moffa of Trujillo, Rodriguez & Richards in Haddonfield, NJ

Writing for the 5-1 majority in Muhammad, Justice Jaynee LaVecchia affirmed the value of class actions to consumers: “The public interest at stake in [the plaintiff’s] ability and the ability of her fellow consumers effectively to pursue their statutory rights under this State’s consumer protection laws overrides the defendants’ right to seek enforcement of the class arbitration bar in their agreement.”

“New Jersey has joined the growing list of states which have held that corporations may not wipe out their customers’ ability to bring class actions as their best and sometimes only means of enforcing consumer protection laws,” said F. Paul Bland, Jr., TLPJ Staff Attorney. “This is why corporations use class action bans – because they effectively get a ‘free pass’ out of consumer protection lawsuits. It is clear that these corporations were not interested in arbitrating consumer protection claims with their customers; rather, they were trying to make it impossible for their customers to bring consumer protection claims in any forum.”

In Muhammad, which the New Jersey Supreme Court has remanded for further proceedings in arbitration, payday loan borrowers are challenging a “rent-a-bank” scheme. Under these schemes, lenders try to evade state usury laws by arranging for their operations to be “fronted” by out-of-state banks permitted by federal law to export their higher home-state interest rates to other states. In this case, payday lender Easy Cash was being fronted by County Bank of Rehoboth Beach, Delaware.

Lead plaintiff Jaliyah Muhammad borrowed $200 in cash from Easy Cash, but after having to “roll over” the loan twice, she paid a total of $180 in interest on a two-month loan – a 608% annual percentage rate (APR), despite New Jersey’s criminal usury limit of 30% APR. Muhammad filed a class action lawsuit on behalf of all New Jersey borrowers, alleging that Easy Cash and two other companies were the true lenders and were violating New Jersey’s usury statute, Consumer Fraud Act, and civil racketeering statute. The suit names County Bank as a co-defendant.

The defendants moved to enforce a mandatory arbitration clause which prohibits any class action against them. The trial court enforced the arbitration clause and the appellate court affirmed. TLPJ joined the case to fight the class action ban and arbitration clause in the New Jersey Supreme Court.

TLPJ’s key briefs and the New Jersey Supreme Court’s decision in Muhammad v. County Bank of Rehoboth Beach are posted on http://www.tlpj.org/briefs_documents.htm.

August 8, 2006

Top credit bureaus slammed with suits over low scores

Filed under: News — budhibbs @ 3:35 pm

Tresa Baldas/Staff reporter  August 8, 2006

The nation’s three top credit bureaus are being slammed with a growing number of lawsuits filed by consumers who allege that the agencies are severely damaging their credit worthiness.

Scores of lawsuits challenging credit-report errors and low credit scores are pending in several states, including California, Louisiana, Michigan, Mississippi, New Mexico, South Carolina and Virginia.

Consumers allege that the bureaus-Equifax, TransUnion and Experian-are engaging in a practice that artificially lowers their credit scores, and that they are ignoring pleas to remove inaccurate information from the reports.

“It is becoming more and more prevalent that people are fighting back and suing credit bureaus and information furnishers who can’t get it right without filing a lawsuit,” said James Fishman of New York’s Fishman & Neil, who has handled about 100 credit lawsuits in the last five years on behalf of plaintiffs.

“I’ve always told clients who come in and have been banging their heads against the wall, ‘It takes a lawsuit to get your thing solved,’ ” he said.

Fishman, who settles about 99% of his cases, believes litigation works.

“When I go to court, the first thing I’m handed [from the defense] is a clear credit report,” Fishman said. “You don’t get that unless you walk into the courtroom.”

Adam Taub, a Michigan consumer attorney who has handled numerous lawsuits against the credit bureaus and debt collectors, noted that “[i]n the last two or three years, just the number of calls on this particular issue has increased by 100%, probably more.

“Most of the people who come to my office are not particularly interested in filing a lawsuit right out of the gate,” said Taub of the Lyngklip & Taub Consumer Law Group in Southfield, Mich. “Most of them have a problem. They’re tearing their hair out. They’re losing sleep….They’re hopeful that the credit bureaus are going to do the right thing and remove the bad information.”

But all too often, he added, nothing happens, so then comes the lawsuit.

“After being ignored over and over and over again, finally you have to do something to get their attention, and in this particular arena, it appears the only option is to bring a suit,” Taub said.

ID theft spurring action

Attorneys noted that in recent years, consumers have been spotting mistakes on their credit reports because they’ve been checking them more often, largely because of identity-theft fears. With free credit reports now available in all states, mistakes aren’t hard to miss. And “credit-freeze” laws enforced in 22 states that bar lenders-or anyone-from reviewing a person’s credit history also prevent identity thieves from opening fraudulent accounts.

There are also those who learn about bad credit the hard way: They go to buy a house or a car, and they are denied a loan or a lower interest rate because of a tainted credit report or a low credit score they were not aware of.

In both cases, plaintiffs allege that the credit bureaus are shirking their responsibility to maintain accurate records and thoroughly investigate cases involving false information, which is required under the Fair Credit Reporting Act (FCRA).

Plaintiffs making those claims got a recent boost from the 5th U.S. Circuit Court of Appeals, which ruled on July 24 that the credit bureaus are ultimately responsible for the reinvestigation of disputed information in their systems, and cannot shirk that responsibility by blaming another group for the false information. Morris v. Equifax Information Services, 2006 WL 2043567.

Officials at Equifax and TransUnion declined comment for this story, as did many of their attorneys contacted who are defending them in a number of lawsuits.

Experian also declined comment on the pending litigation, but defended its reputation as a gatekeeper of more than 215 million credit files.

“We have many decades of experience in both managing and safeguarding the privacy and robustness of the consumer credit files under our care, and we take that responsibility very seriously,” said Experian spokesman Donald Girard.

“One of the newest challenges for Experian is the relentless attack of phishers, scam artists, identity-fraud cheats and others who would seek to exploit the nations’ credit system for their own gain,” Girard added.

“Experian has developed increasingly sophisticated tactics and tools to safeguard its databases…and it will continue to do everything in its power to ensure that consumers’ data is used only for the purposes allowed by federal law.”

In a recent lawsuit that Equifax settled with a New Mexico woman who sued over a botched credit report, Equifax also defended its record-keeping tactics. The case involved a small-town teacher whose credit report contained information that belonged to another woman with the same name, but who had bad credit. The woman sued Equifax over the mix-up and for allegedly allowing the false information to remain on her credit file for more than two years. Apodaca v. Discover, No. CIV-04-0717 (D.N.M.).

“At all pertinent times, Equifax has acted in good faith and without intent to injure plaintiff,” Equifax stated in court documents. “[A]ny alleged damages sustained by plaintiff were, at least in part, caused by the actions of plaintiff and resulted from plaintiff’s own negligence, which equaled or exceeded any alleged negligence or wrongdoing by Equifax.”

The woman’s attorney, Rob Treinen of Feferman & Warren in Albuquerque, N.M., said that Equifax put up a tough fight, but eventually settled in May for an undisclosed amount.

“It basically takes a lawsuit to get these things sorted out,” Treinen said. “Our client gave Equifax everything that they would need to fix that….They absolutely would not own up to what had happened.”

Three class actions

Meanwhile, in South Carolina, the credit bureaus are battling a new kind of legal claim that has caught the attention of consumer rights’ lawyers nationwide. A consumer has filed three class actions against the bureaus claiming that they are engaging in a practice that is artificially lowering credit scores. The practice involves allowing credit card companies-in this case, Capital One Financial Corp.-to withhold a customer’s credit limit from his or her credit file, which lowers the credit score. Harris v. Experian Information Solutions, et al No. 6:06-1808-GRA (D.S.C.).

Attorney William Narwold of Mount Pleasant, S.C.-based Motley Rice, who is representing the plaintiff in the suits filed on June 15, explains how it works.

Credit card companies typically submit two numbers to the credit bureaus: a high balance, or how much is typically owed over time, and a consumer’s credit limit. The scoring system used by the credit bureaus compares the high balance against the credit limit. But if the company neglects to report the credit limit, the scoring software automatically assumes that the high balance and credit limit are one in the same.

For example, if the consumer has a $5,000 credit limit that goes unreported, but only a $1,500 balance, it will appear as though the consumer has maxed out his or her card at $1,500, which results in a lower credit score.

And that, argued Narwold, causes consumers to lose out on lower interest rates for cars, homes and personal loans.

“All of a sudden, their not reporting information costs you money,” Narwold said.

Narwold’s suits claim that by not requiring credit card companies to report credit limits, the credit bureaus are violating the FCRA by not taking reasonable steps “to ensure maximum possible accuracy.”

“That’s the magic language from the statute. It’s a pretty tough standard,” Narwold said.

Tough cases prove

Attorney Ian Lyngklip, co-chairman of the National Association of Consumer Advocates, who trains attorneys in the area of identity theft and fair credit reporting, noted that there has been a growing interest among lawyers who want to litigate such cases. Currently, there are about 200 lawyers nationwide experienced in this area, he said, noting that as many as 270 lawyers have participated in his training seminars in recent years.

Lyngklip, whose Michigan firm is handling about 20 lawsuits against the credit bureaus over erroneous credit and is investigating another 40 such cases, stressed that credit-reporting lawsuits against the bureaus are tough to prove.

For example, he said, a credit bureau might remove false information from a file. But a debt collector will continue to go after the person, then submit another file to the credit bureau-and the information pops up again.

“It’s a very difficult suit to win,” Lyngklip said.

Difficult, but not impossible, as Virginia attorney A. Hugo Blankingship III can attest to.

On July 14, a jury ordered Equifax to pay his client, an identity-theft victim, $351,000 over erroneous information that kept appearing on her credit report. Sloan v. Equifax Information Services, No. 1:05-CV-1272, (E.D. Va.)

Sloan had filed against all three bureaus, but Experian and TransUnion settled for undisclosed amounts. The case involved a woman who had her Social Security number stolen by a hospital employee while giving birth to her child in 2003. The employee used it to open numerous accounts and ran up huge debts.

The identity thief was arrested in March 2004 and later sentenced to two years in prison. But the victim spent two years trying to clear up her credit.

“She wrote letters. She called them. They saw the problem. They just didn’t fix it,” said Blankingship of Blankingship & Associates in Alexandria, Va.

Attorneys at Kilpatrick Stockton in Atlanta, the firm that represented Equifax in the Sloan trial, declined comment, as did company officials.

TransUnion and Experian officials also declined comment on the Sloan case.

NCO – CBS Boston Investigation

Filed under: News — budhibbs @ 2:44 pm


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