If you're not an American Banker subscriber, you may have missed its recent article on debtors being hauled into court for overdue debts in Maryland. The article says that the dockets in the Old Line State are so full of debtors that the court has developed an expedited system to streamline their workload. Unfortunately for the consumer (and fortunately for the debt buying collectors), this shortcut leaves many without the protections of due process.
We've been down this road before
In the past, some creditors tried to trick consumers into reaffirming debts involved in a bankruptcy filing. For those who don't recall, it was common practice for a creditor to send a representative to the hallways of bankruptcy court, outside of the protection of the judge and legal counsel, to entice a consumer to reaffirm a debt. The enticement used was the promise of keeping a credit line open that would allow for future purchases on credit post-bankruptcy.
Overstressed and underrepresented consumers failed to notice that the credit line was often for the exact amount owed, leaving no room for new purchases. It was also set at a very high interest rate. The tactic was eventually exposed, discredited and ruled illegal in February of 1999 when Sears ended a two-year criminal investigation into charges that it was illegally collecting debts. Sears pleaded guilty to one count of bankruptcy fraud and paying a fine of $60 million.
Debt collectors are corralling defendants at the court house, outside of the hearing of a judge or other neutral moderator, to convince unprepared and under-represented consumers into committing to payments they don't have and can't afford. The venue and tactics may be different, but the intent and outcomes are the same.
These one-sided, off-the-record "resolution conferences" appear to be official, taking place in courtrooms, sometimes with uniformed bailiffs and court clerks present. Consumers are often unaware of who is missing in the proceedings, namely the judge.
The courts allow these hearings because the volume of collection lawsuits is causing the courts to be overburdened with cases. But to whom are they helpful? Not the consumer. Due to frequent buying and selling of debts, lack of documentation and robo-signing of documents, some debts may not be otherwise collectable. The expedited process -- consumer advocates call it the "rocket docket" -- also puts consumers at a huge disadvantage. Putting an inexperienced and often frightened consumer up against an experienced collection attorney is patently unfair. Few consumers are savvy enough to know their rights and understand all the consequences of entering into a rushed payment agreement with an aggressive attorney.
Who does it benefit?
These last-second resolution conferences will continue to benefit the collectors until consumers are made aware of their rights and are equally represented in the proceeding. Most consumers who are sued due to non-payment of a debt cannot afford to hire their own legal counsel. Perhaps the courts might take a page from the Bankruptcy Abuse Prevention and Consumer Protection Act and require use of a court-approved nonprofit credit counseling intermediary to help debtors. Maybe that will level the playing field.
What do you think?