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Debt Collection Lawsuit and Summary Judgment

A summary judgment – also known as a default judgment – is issued by the courts when the defendant in a civil case has not shown up in court. In the world of debt collection, this typically means that a debt collection agency takes a consumer to court, the consumer doesn’t appear at the date and time of the hearing, and the judge rules in the debt collection agency’s favor. The judge rules “by default,” because there’s no one there to present the consumer’s side of the story in a debt collection lawsuit.

Sounds straightforward, right? In fact, it’s anything but simple. Debt collection agencies – or the attorneys who represent them – often file dozens or hundreds of debt collection lawsuits each month against consumers and obtain summary judgments. The rules of the game say that the plaintiff (the debt collector) has to notify the defendant (the consumer) of the debt collection lawsuit against him or her, as well as the date and time of the scheduled court appearance.

The problem is that debt collectors often don’t have accurate contact information for the consumer. In these cases, the debt collector sends the notification to the wrong person, and the consumer being sued never hears about it, which results in a summary judgment. This is particularly true of debt buyers who purchase written-off debt for pennies on the dollar. This old debt has often passed through so many hands that accurate identifying information has gotten lost along the way. There’s another tactic that unscrupulous debt collectors use, and it’s called “gutter service.” In these instances, process servers attest to having served consumers with notifications, but actually simply throw them away (into the “gutter”). This results in a summary judgment. Obviously, consumers never know they’re being sued if they never receive a summons.

The flip side of the equation is when a debt collection lawsuit is filed against the wrong person. This happens frequently in summary judgment cases. Again, this is often because identifying information about the consumer and the debt in question become uncoupled. The person being sued knows that he doesn’t owe a debt, and so assumes it’s a case of mistaken identity and doesn’t appear in court.

Whichever scenario is in play, it has been argued that agencies file a multitude of debt collection lawsuits and obtain summary judgments as a way of playing a high-stakes poker game. Essentially, it’s a win-win situation for debt collectors. Either the consumer shows up in court and they pressure him or her to work out a payment plan or settlement on the spot in exchange for dismissing the suit, or the consumer doesn’t show up and the judge grants a summary judgment to the debt collector.

Compounding the problem is that, in most instances, the debt collector isn’t required to prove to the judge hearing the case and issuing the default judgment that the debt is valid. Moreover, the debt collector virtually has free rein to add exorbitant collection fees and interest, upping the ante for judgment collection.

Some state legislatures are trying to put into place additional protections for consumers, such as changing the law to mandate that a certain amount of money be left in bank accounts, or to raise the limit on the value of cars that can be seized after a summary judgment. In addition, the Consumer Financial Protection Bureau (CFPB) has called for – and the Better Business Bureau has advocated for – additional protections to ensure that a default judgment isn’t based on inadequate or erroneous information. The BBB advocates that debt collectors should be mandated to provide certain information before filing lawsuits and getting summary judgments, including the name of the original creditor; the last for digits of the original account number; the name of the current owner of the debt; the date of default or charge-off and the amount owed at that time; the total amount currently owed, segregated into principal, interest, and fees; and the terms of the original credit contract. In addition, the CFPB has engaged in enforcement actions around debt collection lawsuits, ordering debt collectors to stop filing lawsuits with unsubstantiated claims, ensure the accuracy of their court filings, and pay civil penalties.

We hope that you find this information useful, and urge you to contact us at 203-529-5100 if you’re facing debt collection lawsuits or a summary judgment.