Later On

A blog written for those whose interests more or less match mine.

Sued Over Old Debt, and Blocked From Suing Back

with 4 comments

An article in the NY Times by Jessica Silver-Greenberg and Michael Corkery describes the kind of routine injustice that I find absolutely infuriating:

Clifford Cain Jr., a retired electrician in Baltimore, was used to living on a tight budget, carefully apportioning hisSocial Security and pension benefits to cover his rent and medication for multiple sclerosis.

So Mr. Cain was puzzled when he suddenly could not make ends meet. Months later, he discovered why: A debt collector had garnished his bank account after suing him for about $4,500 the company said he owed on an old debt.

Mr. Cain said he never knew the lawsuit had been brought against him until the money was gone. Neither did other Baltimore residents who were among the hundreds of people sued by the collector, Midland Funding, a unit of the Encore Capital Group, in Maryland State Court. Some of them said they did not even owe any money, or their debt had long expired and was not legally collectible, according to a review of court records.

In any case, the Encore subsidiary was not licensed to collect debt in Maryland.

Yet when Mr. Cain brought a class action in 2013 against Midland Funding, the company successfully fought to have the lawsuit dismissed.

If the plaintiffs wanted to try to recover their money, they would have to do so in private arbitration. And because class actions are banned in arbitration, Mr. Cain and the others would have to fight the unit of Encore — one of the largest debt buyers in the country with vast legal resources — one by one.

“I can’t for the life of me understand how this is allowed to happen,” said Mr. Cain, who could not afford to pursue his case alone in arbitration.

In short, Encore and rival debt buyers are using the courts to sue consumers and collect debt, then preventing those same consumers from using the courts to challenge the companies’ tactics. Consumer lawyers said this strategy was the legal equivalent of debt collectors having their cake and eating it, too.

The use of arbitration by the companies is the latest frontier in a legal strategy orchestrated by corporations in recent years. By inserting arbitration clauses into the fine print of consumer contracts, they have found a way to block access to the courts and ban class-action lawsuits, the only realistic way to bring a case against a deep-pocketed corporation.

Their strategy traces to a pair of Supreme Court decisions in 2011 and 2013 that enshrined the use of class-action bans in arbitration clauses.

The result, The New York Times found in an investigation last month, is that banks, car dealers, online retailers, cellphone service providers and scores of other companies have insulated themselves from challenges to illegal or deceptive business practices. Once a class action was dismantled, court and arbitration records showed, few if any of the individual plaintiffs pursued arbitration.

In the last few years, debt collectors have pushed the parameters of that legal strategy into audacious new territory. Perhaps more than any other industry, debt collectors use the courts while invoking arbitration to deny court access to others. The companies file lawsuits seeking to force borrowers to pay debts. Because borrowers seldom show up to challenge the lawsuits, the collectors win almost every case, transforming debts that banks had given up on into big profits.

Other industries have tested the boundaries of arbitration in different ways. Auto dealers, for example, successfully lobbied Congress in 2000 to make sure that they could go to court when they had a dispute with their manufacturers. Today, though, dealers regularly require their customers to go to arbitration, while they can still sue manufacturers in court.

In the case of debt collectors, the arbitration clauses that companies are invoking are often in contracts that borrowers presumably agreed to with their original lenders — not with the debt collector. Additionally, debt collectors often cannot produce a copy of the agreement in court, according to records and interviews.

Consumer advocates argue it is not fair for debt collectors to enforce an arbitration agreement a consumer signed with a different company. Debt collectors counter that they are buying loan contracts, and the terms come with them. . .

Continue reading.

The bias in American jurisprudence toward protecting the powerful and wealthy (including corporations) seems ineradicable. The Roberts court has been in many ways a disaster.

Written by Leisureguy

22 December 2015 at 9:09 am

Posted in Business, Daily life, Law

4 Responses

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  1. This is a good article but it would be helpful for consumers to understand that arbitration is a powerful weapon they can wield back against these debt collectors. Mr. Cain stated he could not afford to pursue his case in arbitration but I don’t see why not. Arbitration is typically free or costs no more than $200 for the consumer. Plus it should be easy to prove a debt is beyond the statute of limitations or too old to report on a credit report. It is true many attorneys will not provide assistance unless they can bring a class action but that is not true for all attorneys and not true for me.


    jeffrey wilens

    24 December 2015 at 12:22 pm

  2. The problem is that arbitrators find AGAINST the consumer around 99.9% of the time. (Corporations hire the arbitrators and an arbitrator that finds in favor of the consumer is not soon rehired. And word gets around. More info here.

    It makes sense that business would establish and procedure and then INSIST on it, requiring you to sign away your right to a civil lawsuit, only if the new procedure BENEFITS THE COMPANY, not the consumer.

    Or so it seems to me. The Bernie Sanders piece is quite relevant in this context.



    24 December 2015 at 12:49 pm

  3. That statistic (which I think dates back to 2007) is very misleading. I have done many arbitrations on behalf of consumers and the success rate is about the same as it is with a judge (who after all very frequently is a former corporate lawyer or district attorney). The 99% rate considered “default” proceedings and no attorney cases. In the vast majority of those cases, the consumer owed the debt without any real dispute. About 99% of criminal charges also result in a guilty verdict by plea bargaining, but the conviction rate at trial is much lower.

    The purpose of arbitration is not to make the consumer be able to obtain relief in court. In fact small claims courts are often still available and exempted from the arbitration agreement. The purpose is the obtain a “class action waiver” and therefore prevent most consumers from obtaining legal representation and also protect the corporation from facing a “bet the house” class action. A less important purpose is to prevent run away jury verdicts, but those often depend on the jurisdiction in question.


    jeffrey wilens

    24 December 2015 at 1:01 pm

  4. Thanks for the clarification. The NY Times has some other articles on arbitration, including:

    Supreme Court Rules DirecTV Customers Must Use Arbitration, Not Class Action

    . . . lawsuit and require arbitration. The case turned on an odd provision in the company’s contract, one that forbade class arbitration but made the entire arbitration provision unenforceable if “the . . .

    American Express Cardmember Agreement

    American Express is one of a growing number of companies that include arbitration clauses in their consumer contracts. The section on arbitration can be found toward the end of the contract, which contains several thousand words of legal language.

    I have to say, however, that it’s difficult to understand why corporations are so insistent on using only arbitration if it’s not primarily to the benefit of the corporation.



    24 December 2015 at 1:28 pm

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