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The extraordinary expansion of the debt sold off for collection is one powerful force behind some of the collection abuses documented in the Spotlight investigation.
As debt is sold and re-sold, companies that buy the right to collect it often know little about the debtor: name, last known address, card issuer and account number, and amount due. That limited picture can cause problems for everyone involved.
Sean McVity, managing partner at Garnet Capital Advisors, a New York investment banking firm that brokers the sale of debt portfolios, said many large banks selling off debt have a ''buy-it-as-is'' attitude, providing only minimal data when they sell accounts, and charging buyers hefty fees if they come back for more documentation. He called it a ''dangerous'' practice.
Sparse data makes for major miscues: Outdated addresses mean that many consumers get no notice that they have been sued. And, with increasing frequency, the wrong person is targeted.
Collectors, too, are disadvantaged. Often, they have little evidence to support their claim on a past-due amount.
Michelle A. Weinberg, a legal aid lawyer in Chicago noted that, in Illinois as in Massachusetts, debt collectors have to file an affidavit with their lawsuits attesting to the legitimacy of their claims. ''But the affidavits are plainly false,'' Weinberg said. ''If the plaintiff has anything, it is only a computer printout.'' In every case she has taken, Weinberg said, she has challenged the veracity of the affidavit, and ''in every instance, the debt collector has dropped the case.''
Federal banking regulators have set no rules for how much data the banks should provide when they sell a customer's debt.
Some states, however, have moved to fill the void. Maine, West Virginia, and Minnesota, for instance, are developing reputations for aggressively regulating debt collection agencies that mistreat consumers.
And judges in a handful of states, including New Jersey, Maryland and Michigan, have found the imbalance between collectors and debtors so troubling that they are looking for change.
In Michigan, the three justices of the Southfield District Court in suburban Detroit, citing widespread abuses by debt buyers, want to update court rules to curb what they
describe as ''predatory'' practices, ''particularly for the majority of defendants who are not familiar with the court system and who cannot afford an attorney.''
The judges complain about numerous practices, many of which, the Globe found, are also commonplace in Massachusetts courts. In Michigan, the judges wrote:
Even consumers who pay off their debts have no guarantee the matter ends there. In Massachusetts and other states, collectors who win court judgments are required to notify the court when a judgment is paid. But many do not - leaving consumers powerless to erase black marks on their credit reports when they go to buy a car or refinance a home. They are often forced to take on higher interest rates, and with them larger payments and a greater likelihood they will slip back into financial trouble.
Cheryl Cook, a clerk in civil court in Orange County, Calif., said her court spends a lot of time fielding calls from people who are trying to clear up an old judgment that they paid. ''It's just crazy,'' Cook said. ''It's an extremely frustrating thing for anybody to go through.''
And among those who collect debts, some express growing unease about the way debtors are treated.
One is Richard S. Daniels Jr., a Boston lawyer whose firm has been collecting debts on behalf of clients for nearly 30 years and files about 20,000 small-claims lawsuits a year - more than any other debt collector in the state. And yet Daniels said the current practices of the credit card industry have left a sour taste in his mouth.
''Any system that puts people's backs up against the wall doesn't work,'' he said in an interview. Daniels described the penalties and fees that credit card companies tack onto consumer bills as ''usurious'' and ''totally unconscionable,'' making it impossible for people to get out of debt. Such charges, Daniels declared, amount to ''classic abuse I wish to hell Congress would do away with.''
''This used to be an honorable business,'' Daniels said, when discussing collections for credit card companies. ''Now, the guys on the other side are thieves.''