Debt collectors are well-known for annoying and harassing phone calls. But it gets worse, says the
Huffington Post. The industry is employing a troubling new strategy: Filing lawsuits against debtors.
Debt collection companies generally buy debt at a discounted rate and aim to make a profit by collecting more than they paid for the overdue bills. Increasingly the companies are turning to the legal system to ensure their efforts are successful.
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Consumer advocates say the companies often sue debtors expecting that the defendants won't make it to court.
And when the alleged debtors do miss court, the consequences can be dire, according to the Huffington Post. Judges can place liens on peoples' homes, garnish their wages and freeze their bank accounts.
But the reason a lot of people don't show up for court isn't because they're ignoring the issue. Many claim they aren't aware that they have lawsuits pending against them.
“Over the years we've heard from thousands of people who've found themselves at the end of one of these default judgments. And most of the people we talk to haven't received any kind of notice that they were going to be sued,” Susan Shin, a senior staff attorney at the New Economy Project, a consumer advocacy group, tells the Huffington Post.
And in many cases what these people don't know definitely can hurt them.
One Texas veteran said he was forced to sell his deceased mother's home over a $2,500 MasterCard bill. A collection agency filed a lawsuit against him without his knowledge and he claims the bill wasn't even his.
Debts are often purchased and sold many times. Consumer advocates and attorneys say in many cases collection companies either do not have all the information they need to prove their claims or the information they have may be inaccurate.
Collection companies' surging fondness for litigation is not going unnoticed by regulators.
States “are concerned with the rising numbers of debt collection lawsuits that are commenced with boilerplate complaints, contain virtually identical allegations and provide minimal evidentiary support,”
Bloomberg News says a letter from a coalition of state regulators to the Consumer Financial Protection Bureau reveals.
Federal regulators in New York took action in getting two of the U.S.' largest debt collections companies, Portfolio Recovery Associates and Sherman Financial Group, to agree to back off efforts to collect about $16 million in judgments, Bloomberg reported.
The companies didn't admit or deny any wrongdoing but also agreed to pay penalties totaling $475,000 for violating the law by pursuing debts that were too old.
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