Public Employee Press

DC 37 fights to end lawsuit fraud

By ALFREDO ALVARADO

Phony lawsuits are ripping off union members, retirees and thousands of other Americans. The victims are innocent consumers. The scam is run by companies that buy up alleged debts, mainly from credit card companies, and go to court to sue the consumers for the money — often with no evidence at all that the debt is real.

One DC 37 member had her salary garnished and her bank account frozen during the Christmas season over a phantom debt to a bank where she never had an account. Another was hit with a $7,000 bill from a company she had no account with.

“Our experience mirrors that of consumer lawyers statewide and across the country,” said Robert Martin, associate director of the union’s Municipal Employees Legal Service. “Consumers are being sued with flimsy evidence or none at all.”

In New York City alone, the courts handle 300,000 debt collection cases a year. Some 70 percent of the people served with the lawsuits never show up and have automatic judgments entered against them. “I don’t know if the system is broken completely, but it certainly needs overhauling,” said Fern Fisher, deputy chief administrative judge for New York City courts.

Collectors run when challenged

MELS lawyers noticed a disturbing pattern. When they responded to summonses on behalf of union members who were being sued by debt collectors and they requested specific documentation of the debt, the companies frequently failed to substantiate the debt and in many instances dropped the case altogether.

MELS went further and conducted a study, “Where’s the Proof?” of 238 members sued by debt collectors from Jan. 1, 2008, through June 30, 2009. What they discovered was startling. Of the 238 cases in which MELS sought to substantiate claims of outstanding debt, the debt buyer responded only 5.5 percent of the time. In an astonishing 94.5 percent of the cases, the buyer failed to substantiate the debt. When they did respond, their own documentation usually proved them wrong: The member did not owe them any money.

The cases showed a common thread, said Martin: “Many times, the debt buyers sued consumers when they clearly had no legitimate claims. They sued the wrong person, they sued people who had already paid, and they sued on old debts that were beyond the statute of limitations.”

The MELS study, issued in December, found that in 65 cases members only learned that they were being sued after their salaries were garnished and their bank accounts frozen. Many lost the right to use their money for three weeks or longer. This points the finger at possible “sewer service,” where papers to inform people of legal action against them are simply thrown in the gutter by the process server.

Local 420 Service Aide Carmen Mercado was one of the 65 whose wages were mysteriously garnished. Mercado was planning to get a head start on her Christmas shopping in November, but when she went to the ATM machine at Harlem Hospital in November, she found that her bank account was locked. Instead of getting her funds to buy gifts for her two daughters, she had to face a horrible ordeal: She had no money to buy food or pay the rent. “This was so stressful, you wouldn’t believe it,” said Mercado, who didn’t have access to her salary for three months.

Her co-workers, friends and family pitched in to help her buy groceries, and she got legal help from MELS. Attorney Karen Robinson had the bank restraint lifted. The creditor was HSBC Bank, where she never had an account. “What really bothers me after all I went through is that no one ever apologized to me, no telephone call or letter, nothing,” said Mercado, who called Robinson every day during that difficult time.

Patricia McCarter, a School Aide at CIS 313 in the Bronx, went through a similar ordeal when Palisades Collection claimed that she owed Fingerhut $7,000. Her credit report revealed that she had no account with Fingerhut. “I’ve never even shopped at Fingerhut,” said the Local 372 member, who found out about the lawsuit after she received a restraining notice.

McCarter and Mercado are more fortunate than most New Yorkers, who don’t have access to affordable legal representation to help them navigate the judicial system and prove their case. According to the study, under 1 percent of defendants in collection cases in the city are represented by a lawyer.

Legislation is needed

Fisher wants a federal law requiring secondhand debt buyers to keep records of what they’re buying. Frequently the debt buyer doesn’t even possess the original paperwork that documents the alleged debt. The unscrupulous debt buyers “come to court with no records,” said Fisher.

DC 37 also supports state legislation to protect consumers against baseless lawsuits. The Consumer Credit Fairness Act, which passed the New York State Assembly last year, would require all plaintiffs in a consumer credit collection case to possess and provide basic information when they start the suit, as well as reducing the statute of limitations from six years to three. “This is America and the courts exist to administer justice in a fair way,” said Martin. “We’re fighting hard for a law in New York to stop debt buyers from using the courts as their collection agencies for trumped-up claims.”