Companies that purchase delinquent accounts secured an estimated $230 million in default judgments against New Yorkers in 2011, according to a report from the New Economy Project, but failed to prove they owned the debt in a majority of cases.
The report by the nonprofit group focused on "economic justice." The group said that at least 195,000 consumer debt suits were filed in New York in 2011. More than half were brought by debt buyers.
The New Economy Project this week called on New York lawmakers and court administrators to adopt reforms to help curb robo-signing - when employees of collection firms sign legal documents without having knowledge of the underlying cases - and other "abuses" committed by debt buyers in consumer credit cases.
The group urged the state's Office of Court Administration (OCA) to adopt tighter filing standards in consumer debt lawsuits. A rule proposed by the group would require debt buyers to submit affidavits from the original creditor, such as a credit card company, attesting to the debt's chain of title.
Along with calling on OCA to take action, the report urged lawmakers to pass a bill, called the Consumer Credit Fairness Act, that would decrease the statute of limitations in consumer credit cases from six to three years. It also would require more information from parties filing debt collection suits, including documentation from the original creditor.
The Assembly approved the bill in April, and it is now pending in the state Senate, with less than two weeks left in this year's legislative session.
In 90 randomly selected New York state consumer debt lawsuits, the New Economy Project found that in all but a few, debt buyers won default judgments despite failing to meet statutory requirements.
Under Section 3215(f) of the state's Civil Practice Law & Rules, debtors moving for default judgment must file affidavits signed by an employee "who has or obtains knowledge of" the facts of a particular case, such as the chain of title of a debt.
In a majority of cases, according to the report, the affidavits were insufficient. In 40% of cases, the paperwork was filled out before the defendant had a chance to respond to the suit, the report said.
The report said companies filed affidavits that contained false information about the debt in 90% of the cases.
Most of the suits were uncontested because consumers never received notice that they had been sued, allowing debt buyers to win default judgments and garnish defendants' wages or freeze their bank accounts, according to the report.
Editor's Note: At overnight press time, debt-buying industry comments on this report could not be obtained. This story will be updated later Wednesday.