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.
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.
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.”
Newsweek Magazine started the New Year right – with a great story on the seedy underbelly of the debt collection industry. A former debt collector relates that she was ordered to keep calling consumers to the point of harassment, and tells tales of threats made by debt collectors to consumers. Gary Rivlin, who wrote the piece, also delves into the world of debt buying, explaining that “zombie” debt may be pursued by three or four debt collection agencies over time, subjecting the consumer to repeated inquiries about debts that have never been validated. He even explains that many debt buyers have no qualms about collecting past a debt’s statute of limitations. He notes that one debt buyer he interviewed “doesn’t bother buying the paperwork that would substantiate the data contained in the spreadsheets he buys from other debt buyers because, he explains, that bumps up the cost of the purchase and therefore eats into the bottom line.
Sergei Lemerg is also quoted in the article, commenting on the Federal Trade Commission report that shows a huge uptick in consumer complaints about debt collectors. Lemberg says that the FTC numbers are “just the tip of the iceberg.”
You can read the full article at the Daily Beast: http://www.thedailybeast.com/newsweek/2012/01/01/america-s-abusive-debt-collectors.html
We reached a milestone in Zimmerman v. Portfolio Recovery Associates, namely that the U.S. District Court granted our motions for summary judgment and class certification. We issued the following press release yesterday:
SEPTEMBER 20, 2011 – STAMFORD, CT – The U.S. District Court for the Southern District of New York has granted the plaintiff’s motions for summary judgment and class certification in Zimmerman v. Portfolio Recovery Associates, LLC. According to Jason Zimmerman’s attorney, Sergei Lemberg, “We are pleased that the Court ruled in our favor, granting summary judgment in favor of 990 consumers victimized by Portfolio Recovery Associates.”
The facts of the case revolve around a debt collection “Pre-Suit Package” that was sent under Portfolio Recovery Associates “Litigation Department” letterhead and included a cover letter, as well as documents that appeared to be a “lawsuit,” including a “Summons” and a “Complaint” that referenced the District Court of the County of Nassau, First District, and listed Zimmerman as the defendant. The cover letter said, in part, “Enclosed please find a copy of the lawsuit our local counsel in your state intends to file against you related to the delinquent account referenced above.” However, a closer examination of the papers revealed that the Pre-Suit Package did not contain actual legal papers, but rather were simulated legal papers made to look real.
The Court found that Portfolio Recovery Associates violated provisions of the Fair Debt Collection Practices Act (FDCPA) relating to “[t]he use or distribution of any written communication which simulates or is falsely represented to be a document authorized, issued, or approved by any court…of the United States…, or which creates a false impression as to its source, authorization, or approval,” or which constitutes “[t]he false representation or implication that documents are legal process. ” The Court’s opinion stated, “The ‘least sophisticated consumer’ might well conclude that Defendant had initiated a lawsuit to collect the debt, given the form of the Summons and Complaint, the reference to the court and parties…and the fact that an attorney from Portfolio’s “Litigation Department” had signed the cover letter.
Lemberg said, “The law unequivocally prohibits debt collection agencies from sending official-looking documents that lead consumers to believe that they are being sued; it is quite surprising that the practice persists.” Noting that it would be cumbersome for the 990 consumers affected by Portfolio Recovery Associates’ “Pre-Suit Package” to individually pursue actions against the debt collector, Lemberg applauded the Court’s decision to grant class certification. “We look forward to obtaining money for all of the consumers who were impacted by PRA’s actions.”
This release references Zimmerman v. Portfolio Recovery Associates, LLC (U.S. District Court, Southern District of New York, 1:09-cv-04602-PGG).
Chris Serres and Glenn Howatt were accorded the 2011 Gerald Loeb Award for Distinguished Business and Financial Journalism for their investigative series, “Hounded: Debtors and the New Breed of Collectors,” which appeared in the Minneapolis Star-Tribune. According to an article in the Star-Tribune, the journalists also won the American Bar Association’s Silver Gavel Award, which is accorded for work that advances public understanding of the legal system.
Congratulations to both reporters for much-deserved recognition for an outstanding series of articles. If you didn’t get a chance to read “Hounded,” you can find it here.