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What?s Clogging the Courts? Debt Collections, That's What

By Joe Consumer

Unless you?re about 200 years old, you probably don?t remember debtors? prisons, given that the U.S. abolished them in 1833. At least that?s what we thought.

Two Minnesota legislators announced yesterday that they will be introducing legislation to deal with ?a growing public concern -- highlighted in a continuing Star Tribune series, ?Hounded? -- that debtors are being sued for money they don't owe and, increasingly, jailed when they fail to appear in court.?   Apparently the paper found that ?use of arrest warrants against debtors jumped 60 percent in the past four years, with 845 cases in 2009. Some debtors who were arrested said they were unaware they had been sued for their debts and were required to appear in court.?

All of this comes on the heals of an incredible report issued Monday from the Federal Trade Commission, Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration, that found ?that the system for resolving consumer debt collection disputes is broken, and recommends significant litigation and arbitration reforms to improve efficiency and fairness to consumers.? (text here)

The report ?recommended that state governments toughen laws to reduce the number of unsubstantiated lawsuits against debtors. It called on states to require collectors to offer more proof of debts in their lawsuits, and to curb suits over debts for which the statute of limitations has expired.?

In addition, ?The Commission vote to issue the report was 5-0. Commissioner Julie Brill issued a concurring statement in which she urged Congress to enact a temporary ban on the mandatory arbitration of consumer debt collection disputes. ?Such a ban should remain in place until the arbitration process can be shown to be fair, transparent, and as affordable as traditional litigation, and until consumers have a meaningful opportunity to opt out of pre-dispute arbitration without losing access to the credit services they seek,? she said.?

The Minnesota lawmakers have been pushing this issue for years, and believe ? hopefully ? that the FTC report will ?strengthen[] the case for changing the law."

Also incredibly, the New York Times reported that debt collection law firms have been clogging the courts with these lawsuits.

The litigation boom has been propelled by fundamental changes in the way debts are collected, particularly for credit cards.? Collection law firms are able to handle such large volumes of cases because computer software automates much of their work.?  Once the data is obtained by a law firm, software like Collection-Master from a company called Commercial Legal Software can ?take a file and run it through the entire legal system automatically,? including sending out collection letters, summonses and lawsuits, said Nicholas D. Arcaro, vice president for sales and marketing at the company. ? Most consumers fail to show up in court, and those who do rarely have a lawyer.

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Lawsuits are sometimes filed against the wrong people, critics say. Other times, they say, the amount owed is incorrect or includes questionable fees and interest that has been added to the balance.

So while debt collections are skyrocketing, personal injury lawsuits continue to drop.

Full post as published by ThePopTort on July 14, 2010 (boomark / email).