State Courts Join Widening Debt-Collection Crackdown

May 9, 2014
American Banker 
debt settlement news
Courts -- one resource that companies use to try to recover debt -- increasingly are joining regulators, legislators, and attorneys general in the crackdown on the collection industry.

For instance, Maryland's district courts, criticized for summoning borrowers to judge-less "rocket docket" mediation sessions with lawyers for banks and collectors, have modified those meetings. Now, judges make announcements at the beginning of and sometimes during the sessions to ensure that defendants understand that their presence is voluntary.

In another example of court intervention in the debt collection process, New York's top judge, Jonathan Lippman, has proposed broad reforms for creditors and collectors that want to sue consumers. More than 100,000 debt collection cases were filed in New York state courts last year -- 98 percent of them against people who do not have lawyers, Lippman notes. Proposed New York state court reforms -- considered by consumer advocates to be the most comprehensive in the nation -- would require creditors to provide more documentation for litigation and would also ensure that borrowers are not sued over debts beyond the statute of limitations. Lippman additionally proposed that all New York courts adopt a standard "answer form" to help people defending themselves against debt collection claims. This form offers 23 different options for a person to check off as a defense or other response, including "I have paid part or all of the alleged debt" or "I dispute the amount of the debt."

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