Helping Disadvantaged Clients Victimized By Bogus Debt Collection Claims

Tom Prettyman and Elisabeth Petersen

2007-10-22 12:00:00 AM

A debt collector pursued an elderly woman with dementia to collect $3,900 charged to a credit card. The card was not hers. The debt collector told her son the charges were for, among other things, automobile tires, but the woman had never owned a car or had a driver's license, and she had been legally incapacitated for five years. Nonetheless, the debt collector sued her three times on the same debt.

Another woman bought insurance for her credit card after a bank representative told her the insurance would pay her bill if she became disabled. She paid a high monthly fee for the insurance until she had a debilitating stroke, lost her job and could no longer work or pay her bills. The bank denied coverage under the policy and sold the debt to a debt collector, which sued her for $4,000.

A woman with lupus lost her job and could no longer pay the bill for a credit card with a balance of less than $500. A debt collector bought the debt and sued her for $2,000 four and a half years later � six months after the statute of limitations had expired.

Debt collectors aggressively targeted these women � all clients of the Legal Clinic for the Disabled (LCD) � because the women had equity in their homes against which the debt collectors could get judgment liens. Two of the three learned about the suits only after the debt collectors obtained default judgments against them. With legal representation, however, all three women prevailed in court and saved their homes.

Without the help of an attorney, consumers sued by debt collectors often lose, which is too bad because in our experience many collection claims are bogus. Consumer debt claims are sold and re-sold for pennies on the dollar. The debt collector that finally sues on an alleged debt often has no evidence to prove its claim, and the essence of the claim is, at best, that somebody told somebody who told somebody the consumer might owe somebody some money.

The following are some of the shared characteristics of a typical claim filed in Philadelphia Municipal Court against an LCD client:

� The only evidence to prove the debt's existence is a single page � inadmissible under even the relaxed hearsay standards of Rule 121 of the Philadelphia Municipal Court Rules of Civil Practice � with the heading "Statement of Account" prepared by the debt collector's attorney and purporting to show the original creditor's name, an account number, a lump sum owed � which might not match the amount claimed in the complaint � and a "Date of Debt" bearing no relationship to dates relevant to the transaction.

� In violation of Rule 109(a)(4), the debt collector does not produce a writing to prove the original creditor assigned it the claim.

� In violation of Rule 109(a)(6), the debt collector asks for interest, penalties and counsel fees without producing a contract to prove the consumer agreed to pay these amounts.

� The debt is barred by the statute of limitations.

� Abusive collection activities by the collector � making harassing phone calls, misrepresenting itself as a law office or a court representative, suing to enforce a time-barred debt � give rise to counterclaims under the Fair Debt Collection Practices Act, the Pennsylvania Fair Credit Extension Uniformity Act or the Unfair Trade Practices and Consumer Protection Law (UTPCPL). For example, in Commonwealth v. Cole, the court held that filing a collection claim after the four-year limitations period has expired violates the UTPCPL.

The typical unsophisticated consumer, however, does not know of these defenses and counterclaims, does not appear in court to raise them (or, if the suit is in the court of common pleas, does not file an answer or preliminary objections), and loses by default judgment.

Even though Rule 120(b) requires a plaintiff asking for default judgment to appear and prove its claim in accordance with Rule 121, in practice debt collectors get default judgments without proving their claims. And where a consumer does appear in court, she might be urged to sign an unappealable judgment by agreement. Such an agreement is rarely, if ever, advantageous to the consumer, for she gives up her defenses, and the agreement requires her to pay the entire amount claimed in installments she cannot afford.

Against unsophisticated and vulnerable consumers, debt collectors can sue and win on the flimsiest of claims.

The stakes are especially high for low-income, disabled and elderly litigants, many of whom have no money to pay a judgment but have a single asset � a home � that is subject to execution. To help at least a few of these consumers avoid liens against their homes, LCD staff attorneys and pro bono volunteers have defended several clients against patently bogus collection claims and won. Defending these clients one case at a time, however, is surely not the most efficient means of eliminating bogus collection claims.

A more comprehensive remedy might be to clarify Rule 120(b) of the Philadelphia Municipal Court Rules of Civil Practice. Rule 120(b) allows entry of default judgment against a defendant who is served with process but does not appear, but only where the plaintiff appears and proves damages in accordance with Rule 121. These rules should be clarified to establish a concrete standard by which a plaintiff seeking a default judgment must prove damages. At the very minimum, a plaintiff should produce an account ledger from the original creditor; an agreement proving its entitlement to any attorney fees, penalties and interest claimed; and, where the claimant is not the original creditor, an assignment proving the plaintiff's capacity to sue on the debt.

These minimum requirements would pose no additional burden on plaintiffs, who under Rule 109 already are supposed to attach these items to their complaints at the time of filing. They would promote efficiency by eliminating bogus collection claims from the court's docket. And they would promote fairness in a system where most defendants are unsophisticated, vulnerable and unrepresented.

Tom Prettyman is the executive director of the Legal Clinic for the Disabled Inc. (LCD), a nonprofit public interest law firm in Philadelphia. Since 1990, LCD has advised and represented thousands of low-income people with disabilities in the five-county Philadelphia area on a range of legal issues including real estate, family law, consumer protection, estate planning, estate administration and public benefits.

Elisabeth Petersen is a second-year student at Temple University's Beasley School of Law. She served as an Equal Justice Works Summer Corps member at LCD in the summer of 2007.