New York, NY – Judges Resist Claims by Debt Collectors

New York, NY – As New Yorkers have tumbled into credit-card debt during the Great Recession, bill collectors have turned to the courts to get what they say is due, and the courts have in turn issued hundreds of thousands of orders against residents. Some consumer groups argue that by doing so, the courts have become little more than an arm of the debt-collection industry.

Now, a few New York judges are suggesting that they agree, at least in part, with the consumer groups. They have fumed at debt collectors and their lawyers, scolding them for excessive interest like 30 percent a year and berating for them for false statements and abusive practices.

Some of the rulings have even been sarcastic or incredulous. In December, a Staten Island judge said debt collectors seemed to think their lawsuits were taking place in a legal Land of Oz, where everyone was supposed to follow anticonsumer rules invented by some unseen debt-collection Wizard.

Last month, a Manhattan appeals court threw out a credit-card case, saying a debt collection company had sued the wrong person but pursued the case anyway.

“I think these judges are outraged at the status quo, and they’re trying to change it,” said Janet Ray Kalson, a Manhattan lawyer who chairs a City Bar Association committee that has studied the deluge of credit-card cases.

Debt-buyer businesses purchase lists of names and amounts supposedly due – for pennies on the dollar – from credit-card companies and sometimes have no real evidence about who they are suing or why.

They then file tens of thousands of suits, often with little to back up their claims. A Nassau County judge said this winter, for example, that one of New York City’s high-volume debt-collection law firms, which has close ties to a debt-buying company, did not provide “a scintilla of evidence” that there was a debt at all in a case against a Long Island woman.

The suit received an unusual amount of attention. The judge, Michael A. Ciaffa of District Court in Hempstead, said that it “regrettably, involves a veritable ‘perfect storm’ of mistakes, errors, misdeeds and improper litigation practices.” The judge said the law firm, Eltman, Eltman & Cooper, ignored court orders, made a “demonstrably false” assertion and harassed the woman for payment even after the judge dismissed its suit.

The case before Judge Ciaffa ended with an order that is far from typical in a credit-card suit. The woman who had been sued, Patricia Bohnet, a bookkeeper and single mother, did not have to pay anything. But Eltman, Eltman & Cooper had to pay $14,800 in sanctions for violating ethical rules at least 18 times.

“They don’t care if you’re sick; they don’t care if you’re poor,” Ms. Bohnet said in an interview at her job in Woodmere. “Their only job is to collect money, and they’ll do it in any way possible.”

In response to questions, the law firm said in a written statement that said Judge Ciaffa did not have all the facts but that the firm would not appeal. “As with any firm or business that handles this type of volume,” it added, “there exists a potential for errors or omissions in the normal course of business.” Under the judge’s order, $4,800 is to go to Ms. Bohnet, the remainder to a state fund that works to reimburse consumers for dishonest conduct by lawyers.

Eltman, Eltman & Cooper was one of 35 law firms sued by the state in July with claims that they had improperly obtained 100,000 judgments in consumer-debt cases. Separate files in Brooklyn federal court show that without admitting fault, the Eltman law firm settled a class-action suit in 2006 that claimed it used “false, misleading and deceptive means” to collect debts.

Privately, some judges say they are embarrassed that in many New York courts, debt-collection lawyers have grown so comfortable that they give the impression they are in charge of the proceedings and need not prove their claims with strong evidence.

In the handful of recent rulings, skepticism of the debt collectors’ claims has been obvious. A Brooklyn judge, Noach Dear, has written decisions that come close to saying that the collection cases are sometimes based on falsehoods.

In a case in August, Judge Dear observed that there was nothing to substantiate a lawyer’s claim that she somehow remembered mailing a document to the credit-card holder that was the foundation of the collection suit. The document, Judge Dear noted archly, had been mailed three and a half years earlier.

Behind the legalese of the credit-card suits, some judges have suggested, there is often a disorganized jumble of documentation. A Mount Vernon City Court judge noted that one case was based on little more than “a self-serving computer printout.” A Manhattan judge said one company that buys debt claims from credit-card companies had filed suit against a card holder when it did not even own that particular debt.

In the Staten Island case, the judge, Philip S. Straniere, said a credit-card company was claiming interest of 28 percent on the balance due, which would be illegal as usury under New York law.

The company argued that the New York credit card that seemed to be from a national company had actually been issued by a one-branch bank in Utah, which had no usury law.

“Like the Land of Oz, run by a Wizard who no one has ever seen,” Judge Straniere wrote, “the Land of Credit Cards permits consumers to be bound by agreements they never sign, agreements they may never have received, subject to change without notice and the laws of a state other than those existing where they reside.”

The judge ruled that the supposed agreement allowing unlimited interest charges was not enforceable in New York.

Industry spokesmen say tales of abusive collection cases are misleading. “There are certainly colorful stories,” said Joann Needleman, an officer of the National Association of Retail Collection Attorneys. “People think that handful is the rule, not the exception, but it’s not.”

But Patricia Bohnet, the Long Island woman who was sued by the New York law firm, said just one case can be harrowing. When she received a call last year at the charity where she does the books for $39,000 a year, the voice on the other end told her the debt collectors had a five-year-old court order against her for $4,861. She had to pay, or they would start taking money out of her salary.

The address of the debt-collection firm and its lawyers at Eltman, Eltman & Cooper seemed to be the same, she noticed.

She did not know she had ever been sued. She started to cry, she said, worried that with a chunk of money missing every month, she might lose the modest apartment she needed to share custody of her teenage daughter.

“I was in all-out fear,” she said. “After I got off the phone,” she added, “I realized I didn’t even know what the debt was for.” She might have had an old credit card, but she had had some years of troubles with alcohol and drugs and tangled financial problems. In recovery, she said, she had worked to clean up her financial affairs.

The next time they called, she said, she was willing to pay if she owed any money. But she needed to see some proof that they had the right person. Then, without a lawyer, she went to the court in Hempstead to check into the court order the debt collectors said they had against her.

After some digging, she found the case. The debt-buyer’s lawyers had filed a statement that they said was proof that she had been given notice of the suit. A process server for Eltman, Eltman & Cooper claimed she had been given a copy of the suit personally on July 30, 2004.

Judge Ciaffa doubted that. Ms. Bohnet, he wrote, “hadn’t lived at that address since 1998.”