Category Archives: Debt and Consumer Law

UPDATED: If You are Being Sued on a Consumer Debt, and are Considering Defending Yourself in Court, You Must Read This!

Lawyers, especially in consumer debt cases, hear it all the time:  “Why do I need a lawyer?  Can’t I do this myself?  I already owe so much money, I really can’t afford to pay a lawyer AND pay my debts!”

In some cases, I agree with potential clients who take this view.  There is certainly nothing stopping a consumer debtor from calling up a creditor or their attorneys and requesting to settle a debt.  Many times this will provide a degree of much-needed relief for the consumer.  What many consumers do not realize, however, is that the willingness of a creditor or debt buyer to settle a delinquent account is inversely proportional to the validity of the claim against the debtor.  In other words, if the creditor is quick to settle, a smart debtor should always question if the debt is valid to begin with.

This has been a hot-button issue in New York, especially in light of the spate of credit card defaults in the recently depressed economic climate.  New York generally has a six-year statute of limitations for credit card default, which means that a creditor or debt buyer has six years from the date of the debtor’s last payment to bring an action seeking a judgment against the debtor.  However, most credit card companies and debt buyers are neither incorporated nor headquartered in New York so, under New York law, the economic harm suffered by out-of-state creditors occurs outside of New York, and such creditors cannot take advantage of the long New York statute of limitations period if a shorter limitations period applies in the state where the creditor is located.

Take, for instance, the now-infamous case Portfolio Recovery Associates, LLC v. King, which was decided by the New York Court of Appeals on April 29, 2010.  In that case, Portfolio Recovery Associates, LLC bought a delinquent Discover Bank credit card account.  Discover Bank is a Delaware corporation headquartered in Delaware, and even includes a clause in its credit card agreements specifying that Delaware law applies to any disputes regarding its credit card accounts.  The consumer who defaulted on the Discover account in question lived in New York, and had last made a payment on the account in December 1998.  Portfolio Recovery sued the consumer in New York state court in April 2005, and claimed that under New York law the lawsuit was not time-barred.  The New York Court of Appeals, the highest state court in New York, ruled that, even if the credit card agreement specified that Delaware law would govern in any disputes, the question of which statute of limitations should apply is governed by New York CPLR 202, which requires both out-of-state creditors and debt buyers to comply with the statute of limitations where they are located, and where they suffered their economic loss.  Therefore, Portfolio Recovery needed to bring its lawsuit against the debtor within the Delaware limitations period, which is only three years.   To the dismay of creditors everywhere, the United States District Court, Eastern District of New York, applying New York law, later held that the King case did not make new law, but merely clarified existing law, therefore King was effectively retroactive, and default judgments already in existence could be vacated.

Needless to say, these cases rocked the foundation of the credit card industry.  Lawsuits on delinquent credit accounts are generally handled by a small number of firms that specialize in debt collection actions, and these firms bring tens of thousands of lawsuits against New York consumers each year.  Many of these lawsuits are filed by these firms knowing that the limitations period has run, but these firms know that most consumers are strapped for cash, and probably won’t be represented by counsel.  A large number of these consumers, whether out of fear, denial, or basic neglect, never even answer the complaint against them, and never appear in court.  The creditors then seek default judgments against these consumers, and because the consumers either never show up or, not being attorneys themselves, do not know that the statute of limitations has expired, never assert a statute of limitations defense.  These creditors are now enforcing default judgments obtained even after the statute of limitations has expired, against consumers who don’t know that the judgment against them isn’t even valid.  These consumers are having their wages garnished and their assets seized, and are entering into settlement agreements for debts that can’t properly be enforced against them.

I had a client call me in a panic last week because her bank account was being frozen.  Besides a small amount of money from her wages, her entire account consists of FEMA assistance she received following Superstorm Sandy.  First of all, FEMA money is generally exempt from levy.  Second of all, she never even knew that there were judgments against her until she needed to move after Sandy and potential landlords turned her down for apartments due to her credit.  When I looked into the situation further, it was clear that, not only had the creditor not served her with summonses and complaints, meaning that the court lacked jurisdiction to enter judgments against her in the first place, but the judgments were also time-barred.  She last made a payment in 2005, and the lawsuits were not brought until 2009.  The credit card company in question is incorporated in Delaware, located in Virginia, and both Delaware and Virginia have three-year statutes of limitations.  Opposing counsel has called offering to settle for a relatively small percentage of the total debt because, as he says, my client is a Sandy victim and his client is, of course, sympathetic to her situation.  However, when I calmly suggested that I could not advise my client to settle when the default judgments against her were improper, the gloves came off.

The situation has been so dire in New York City that, in June of 2010, the Civil Court of the City of New York acknowledged that these debt-collection firms had sought, and been granted, numerous time-barred default judgments against consumers.  In response, the Civil Courts in all five boroughs now require debt collectors seeking default judgments to submit a sworn affidavit setting forth:  (1) where the claim accrued; (2) the statute of limitations period for the state in which the claim accrued; and (3) the debt collector’s reasonable belief that the applicable statute of limitations has not expired.

It is important for New York consumers facing debt collection lawsuits to be well informed, and to present the best possible defenses to creditors’ claims.  Plaintiffs in these actions routinely file lawsuits when the statute of limitations has expired, and frequently these firms (or their chosen process servers) do not serve defendants with summonses and complaints as required by New York law. So many consumers would be relieved to learn that a competent attorney can, in a relatively short amount of time, at minimal cost to the consumer, get such a complaint dismissed or, if there is already a default judgment against the consumer, get such judgment vacated.

UPDATE:  I had asked the law firm representing the credit card company suing my client to fax me copies of the summonses, complaints, judgments, and proof of service of all of those things.  Strangely, my fax machine remained idle all day.  This morning, the law firm called me, and the same attorney who swore up and down that I would lose, that I didn’t understand the law, wanted to discontinue the actions voluntarily, by stipulation, with prejudice, and to have the judgments vacated, releasing my client from any further obligation on these debts.

When I called my client, she rightfully asked “What’s in it for them?”  She was suspicious, as it all seemed too good to be true.  What’s in it for them, though, is not paying an attorney to go to court to argue for default judgments obtained without proper service, and after the statute of limitations had already run.  Also, it reduces the likelihood that their firm’s reputation, and that of their client, will take any further hit because of these improper judgments.  It allows them to save face, while still conceding that they don’t have a legal leg to stand on.  Either way, victory for my client, and for consumers everywhere who not only fight back, but do so with the best possible legal strategies!

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The Aftermath of Hurricane Sandy: Figuring Out Your Next Steps, and We’re Here to Help!

As the flood waters start to recede here in NYC, it’s useful to think about all of the different ways the storm may have had legal ramifications for you and your family.  One of the major considerations is housing: if your home was damaged, or if you are without required services for an extended period of time, you may have a claim against your landlord, utility provider or insurance company.  Likewise, if you had possessions damaged during the storm, you may need to make an insurance claim to protect or replace your interest.  In natural disasters such as this, often insurance companies, landlords and other responsible parties resist paying what you may be entitled to under your lease, policy or other agreement, because of the sheer number and value of claims.

Other areas of concern are in the employment and educational spheres.  Are you being penalized for your inability to work during the extended power outages and transportation suspensions?  Are you unable to work due to child care obligations?  Are you receiving less of an education than you bargained for because of school closures or delays, or the cancelation of important programs you were counting on?

There are many ways that individuals and businesses can be impacted by the storm.  Most of us would be smart to take stock of our homes, jobs and property to see where we might need to fight a little harder to get what we’re entitled to receive.  Also, for those who braved the storm without basic estate documents, including guardianship designations, living wills, power of attorney forms and sufficient life insurance planning, now would be a good time to think about how you would need your property and rights to be allocated should, next time, the truly unthinkable happen.

If you are having any issues getting back on your feet, and feel you could benefit from a legal advocate in your corner, don’t hesitate to contact us.  We are experienced in dealing with landlords, insurance companies and creditors, and we can offer great advice to help you be prepared for any future disasters.

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Berman v. New York City: What Does it Mean for New York City Consumers?

New York City’s interest in regulating debt collectors is nothing new.  Back in 1984, the City passed Local Law 65, which required debt collection agencies to obtain licenses to perform collection activities within the five boroughs.  The City’s reasoning was set forth as follows:  “While the majority of those engaged in [the debt collection] business are honest and ethical in their dealings, there is a minority of unscrupulous collection agencies in operation that practice abusive tactics such as threatening delinquent debtors, or calling such people at outrageous times of the night.” N.Y. City Admin. Code § 20-488 (1984).

Much has changed since 1984.  In 1996, Congress passed the federal Fair Debt Collection Practices Act, which penalized abusive and harassing debt collection tactics, and many states, including New York, have since passed their own versions of this law. However, perhaps incentivized by the economic downturn and the general inability of the populace to timely repay debts, by many accounts, debt collectors have grown increasingly bold.  New York City, under Mayor Michael Bloomberg, determined that Local Law 65 was insufficient to stem the tide of aggressive and, at times, abusive collection activity.  According to the Urban Justice Center, in 2006 roughly 99% of collection lawsuits brought against consumers by third-party debt buyers relied upon invalid or falsified evidence. This was of great concern to the backers of Local Law 65, as third-party debt buyers, who are not concerned about maintaining long-term relationships with debtors, are more inclined to pursue litigation to collect debts, and frequently obtain default judgments against debtors who, it would appear, have not received proper notice of the claims against them and, accordingly, are denied any meaningful opportunity to appear and be heard by the courts.

In response to what the City viewed as a slippery slope of debt collection activities that were at best indifferent, and at worst actively predatory, in 2009 the City Council passed Local Law 15, which extended the reach of Local Law 65 to include third-party debt buyers and attorneys who collect debts under the umbrella of “debt collector.”  Promptly thereafter, certain New York law firms engaged in the collection of debts held by debt buyers, as well as a Delaware-based debt buyer, commenced an action in the United States District Court for the Eastern District of New York, captioned Berman v. NYC, 09-CV-3017 (ENV), challenging Local Law 15 and certain regulations passed in support thereof.  The plaintiffs alleged that Local Law 15 and its regulations were pre-empted by both New York State law and the United States Constitution’s Commerce, Contract and Due Process Clauses.

In Berman, decided September 29, 2012, Judge Eric N. Vitaliano sided with the plaintiffs in holding that Local Law 15 was pre-empted by both state and federal law.  In particular, Vitaliano held that New York State Judiciary Law §§ 53 and 90 already regulate the conduct of lawyers licensed to practice in New York, and that it remains firmly within the domain of the Supreme Court Appellate Divisions to sanction attorney conduct that does not conform with attorney ethical obligations.  Furthermore, noted Vitaliano, Local Law 15 violates the Contract Clause of the United States Constitution by interfering with contracts executed between debt holders and debt buyers, and is unconstitutionally vague. Vitaliano denied the plaintiffs’ motion for summary judgment for violation of the Commerce Clause of the United States Constitution.

I can almost hear you thinking – this is all a bunch of legalese; what does it really mean, in practice?  How will it affect me, as a New York City debtor tired of relentless collection activity by debt collectors?  Well, that remains to be seen.  Judge Vitaliano noted in the Berman decision that Local Law 15 was ambitious, but it was unclear whether Local Law 15 would have provided much, if any, benefit for consumers. Vitaliano did not doubt that abusive debt collection practices are rampant in New York City, but did doubt that Local Law 15 had the focus and the teeth to prevent these abuses from occurring. Furthermore, Vitaliano believed that the New York State courts and legislature are well equipped to address abusive debt collection tactics, and to regulate those who conduct debt collection practices within the State of New York. The fact remains that these matters are frequently litigated in state courts, and if recent studies are to be believed, virtually every default judgment obtained against New York City consumers is predicated on deficient evidence of the debt, service of process, or both. I can tell you first-hand, through my own experiences representing consumers in New York, that plaintiff debt collection agencies fail to properly serve defendants an extraordinarily high percentage of the time, and more consumers should take advantage of the opportunity to fight back against these tactics. Whether out of anxiety, shame or lack of funds, most consumers are not utilizing the full power of the courts described by Vitaliano, and the availability of this power was not affected by Vitaliano’s decision.

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