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On behalf of Jason Zimmerman and other consumers, Lemberg & Associates (www.stopcollector.com) has won a $350,000 class action award against debt collection agency Portfolio Recovery Associates for violations of the Fair Debt Collection Practices Act (FDCPA). This is the largest reported judgment in a Fair Debt Collection class action case. According to Sergei Lemberg, who was labeled the “most active consumer attorney” of 2012 by debt collection industry insider WebRecon LLC, “We are gratified that the judge saw it fit to impose a significant, meaningful penalty for PRA’s intentional violations of the FDCPA.”
The court ruled that Portfolio Recovery Associates violated the FDCPA by sending 990 consumers debt collection correspondence that simulated legal process. The package consisted of a letter plus a set of legal-looking documents, such as a draft Summons and Complaints. According to Lemberg, “The FDCPA prohibits dissemination of fake legal papers on its face. The court rightfully labeled Portfolio Recovery Associates’ behavior ‘unscrupulous.’”
Portfolio Recovery’s unscrupulous behavior was just one of the factors the court used in determining the $350,000 award. According to Lemberg, “We were pleased that the judge noted that Portfolio Recovery’s FDCPA violations were ‘intentional’ and ‘egregious,’ and that a sizeable award was appropriate.” Indeed, the judge wrote, “The sanction imposed must be sufficient to deter PRA from engaging in abusive practices in the future.”
The court determined that each class member who returned the appropriate claim form would receive $500, that the lead plaintiff, Mr. Zimmerman, would receive $1,500, and that any remaining monies would be awarded “to a non-profit organization working to curb abusive debt collection practices or to increase consumer awareness of such practices.”
Lemberg concluded, “It’s fitting that a portion of the award will go to consumer advocacy organizations. The court’s decision should a clear message to debt collectors that they will be held accountable when they engage in shady practices.”
This release references Zimmerman v. Portfolio Recovery Associates, LLC (U.S. District Court, Southern District of New York, 09 Civ. 4602 (PGG)).
Lemberg & Associates released the following statement on February 1 in response to the Federal Trade Commission’s study on debt buyers:
Fair debt attorney Sergei Lemberg commended the recently released Federal Trade Commission’s (FTC) study on debt buyers, “The Structure and Practices of the Debt Buying Industry,” but noted that it doesn’t go far enough. “Debt buyers are the underbelly of the debt collection industry, so it’s crucial that the FTC pulled back the curtain to reveal how they do business,” said Lemberg. “Nevertheless, the FTC report only peripherally addressed the heart of the problem – the inadequacies in the way debt buyers handle consumer disputes, the abuse of the court system in seeking summary judgments against consumers, and the disproportionate role that smaller debt buyers play in violations of the Fair Debt Collection Practices Act.”
Debt buyers purchase debt deemed “uncollectible” and charged off by original creditors or purchase debt portfolios from other debt buyers. The FTC study examined data from 90 million consumer accounts purchased by nine of the country’s largest debt buyers, which together accounted for three-quarters of the debt sold in 2008. The FTC found that debt buyers literally paid pennies on the dollar for old debt – four cents per dollar, on average. When debt portfolios are sold, the accuracy of the information is not guaranteed, which led the regulatory agency to estimate that consumers dispute one million debts each year.
Lemberg, who was targeted as the “most active consumer attorney” of 2012 by debt collection industry insider WebRecon LLC, said the findings of the FTC study mirror the experience of many of his clients who attempt to dispute debts. “Often, the debt does not belong to the client or the amount is incorrect,” said Lemberg. “Sometimes, the client has previously disputed the debt, but as the FTC points out, the dispute history of a debt isn’t included when a debt portfolio is sold. And, as the study correctly notes, collectors who work on behalf of debt buyers often ‘validate’ the debt simply by looking at the information on their spreadsheet rather than providing the proper underlying documentation.”
The FTC study noted that, as time passes and debt portfolios are resold, the process of debt collection becomes even more problematic. Further inaccuracies creep into the records and aging debts become time-barred. Each state has a statute of limitations, usually between three and six years, after which time debt collectors aren’t allowed to sue a consumer to recover the money. Lemberg says that this doesn’t stop collectors from trying. “Debt collection agencies – and debt buyers in particular – file tens of thousands of lawsuits against consumers each year yet generally don’t have to prove that the debt is valid or within the statute of limitations,” he said. “To add insult to injury, it is up to the consumer – who often isn’t even aware that he or she is being sued – to prove that the debt is time-barred.” Lemberg noted that this practice often results in summary judgments, whereby debt buyers are given the ability to pursue wage garnishment and recover money from consumer bank accounts. “The current situation is a recipe for disaster. If a debt buyer says John Doe owes money, and John Doe isn’t present to defend himself, the debt buyer can obtain a judgment and freeze John Doe’s bank account,” he said.
While the FTC study found that the largest debt buyers purchased a majority of portfolios from original creditors, a fifth of the debt purchased was between three and six years old and 11 percent was between six and fifteen years old. The FTC issued a caveat, saying, “[M]any purchasers of older debts and debts with larger numbers of past placements with third-party collectors are smaller firms.” This echoes Lemberg’s experience. He said, “Smaller debt buyers get the hard-to-collect leftovers, which often tempts them to cross the line into questionable behavior or even practices that violate the Fair Debt Collection Practices Act.” One such behavior, Lemberg said, is to try and convince unsuspecting consumers to make a small payment on a time-barred account. “People don’t realize that making any payment – whether a penny or a hundred dollars – resets the clock and destroys protections afforded by the statute of limitations,” he said.
Lemberg applauded the Federal Trade Commission study, but said it needs to be expanded. “Smaller debt buyers need to be studied in order to get a true picture of the debt buying industry,” he said. “Debt buyers don’t share information about the debts they are trying collect, and then use the courts to obtain judgments against consumers who may not know they’re being sued. The current process leaves people’s lives in tatters, is an enormous burden on the taxpayer-funded court system, and is simply immoral.”
Debt collection industry insider WebRecon has listed Sergei Lemberg as the “most active consumer attorney” of 2012, saying that he represented 365 consumers during the year. Although seemingly intended as a warning to debt collectors, Lemberg embraces WebRecon’s label. He says, “I’m passionate about empowering our clients to stand up against debt collection agencies that use illegal tactics and break the law. If that makes me a target of the debt collection industry, so be it.”
Taking a moment to reflect on 2012, Lemberg says that he’s gratified that Lemberg & Associates accomplished so much. “I’m not only proud of the clients we’ve helped, but also that we expanded our practice areas and launched three new websites to help consumers learn more about their rights under the Telephone Consumer Protection Act.” The websites, www.do-not-call-complaints.com, suejunkfaxers.com, and suespamtexters.com, explain the TCPA and that consumers rogue telemarketers, junk faxers, and spam texters can be made to pay $500 for each violation – or triple that if they knowingly and willfully violated the law.
Reporting on research from WebRecon, Collections & Credit Risk noted that, as of November 30, Sergei Lemberg was the “most active” consumer attorney in the country. The research is based on the number of lawsuits filed in U.S. district courts, and specifically looks at lawsuits filed for violations of the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, and the Fair Credit Reporting Act.
In Cerrato v. Solomon & Solomon (3:11-cv-623 (JCH)), the U.S. District Court, District of Connecticut, built on the landmark Foti decision in ruling that autodialed calls not answered by the consumer constitute “communication” under the Fair Debt Collection Practices Act. Ms. Cerrato is represented by Lemberg & Associates.
The circumstances of the case are that, over a period of 21 months, Citibank turned three of Ms. Cerrato’s debts over to Solomon & Solomon for collection. After receiving debt collection calls for the first account, Ms. Cerrato sent Solomon & Solomon a cease and desist letter. After receiving the letter, Solomon & Solomon made six more calls to Ms. Cerrato. Ten months later, the debt collection agency began calling her in reference to the third debt, and called her 117 times over the course of six months. Ms. Cerrato faxed the debt collector a cease and desist letter, together with a copy of her previous cease and desist letter.
The Solomon & Solomon clerk who processed the letter noted that communication should stop for the third account, but not the other two. Still, using an autodialer, the debt collection agency called Ms. Cerrato eight more times after Solomon & Solomon received the letter. Ms. Cerrato says that she chose not to answer the calls after her caller ID indicated that they were from the debt collector. The debt collection agency argues that the eight unanswered telephone calls aren’t “communications” under the Fair Debt Collection Practices Act, and thus can’t be held liable for communicating with Ms. Cerrato after receiving a cease and desist letter. Solomon & Solomon argues that “an unanswered telephone call does not constitute a communication because no information was conveyed; Cerrato never spoke to a Solomon representative.”
In an order denying summary judgment, the court rejected Solomon & Solomon’s citation of Wilfong v. Persolve, LLC, and instead looked at Foti v. NCO Financial Systems, Inc. In that case, “the court held that a prerecorded voice message that did not specifically reference a debt still constituted a communication under the FDCPA.” In this opinion, the court looked to the rationale behind the Foti decision, namely that the statute should be construed broadly. Further, in the Foti case, that court noted that simply stating that the call was from NCO Financial Systems was enough to communicate that it concerned a debt. In this case, the court noted that Foti received one telephone message after one letter from NCO, while Ms. Cerrato had received 117 calls prior to the eight unanswered calls. In other words, Ms. Cerrato knew that it was a debt collector calling. The court also drew parallels to the Foti calls that attempted to entice a return phone call: “In Foti, the court found that the debt collector provided enough information to ‘entice’ a return call by providing its name and return phone number and be referencing a matter that required immediate attention. Solomon provided similar information to Cerrato. Its name and telephone number appeared on Cerrato’s caller ID display, and by calling eight times within one month, it is hard to imagine how Cerrato could not realize that Solomon wanted her immediate attention.” The court went on to write that Solomon & Solomon’s argument would mean that “debt collectors could call consumers however often they wish as long as the consumer does not pick up or the debt collector hangs up before reaching the consumer.”
The judge goes on to cite the Merriam-Webster definition of “communication,” noting that it does not require a two-way exchange or any response from the recipient of the communication.
Solomon & Solomon offered contingency arguments, which were also rejected by the court. One argument said that the eight unanswered calls could fall under the FDCPA approved exceptions, namely to notify Ms. Cerrato that Solomon & Solomon would no longer try and collect the debt, or to tell her that they were going to invoke a specific remedy (such as a lawsuit). The court wrote that, because the calls stopped once the debt collection agency noted Ms. Cerrato’s cease and desist letter on all of her accounts, that argument doesn’t hold water.
Solomon & Solomon’s other contingency argument was that even if the calls constituted communications under the FDCPA, it was a bona fide error and the firm doesn’t have any liability.
Apparently, Solomon & Solomon’s computer system has a field that can be used for a code indicating that a consumer has sent a cease and desist letter. The debt collection agency says employees are trained to enter that code into the account. However, they are not trained to put the code on all of the consumer’s accounts. The debt collection agency says that the cease and desist letter listed only one account, while Ms. Cerrato says that her letter referenced all accounts.
The court found that, since Solomon & Solomon had called Ms. Cerrato six times after she had sent a previous cease and desist letter, “there are issues of material fact as to whether Solomon committed a bona fide error,” as well as whether the debt collection agency had developed reasonable procedures to prevent such a mistake to happen.
Solomon & Solomon says that it has procedures in place to train employees on provisions of the Fair Debt Collection Practices Act, and says that it specifically trains and tests employees about the meaning and importance of a cease and desist letter. Ms. Cerrato disputes this, saying that the debt collection agency’s “testing and literature merely states that employees are allowed to contact a debtor one more time after receiving a cease and desist letter.”
Because the motions for summary judgment were denied, the case will proceed.
Two Lemberg & Associates clients overcame a major hurdle in U.S. District Court, Western District of Pennsylvania, when a judge denied the defendants’ motion to dismiss the case. The genesis of Deeters v. Phelan Hallinan & Schmieg, LLP (3:11-cv-00252-KRG) was that the Deeters received a debt collection letter from PHS that included information about the debt, their right to dispute the debt within 30 days. A few days later, they were served with a PHS complaint saying that they were being sued in state court regarding foreclosure. That complaint did not contain a notice of the Deeters’ validation rights or conform to Fair Debt Collection Practices Act provisions.
The Deeters claim that the complaint filed in the state lawsuit overshadowed the warning language in the debt collection letters, and that the conflicting messages would have confused and misled the least sophisticated consumer, in violation the FDCPA. Phelan Hallinan & Schmieg, LLP disagreed, arguing that the case should be dismissed.
In her decision, the judge ruled against Phelan Hallinan & Schmieg, LLP, writing in part:
It is precisely for the purpose of consumer protection for which the FDCPA was enacted, that any subsequent communications after the initial disclosure of validation rights must not overshadow or be inconsistent with the consumer’s right to dispute the debt.
Writing in response to the defendants’ argument that the lawsuit complaint didn’t impact the Deeters’ right to dispute the debt, the judge said:
This argument, however, contains a slight misreading of the law. The law concerned not only with whether collection activities and communications do, in fact, have an effect on the consumer’s right to dispute the debt, but also – and perhaps more importantly – with whether a communication has the potential to effect the debtor’s right as viewed from the perspective of the least sophisticated debtor.
The Deeters also contend that the letters from PHS violated the FDCPA’s provision against using “false, deceptive, or misleading representation or means in connection with the collection of any debt.” This is because the letters included language that said, “a judgment will not be entered against you for a period of thirty days after service of the complaint to assure your opportunity to dispute the validity of the debt.” Phelan Hallinan & Schmieg, LLP argued for dismissal of that portion of the case. The judge rejected their argument, stating:
One possible reading of this clause in light of the right to dispute the debt, would be that on day thirty-one, a judgment would be entered against the debtor. Another possible reading would be that a judgment could be entered against the debtor. Also in question, is if no action is taken, could judgment be entered on the thirty-first day or ninety-first day…. (N)ot only could the least sophisticated debtor be falsely led to believe that one possible outcome was the likely outcome, but he could also read the statement that a judgment will be entered after thirty days as a threat that needed to be acted upon immediately.
Phelan Hallinan & Schmieg, LLP also argued that, if the court didn’t dismiss the case because of their other arguments, it should abstain from considering the case because the same complaints are being litigated in Pennsylvania state court. The judge ruled that the two cases are not parallel, since the federal case pertains to FDCPA violations and the state case pertains to foreclosure practices and property law.
Lemberg & Associates is pleased that the Deeters’ case will move forward.
InsideARM reports that, according to WebRecon LLC, as of April 30 Sergei Lemberg is the “most active consumer attorney” of 2012. We welcome this designation, and hope to continue to help consumers throughout the rest of the year, and for years to come.
Lemberg & Associates Of-Counsel Tammy Hussin was quoted in the Sacramento Bee over the weekend. The article, written by Marjie Lundstromand, discussed the uptick in lawsuits against debt collection agencies by California consumers. Hussin noted that the poor economy means people have less money with which to pay their debts, which results in more aggressive debt collection tactics.
The article reported the increase in debt collection-related complaints to the Federal Trade Commission, as well as enforcement actions taken against rogue California-based debt collection agencies. Unsurprisingly, representatives of the debt collection industry portrayed themselves as victims of consumer attorneys, unclear laws, and consumers who file multiple lawsuits. But the article also sheds light on California’s debt collection statute, the Rosenthal Act, as well as the downright nasty practices engaged in by some debt collectors.
Excerpted from last week’s press release:
Consumer Attorney Sergei Lemberg (www.stopcollector.com) applauded the U.S. Department of Education’s recent actions regarding student loan debt collection. Late last week, the Education Department said that it would mandate that debt collectors use an income-based formula in collecting payments on defaulted student loans, rather than a minimum payment based on the loan amount. The agency also indicated it would review debt collection scripts and the commission structure it uses with private debt collection agencies.
Lemberg said that these actions, which will likely take effect in mid-2013, will help offset economic conflicts of interest that cause debt collectors to violate the Fair Debt Collection Practices Act by threatening to garnish the wages of those with defaulted student loans. Lemberg said, “While the law says that a court judgment isn’t needed to garnish wages to repay federal student loans in default, the debt collection agency is required to provide the consumer with a notice of intent to garnish. We’re seeing a disturbing trend whereby debt collection agencies threaten consumers with garnishment if an immediate minimum payment isn’t made.”
In addition to sending the consumer a notice of intent to garnish, the law mandates that the person in default has a right to an impartial administrative hearing. “Several of our clients have been threatened with garnishment, without having been served a notice of intent nor having been informed of their right to an administrative hearing,” Lemberg said. “This is a clear violation of provisions of the Fair Debt Collection Practices Act that prohibit debt collectors from threatening actions that they neither have the ability nor intent to carry out.”
Indeed, some of Lemberg’s clients report that debt collectors have deceived them into supplying their financial information, ostensibly to be considered for a “hardship program,” and instead use the information to press for immediate payment. One client began receiving verbal garnishment threats from a debt collector in December 2011, and to date hasn’t received the legally required notice of intent to garnish.
According to Lemberg, the Department of Education’s current financial arrangements with private debt collection agencies create a situation ripe for abuse. “Debt collection agencies get a sizeable commission from each dollar they collect, while getting only an flat administrative fee for accounts on which they don’t collect,” he said. “Moreover, the Education Department gives each debt collection agency a quarterly ranking, and awards new accounts based on that ranking. Seventy percent of the ranking is based on dollars collected. There is zero incentive for debt collection agencies to help consumers enter a loan rehabilitation program that lowers their monthly payments.”
Lemberg goes so far as to propose that the Department of Education do a bit of borrowing of its own. “The Education Department should take a page from the IRS playbook,” he said, noting that – like back taxes – defaulted student loans aren’t dischargeable in bankruptcy. “The IRS had a disastrous experience with private debt collection agencies, and brought collections back in-house. Consumers with student loans shouldn’t be treated more poorly than those who owe back taxes.”
Lemberg & Associates client Bradley Kimbell was profiled in an article outlining the increasing prominence of the Consumer Financial Protection Bureau’s role in regulating the debt collection industry. The article, written by Andrew Tangel and printed in The Record, outlined Kimbell’s experience with debt collection robocalls, and the runaround he received when trying to communicate with Palisades Collection, a subsidiary of Asta Funding. It also quotes attorney Sergei Lemberg.
Tangel’s article position’s Kimbell’s story as one reason why the CFPB is trying to fill the enforcement gap in reining in the debt collection industry. CFPB Director Richard Cordray has been vocal about putting a stop to the most egregious tactics used by the bad players in the industry, and the CFPB has proposed a rule that would enable the agency to more closely regulate the largest debt collection agencies and credit reporting agencies.