May 18, 2014

Yes, you can beat the debt collector

Debt records are often incomplete.

The case was pretty cut and dry: Midland Funding sued Paz for $5,216 on an old credit card debt. Paz, 48, said the amount was more than he owed. But rather than accept the charges, as so many others do, the maintenance man from Alexandria, Va., contacted a legal aid attorney.

That attorney figured out that the amount Midland sought in its sworn affidavit included all sorts of fees that the company lacked the documentation to collect. And when Paz challenged the case on those grounds, Midland dropped the suit.

"It's highly likely that a lot of people are being sued for a lot more than they probably owe," said attorney Simon Sandoval-Moshenberg, who represented Paz.

Midland has sued thousands of people like Paz in hopes of a quick payday. The company has a reputation of buying soured credit card debt and heading straight to court to collect, a tactic that consumer lawyers say scares people into settling.

State attorneys general, judges and lawyers nationwide are complaining of a broken debt collection system that allows companies such as Midland to file tens of thousands of cases built on flimsy documentation.

Midland is a unit of Encore Capital Group, a San Diego corporation that buys portfolios of charged-off debt — delinquent accounts that lenders give up on. These "debt buyers" often purchase no more than an electronic file of names, addresses and amounts owed on accounts that are more than 180 days past due.

The collection system is riddled with problems. Government agencies receive hundreds of thousands of consumer complaints about harassing phone calls, lack of verification of debt and people discovering a collection attempt only through their dinged credit report.

Debt buyers take advantage of a patchwork of state and federal laws with varying degrees of consumer protection. The federal Fair Debt Collection Practices Act says consumers have the right to request information that verifies what they owe, but regulators say debt buyers do not always comply.

A recent report by the Center for Responsible Lending said portfolios of debt often contain inaccurate, outdated or missing account information, especially if the debt is resold multiple times.

The three largest publicly traded debt buyers — Encore, Asta Funding and Portfolio Recovery Associates — spent $1.2 billion last year to buy portfolios of debt worth more than $85 billion.

In Northern Virginia alone, Encore's Midland unit filed 16,878 lawsuits from 2003 to March of this year. The company won nearly two-thirds of those cases through judgments against consumers who either failed to appear in court or simply agreed to pay the amount. Judges dismissed 15 percent of Midland's cases.

Sandoval-Moshenberg said the company abandons cases when consumers fight back because it knows the cases could not withstand closer examination in court.

His client Paz did owe at least a few thousand dollars on his JCPenney credit card. Paz made his last payment in March 2011, two years before the debt landed him in court. "I paid as much as I could for years, but it got tough and I didn't have the ability to pay," the father of three said.

Paz was willing to work out a payment plan with Midland, but Sandoval-Moshenberg said he suggested that they review the case first. The attorney got the case dropped.

"There's a certain extent to which Mr. Paz is sort of getting away with something," Sandoval-Moshenberg said. "He did owe something. Now he's not going to have to pay it. It just shows how messed up the system is."

Consumer lawyers have raised doubts about whether Midland employees review account data before affirming its accuracy in sworn affidavits submitted to the court.

One Midland employee, Ivan Jimenez, testified in a 2009 civil lawsuit against the firm that he signed 200 to 400 affidavits a day. He said that "very few" documents were checked for accuracy.