A sum uncertain: preserving due process and preventing default judgments in consumer debt buyer lawsuits in New York.
In New York City, nearly all consumer debt cases are litigated in the city's Civil Court. The Civil Court was established in 1962 (187) and has monetary jurisdiction over claims up to $25,000. (188) By volume, the Civil Court is the largest civil jurisdiction court in the United States and its filings comprise 25% of the New York State Unified Court System's total filings. (189) Every consumer debt lawsuit in Civil Court begins with the purchase of an index number and the filing of a summons and complaint. (190) After filing the summons and complaint with the clerk, the plaintiff serves the summons and complaint on the defendant pursuant to the service rules of New York's CPLR. (191)
Debt collection law firms retained by debt buyer or original creditor plaintiffs rely on process server agencies to serve defendants. (192) Although there has been, (193) and continues to a lesser extent to be, service abuse in consumer debt cases in New York City, key reforms have been adopted by the Civil Court. (194) For example, the Civil Court's Section 208.6(h) notice created a new notice form that the court is required to send to each defendant, informing the defendant that they have been sued and that if a judgment is entered in the plaintiff's favor, the plaintiff may be able to seize the defendant's property, garnish the defendant's wages, or both. (195) If this notice is returned as undeliverable or the plaintiff fails to produce an affidavit of service showing that 208.6(h) service was made, a default judgment may not be entered by the clerk on behalf of the plaintiff. (196) This notice is required in addition to the normal service requirements found in the state's procedural rules. (197) Between May 2008 and September 2009, 28,422 of these notices were returned to the court as undeliverable. (198) Moreover, New York City requires process servers licensed by the DCA (199) to carry an electronic device with global position system to establish the time, date, and place when service was attempted or carried out, (200) to pass an examination, (201) and to maintain records of service. (202)
There is a great disparity in legal representation in consumer debt lawsuits. While 100% of debt collector plaintiffs are represented by counsel, only 4% of defendants have legal representation. (203) As a result, many defendants fail to take advantage of all available defenses and enter into settlement agreements with plaintiff's counsel. (204) Typically, the plaintiff's attorney will ask the defendant to discuss the case in the hallway before they go before the judge. (205) According to one report, plaintiffs' counsel uses these discussions to pressure unrepresented defendants into one-sided and sometimes unaffordable settlement agreements. (206) It has also been alleged that plaintiffs' counsel strategically use repeated adjournments to further develop their cases, hoping that unrepresented defendants will not be able to make subsequent court dates because of work or other reasons, which could result in default judgments for the plaintiffs. (207)
Debt collector plaintiffs have several causes of action against consumer defendants. Some collectors pursue breach of contract actions against consumer defendants. Under this cause of action, debt buyers allege that the consumer entered into a credit agreement, subsequently breached that agreement, and caused the creditor to incur damages as a result of the breach. (208) To satisfy a breach of contract action, collectors must produce a contract and evidence of individual charges that make up an unpaid balance. (209)
Debt collectors also pursue "account stated" causes of action against consumer defendants. (210) In this cause of action, the plaintiff argues that an account statement was sent to the defendant, it was accepted as correct, and the defendant agreed to pay the amount stated on the account. (211) Thus, for an account stated cause of action, a plaintiff must produce "(1) prior transactions that establish a debtor-creditor relationship between the parties, (2) an express or implied agreement between the parties as to the amount due, and (3) an express or implied promise from the debtor to pay the amount due." (212) Although debt buyers often argue
that the defendant never objected when the credit card bills were filed, or when the lawsuit was filed, or when the plaintiff sent a demand of payment to the defendant ... [t]his argument fails because "the mere rendition of an account, by one party to another, does not alone establish an account stated." (213)
Moreover, for an account stated claim, the plaintiff must also establish an independent basis for liability, because "'[t]he account stated can only determine the amount of the debt' and cannot 'create liability where none existed."' (214) In addition to these requirements, debt buyer plaintiffs must produce affidavits from an official of the credit card issuer that demonstrate that (1) the consumer agreed to pay "any interest on the account," (2) that the account was received by the consumer, and (3) that the consumer failed to protest and to pay the amount due. (215)
In the majority of consumer credit actions in Civil Court, plaintiffs are able to obtain default judgments against unrepresented defendants. From a plaintiff's perspective, default judgments are a "desired commodity" primarily "because they provide parties with the spoils of successful litigation without the hassle of actually litigating controversies." (216) Under CPLR section 3215, if a defendant fails to appear or defaults in some other manner, (217) the plaintiff may apply for a default judgment. (218) A defendant's default, however, does not mean that the court must automatically enter judgment on behalf of the plaintiff for the amount sought in the complaint. (219) Indeed, "[a] defendant who defaults concedes only liability." (220) Additionally, "New York holds that default in a money action does not concede the amount of the plaintiff's damages." (221)
Therefore, a plaintiff is still required to "support its motion for default judgment with 'enough facts to enable the court or the clerk to determine that a viable cause of action exists."' (222) To do so, the plaintiff must satisfy three requirements. First, the plaintiff must submit proof of service of the summons and complaint. (223) Second, the plaintiff must submit proof of the facts constituting the claim. (224) And third, the plaintiff must submit proof of the defendant's default. (225) The proof of claim requirement is normally made through an affidavit from the plaintiff "buttressed, if need be, by additional affidavits of other having first-hand knowledge" of the facts constituting the claim. (226)
Depending on the type of claim, the plaintiff may apply to either the court or the clerk for the default judgment. (227) A plaintiff may apply to the clerk for a default judgment if his or her claim is for "a sum certain or for a sum which can by computation be made certain." (228) If the claim is for a sum certain, the clerk, upon plaintiff's submission of requisite proof, "shall enter judgment for the amount demanded in the complaint plus costs and interest." (229) Application to the clerk, if applicable, "is the preferable procedure because it gives the plaintiff a final judgment on papers alone, a ministerial procedure with nothing to try." (230) By contrast, application to the court necessarily involves judicial review of the plaintiff's papers and "may even require a testimonial hearing." (231)
When the claim is for a sum certain, the clerk may only enter the default judgment if there is "no reasonable question about the amount of the judgment." (232) Indeed, "[a]nything that prevents mere arithmetic from reducing a claim to a sum certain requires that the application be made to the court" rather than to the clerk. (233) In Reynolds Securities, Inc. v. Underwriters Bank & Trust Co., the New York Court of Appeals held that the sum certain requirement was intended to ensure that the clerk would "function in a purely ministerial capacity." (234) In consumer credit lawsuits, a default judgment for a sum certain may only be granted if it is based on a "detailed affidavit of merit, made upon first hand knowledge," including "a properly documented assignment of proof of the validity of the underlying claim." (235) The CPLR does not specify what information is required in an affidavit of facts supporting a default judgment for a sum certain, or what supporting documentation should be required in support of such motion. Courts have noted, however, that the current practice, in which debt collector plaintiffs rely on affidavits that do not specify, among other things, how the sum alleged was calculated, is not sufficiently specific enough to explain the complexity of consumer credit agreements and show that amount claimed is for a sum certain. (236)
In those cases that do not end in default judgment, debt buyer plaintiffs have difficulty establishing the merits of their claims. Debt buyers routinely pursue actions despite having limited evidence to support their claims in the hopes of obtaining a default judgment. (237) Indeed, the legality of debt buyer default judgments and collection lawsuits is being litigated across the country. (238) Debt buyer plaintiffs commonly resort to discovery requests, such as interrogatories, document requests, and Notices to Admit to garner evidentiary support for the claims asserted in their complaints. (239) Frequently, unrepresented defendants rail to respond to these requests or "make unknowing admissions." (240) For instance, Judge Philip S. Straniere of Richmond County has observed,
[a] third-party debt buyer who only receives a computer printout of the debtor's account could utilize the Notice to Admit to force a debtor to produce documentation to establish the plaintiff's case, when the plaintiff lacks any evidence in admissible form to prove its claim either because it does not exist or because the debt buyer has made a "business decision" not to spend sufficient monies to obtain complete records from the initial creditor. (241)
Debt buyers attempt to make out a prima facie case by arguing that the few documents and records they have obtained from original creditors should be entered into evidence under the business records exception to the hearsay rule. (242) This exception permits out-of-court documents to be admitted if they have been created and retained in the normal course of business and if a witness with personal knowledge of the practices and procedures pursuant to which the document was made testifies to their validity. (243) Debt buyer plaintiffs try to avail themselves of the business records exception by having their own employees testify to the validity of the original creditor's documents. (244) These employees, however, must demonstrate personal knowledge of essential facts. (245) Thus, debt buyer-affiants may not testify to the validity of the original creditor's records because they do not have personal knowledge of how these records were created or managed. (246)
Debt buyers also strain to prove that they have standing to sue consumer defendants. To have standing to sue, debt buyers must show that they have been assigned the right to collect a consumer's debt by the original creditor. (247) Indeed, a debt buyer or assignee "must tender proof of assignment of a particular account or, if there were an oral assignment, evidence of consideration paid and delivery of the assignment." (248) Likewise, in scenarios where a debt has been sold and resold to numerous debt buyers, debt buyer plaintiffs must demonstrate that the defendant's particular account was sold and resold. (249) Both instances are difficult for debt buyers because they purchase debts in large portfolios devoid of pertinent information about the specific accounts. (250) For instance, although debt buyers are frequently able to produce bills of sale between the original creditor or assignor and the debt buyer, these documents typically do not identify individual accounts. (251) Rather, these documents "make reference only generally to thousands of accounts being purchased at the same time." (252)
Thus, as the foregoing demonstrates, the outbreak of consumer debt collection lawsuits in New York City has raised numerous due process and evidentiary issues. According to one Kings County judge, "roughly 90% of the credit card lawsuits are flawed," in part, because the plaintiff cannot prove the person owes the debt. (253) And in most cases, plaintiffs are able to obtain a default judgment without having to prove that they own the debt or that the defendant owes the amount requested.
II. CONFLICT: PREVENTING INAPPROPRIATE DEFAULT JUDGMENTS IN DEBT BUYER LAWSUITS
This Part compares the approaches courts and legislatures from different jurisdictions have adopted or proposed to address the problems of the types of consumer credit lawsuits described in Part I. Specifically, this section examines the case law addressing what constitutes a "sum certain" under New York law and compares the case law's standard to the standard set by the 2009 Civil Court Directive on default judgments in consumer debt buyer lawsuits. This Part also considers the approaches recommended and proposed by advocates to ensure due process in consumer debt buyer lawsuits.
Section A begins by examining the 2009 Directive on default judgments in consumer debt buyer lawsuits. Section B compares the Directive to the pertinent case law on default judgments in consumer credit actions. Section C looks at the proposed Consumer Credit Fairness Act in New York. Section D examines the steps that other jurisdictions have taken to prevent inappropriate default judgments in consumer debt lawsuits.
A. The 2009 New York City Civil Court Directive
The Civil Court of the City of New York has adopted several key measures in response to the increased number of consumer credit actions in the past decade. Indeed, the Civil Court has issued important advisory notices and directives broadly aimed at ensuring due process for consumer credit defendants. For example, the Civil Court has advised that in cases where the defendant is not represented by counsel, the judges of the Civil Court should ascertain the validity of the debt by determining, among other things, whether the plaintiff is licensed by the DCA (in cases where the plaintiff is hot an original creditor), whether the debt is time-barred, whether the defendant's income is exempt, whether the defendant acknowledges the debt, and, if a lack of service is raised in the answer, whether the defendant understands and wants to proceed with a traverse hearing to determine if service was proper. (254) Additionally, pursuant to a 2009 Directive, debt collector plaintiffs must supplement their requests for default judgments with an affidavit stating that the debt is not time-barred under the relevant statute of limitations. (255)
The Civil Court has also adopted a directive that specifically addresses default judgments in cases brought by debt buyers. Noting that the Civil Court's procedures were based on debt collection actions brought by original creditors, in May of 2009, the Civil Court issued a directive, DRP-182, on "Default Judgments on Purchased Debt" ("Directive"). (256) The Directive addresses clerk-entered default judgments and instructs that when a debt buyer plaintiff moves for a default judgment pursuant to CPLR [section] 3215, the plaintiff must submit, in addition to the statutory requirements for a default judgment: (1) an affidavit of Sale of Account by the original creditor, (2) in cases where the debt has been sold many times, an Affidavit of Sale of Account from each debt seller, and (3) an Affidavit of a Witness of the Plaintiff, "which includes a chain of title of the accounts, completed by the plaintiff/plaintiff's witness." (257)
The Directive, however, does not require debt buyers to prove that they have standing to bring a collection action because it does not require debt buyers to submit affidavits from original creditors that specify the basic facts about the defendant's account, including the account number, the terms governing the account, and an itemization of the amount claimed due, including interest, fees, and other charges. According to a sample affidavit attached to the Directive, the original creditor need only verify that it sold a "pool of charged-off accounts" to a debt buyer. (258) Similarly, the debt seller's affidavit requires the debt seller to verify that the "pool of charged-off accounts" was sold to another debt buyer. (259) Although the sample affidavits attached to the Directive states that the original creditor confirms that, as part of the sale of the pool of accounts, "electronic records and other records were transferred on individual [a]ccounts to the debt buyer," the affidavits do not require original creditors to confirm that electronic and other records of the defendant's specific account were included as part of the sale. (260) Pursuant to the Directive, a debt buyer plaintiff is able to comply with the Directive without having to produce any proof of its own standing to collect the debt. (261) Thus, the Directive conflicts with case law requiring debt buyers to prove standing.
B. What Is a Sum Certain? The Directive's Conflict with New York Case Law for Verification of a Debt
The Civil Court's Directive on default judgments for purchased debt also conflicts with current case law on the evidentiary standard for a default judgment because it does not require debt buyers to show that they have a prima facie case for a sum certain. As noted, a defendant's default does not "create a mandatory ministerial duty by the clerk to enter a default judgment against [the] defendant." (262) The plaintiff must still produce "enough facts to enable the court to determine that a viable cause of action exists." (263) Thus, although defaulting defendants are deemed to have admitted liability, the plaintiff seeking the entry of a default judgment must still show that he or she has a case for a sum certain or for a sum that by computation can be made certain. (264) The Directive, however, does not require debt buyers to satisfy these requirements because its sample affidavits do not require plaintiffs to show that they have standing to collect on the defendant's specific account or that the amount allegedly owed by the defendant is a sum certain.
Pursuant to New York case law, in order for a default judgment to be entered against the defendant, the plaintiff must submit a detailed affidavit of merit from a person with firsthand knowledge of the facts (265) that establishes proof of assignment and proof of the underlying debt. (266) Therefore, for a breach of contract case, the plaintiff must provide the court or the clerk with enough facts to establish that the lender issued the defendant a credit card and that the defendant used the card and defaulted in payment. (267) If an assignee's application for default judgment does not include proof of the original contract, the assignment of the contract to the plaintiff, and the particulars of the contract, the application should be denied. (268) Likewise, for an account stated cause of action, the plaintiff must prove that there was an agreement between the parties, that statements were mailed to the defendant, and that the defendant refused to pay or object to those statements. (269) If the plaintiff does not establish that there was such an agreement or that such statements were sent to the defendant, then the court or the clerk should not enter a default judgment for the plaintiff. (270) In addition, as part of the prima facie finding, debt buyer plaintiffs must establish that they have purchased or have been assigned the defendant's specific debt (271) and that notice of the assignment was sent to the consumer. (272)
Courts have noted, however, that debt buyers rarely satisfy these requirements. (273) According to a 2010 study of approximately 700 consumer credit actions in New York City Civil Court, complaints often lack a clear break-down of how the amount claimed was calculated based on the principal, interest, and fees incurred. (274) The FTC has also recently concluded that debt buyers frequently do not possess documentation on the terms and conditions of an account, the account statements, or information about the amounts consumers owe on the original account, (275) and the purchase and sale agreements between debt buyers and original creditors frequently disclaim the accuracy of the information in the documents that debt buyers receive. (276)
In Collins Financial v. Vigilante, Judge Straniere specifically addressed the issue of what proof is sufficient to support the entry of a default judgment for a sum certain in consumer credit actions. (277) In Vigilante, Judge Straniere noted that the current practice, which permits the entry of default judgments based on an affidavit of facts from someone with personal knowledge of the facts, but which does not require plaintiffs to explain how the sum was calculated or to produce supporting documentation of the debt, is "hot tolerable in regard to credit card and other consumer credit debt cases where items such as the interest rate, late payment charge, and over-the-limit fees may change several times over the course of the consumer credit agreement." (278) Thus, because consumer credit agreements contain many variables, Judge Straniere reasoned that it is not possible for a clerk to determine if the amount alleged is a sum certain by looking at the "four corners of the instrument." (279) Judge Straniere held that the documentation submitted in Vigilante and the documentation submitted for default judgments in "almost all" consumer credit cases "fails to provide the necessary 'requisite proof' to support entry of default pursuant to CPLR [section] 3215," in part because "[m]erely pleading an amount due and owing without reference to how that number was calculated is a failure of proof that the alleged damages qualify as a 'sum certain.'" (280)
According to the Vigilante decision,
[D]ue process requires at a minimum, that in order to utilize ... [interest] rates in calculating the amount owed, the agreement between the card issuer and card holder containing that rate must be presented as an exhibit or recited in sufficient detail in the "affidavit of facts" so that either the clerk or the court may determine if the amount claimed owed is properly calculated. (281)
Therefore, pursuant to Vigilante, in order for the clerk to approve an entry of a default judgment for a sum certain, the affidavit of facts submitted in support of that judgment must include: (1) the date the consumer credit agreement was entered into by the defendant, (2) the name of the original creditor, (3) the complete history of the assignment of the account, (4) the date of the defendant's last payment, (5) the amount of the defendant's last payment, (6) the last date of purchase or cash advance, (7) the original credit card number and, if applicable, a history of account numbers, (8) the outstanding balance at the last payment date, (9) a calculation of the balance on the date of the last payment broken down by interest, fees, and charges, (10) a statement of how the interest rate was calculated, including documentation to support any changes in interest rate, (11) a statement that the address of the defendant from the summons and complaint is correct and, if it is not correct, a statement that a good faith effort was made to locate the current address for the defendant, and (12) copies of extrinsic documents referred to in the consumer credit agreement. (282)
In comparison to the 2009 Civil Court Directive, the twelve requirements from Vigilante impose a far more stringent evidentiary requirement on debt buyer plaintiffs seeking default judgments. (283) The Directive's sample affidavits do not specifically require plaintiffs to submit this information in their applications for default judgments. (284) Thus, according the Vigilante decision, the Directive does not provide the court or clerks with the requisite information to determine if the debt buyer has a prima facie case for a sum certain.
C. New York's Proposed Consumer Credit Fairness Act
In New York there have been legislative efforts to provide consumers with greater protection in debt collection lawsuits. Specifically, legislators have proposed the Consumer Credit Fairness Act (CCFA), which if passed, would amend the CPLR to place additional requirements on plaintiffs in debt collection lawsuits. (285) The justification of the bill is to fill the gaps in the CPLR that abusive debt collection lawsuits exploit. (286) The CCFA would reduce the statute of limitations on consumer credit actions from six to three years and impose heightened pleading standards in consumer credit lawsuits by requiring a plaintiff to include in its complaint substantial information on the defendant's debt. (287) In particular, debt collector plaintiffs would be required to produce in their complaints: (1) the name of the original creditor, (2) the last four digits of the defendant's account number, (3) the date of the last payment, (4) the date that the final statement was mailed to the defendant in cases claiming an account stated, and (5) an itemization of the amount sought, broken down by principal, interest, finance charge(s), all fees incurred by the original creditor, collection costs, and attorney's fees. (288) If the original creditor sold the account, the date of the sale and a complete chain of assignment must also be included in the complaint. (289)
The bill would also prevent inappropriate default judgments. The CCFA imposes specific requirements on plaintiffs who seek default judgments. (290) In particular, the CCFA would require plaintiffs to attach to their complaints an itemization of the amount sought broken down by principal, interest, fees, and other charges. (291) Moreover, unlike the current Directive, the CCFA would require debt buyer plaintiffs to produce documentation from the original creditor about each specific debt. For example, under the proposed law, debt buyers would be required to submit an affidavit from the original creditor stating the "facts constituting the debt, the default in payment, the sale or assignment of the debt, and the amount due at the time of the sale or assignment." (292) The CCFA would also require subsequent debt buyers to produce affidavits for subsequent assignments from the seller or assignor, and an affidavit of a witness of the plaintiff, which includes a chain of title of the debt. (293)
D. Debt Collection Reform in Other States
The problem of inappropriate default judgments in debt collection lawsuits has troubled other jurisdictions as well. As a result, several states have reformed procedural rules and statures governing debt collection lawsuits. Generally, these regulations, court rules, and statutes have sought to level the playing field by raising a plaintiff's burden of production in consumer debt actions.
1. Legislative Effort (294)
In 2009, North Carolina amended its procedural rules to require debt buyer plaintiffs to attach to their complaints a copy of the original contract or agreement evidencing the debt and a copy of the assignment establishing that the plaintiff owns the debt, which contains the defendant's account number and name. (295) The same North Carolina law makes it an unfair practice for a debt buyer to initiate a lawsuit to collect on a debt that it knows or reasonably should know is barred by the applicable statute of limitations. (296) It is also an unfair practice for a debt buyer to bring suit, initiate an arbitration proceeding, or attempt to collect on debts without valid documentation that the debt buyer is the owner of the specific debt and reasonable verification of the amount the debt allegedly owed by the debtor. (297) The law also sets a civil penalty as high as $4,000 for engaging in unfair practices. (298) As a result of this legislation, debt buyer filings in North Carolina have decreased significantly. (299)
Elsewhere, the Minnesota legislature has passed a bill that requires debt buyers to submit, in addition to their application for default judgment, a copy of the written contract between the debtor and the original creditor or other admissible evidence establishing the terms of the agreement, admissible evidence establishing that the defendant owns the debt, "the last four numbers of the debtor's Social Security number, if known," admissible evidence that the amount claimed due is accurate, "including the balance owed at the time the debt was charged off or first assigned to another party by the original creditor and, if included in the request, application, or motion for judgment, a breakdown of any fees, interest, and charges added to that amount," evidence establishing a complete chain of assignment and that the defendant's specific debt was assigned to the plaintiff, proof that the defendant was properly served with the summons and complaint, and proof that the defendant was provided notice of the default. (300)
Likewise, the Connecticut General Assembly is considering a proposed bill that would impose substantial requirements on debt buyers. (301) For example, the Connecticut bill would set a three-year statute of limitations for debt buyer collection actions and if the consumer makes a payment after the charge off date, that payment does not extend, or restart the running of, the three-year statute of limitations. (302)
In addition, the Connecticut bill sets important prerequisites for debt buyer lawsuits, such as prohibiting debt buyers from filing suits that they know or reasonably should know are time barred, and from pursuing actions unless they have proof that they own the defendant's specific debt and documented verification of the amount allegedly owed, including and itemization of all fees and charges. (303) The bill also would require debt buyers to send written notice of their intent to file suit thirty days in advance, and this notice must include information to verify the debt. (304) If an action is filed, debt buyers must mail or deliver a copy of the contract or other documents evidencing the debt, a copy of the assignment, and an itemization of the amount of damages sought by the defendant at least ten days prior to date the defendant's answer is due. (305) Moreover, if the consumer appears for trial and the debt buyer either fails to appear or is not ready for trial, and the court does not find good cause for a continuance, the court shall enter judgment for the defendant, dismiss the debt buyer's claim with prejudice, and in its discretion award the defendant costs, attorney's fees, and any lost wages or other related expenses. (306) Prior to the entry of a default judgment, the debt buyer must also affirm that it has complied with the new litigation prerequisites and requirements, and produce admissible business records establishing the debt. (307) And if a judgment is awarded to the debt buyer, "the bill limits the interest rate of a judgment to the weekly average one-year constant maturity yield of United States Treasury securities." (308)
2. Reforms Adopted by Courts
In September of 2011, the Court of Appeals of Maryland amended the Maryland Rules of Procedure to place additional requirements on plaintiffs seeking default judgments in consumer debt cases. (309) The amendments seek to achieve the goals of
(1) provid[ing] courts with sufficient information about each case to actually determine whether judgment is warranted, and, if so, what the proper amount of the award should be and (2) to give consumer defendants sufficient information to (a) fully understand the claim being filed against them and (b) file any appropriate defense to the lawsuit. (310)
Pursuant to these goals, Maryland added an entirely new section to its default judgment statute for consumer debt claims, which requires plaintiffs to submit an affidavit providing proof of the debt based on the signed original contract, "a bill or record reflecting purchases, payments, or other actual use of a credit card or account by the defendant," documents on the terms of the contract, proof of the plaintiff's ownership of the debt demonstrating an unbroken chain from the original creditor to the plaintiff, a certified copy of the bill of sale of the debt, identification on the account such as the name of the original creditor and the last four digits of the account number, and account charge off information including the date of charge-off, the balance at charge-off, an itemization of any fees or charges claimed in addition to the charge-off balance, and the date of the last payment on, or transaction giving rise to, the debt. (311) Moreover, Maryland also amended its procedural rules to require consumer debt plaintiffs to prove liability and damages, regardless of the defendant's failure to appear. (312)
In addition, in August of 2012, the Chief Judge of the Court of Common Pleas in Delaware issued the directive "Consumer Debt Collection Actions", which adopts similar measures. (313) The Delaware directive requires plaintiff debt collectors to attach an "Affidavit of Ownership and Amount Due" to their complaints, which states the basic facts about the chain of ownership and the amount due. (314) The caption of the complaint must also "include a sufficient description of the original creditor to reasonably enable the defendant to identify the account," "the last four digits of the original account number," and "a breakdown of the Principal Amount Due and interest, fees and other charges." (315) At the default judgment stage, the plaintiff must submit an additional affidavit and documents evidencing the legal obligation that gives rise to the debt. (316) The affidavit must list the complete chain of assignment, as well as the date of the defendant's last payment on the account, the principal amount due, and the rate of interest the plaintiff is claiming due. (317)
In addition, courts in Massachusetts have adopted a checklist approach to ensuring due process in consumer debt cases. In Massachusetts, pursuant to a small claims court rule, if a defendant fails to appear, the court must scrutinize the certainty of the court's jurisdiction over the claim, the essential facts supporting the claim, and whether the facts establish a sum certain. (318) Similarly, the Connecticut Small Claims Bench/Bar Committee has proposed a checklist for small claims court magistrates to determine whether the claim is valid and reasonable. (319) The checklist also recommends that magistrates sanction plaintiffs who frequently rail to comply with "small claims court rules and procedures designed to protect defendants from improper judgments." (320)
III. SOLUTIONS: REQUIRING PROOF AND DEFENDING DUE PROCESS
This Part proposes several solutions to prevent the entry of improper default judgments in consumer debt buyer lawsuits in New York. The goal of these solutions is to preserve due process for consumer defendants, including defaulting defendants, and to ensure that courts are not used as arms of the debt collection industry. Section A argues that the sum certain requirement for clerk-entered default judgments requires debt buyers to include more specific information in their supporting affidavits than is currently required. Section B proposes that the first step to reform is the passage of the Consumer Credit Fairness Act in New York. In the alternative, section C recommends that the Civil Court of New York City should revise its Directive on Default Judgments on Purchased Debt. Finally, section D argues that New York should consider amending its debt collection procedures law to make it an unfair practice for a debt buyer to attempt to collect a debt or initiate a collection lawsuit when it lacks valid documentation that it owns the consumer's debt and lacks information on the amount that the consumer allegedly owes.
A. What Constitutes a Sure Certain?
Calculating a sum certain in consumer credit actions is not a simple task. The CPLR requires a plaintiff seeking a default judgment for a sum certain to establish "the facts constituting the claim, the default and the amount due." (321) The amount due, however, is typically the result of complicated, and often dynamic, contract terms and thus is based on several variables, including the principal borrowed for purchases, an interest rate that often changes several times, and numerous over-the-limit and other fees and charges. (322) Despite this complexity, pursuant to the insufficiently vague Civil Court Directive, DRP-182, debt buyer plaintiffs are able to obtain coveted default judgments from clerks without having to show how the sum certain was calculated. (323) However, "[n]either the debtor, the court clerk nor a judge can verify the validity the amount claimed due based solely on unsubstantiated numbers in a complaint or affidavit of facts." (324)
Without information in the affidavit listing the basic facts of the account history, especially an itemization of charges, fees, and interest, a clerk is not in a position to determine whether the claim is valid and for a sum certain. (325) According to the Court of Appeals, the sure certain requirement "contemplates a situation in which, once liability has been established, there can be no dispute as to the amount due," thus permitting the clerk to then function in a "purely ministerial capacity." (326) If plaintiffs wish to take advantage of this function, they should be required to furnish the court and the clerk with specific information regarding their own standing and as to how the defendant's debt was incurred. Therefore, New York should amend the CPLR to require a plaintiff seeking a default judgment for a sum certain to provide the court with detailed proof of the debt. Following Judge Straniere's Vigilante decision, plaintiffs seeking a default judgment for a sum certain should be required to produce substantially more information than currently required in their supporting affidavits. (327)
The requirements in the proposed CCFA are sufficient to ensure due process throughout the litigation. Thus, debt buyer plaintiffs should be required to state in their complaints (1) the name of the original creditor, (2) the last four digits of the account number, (3) the date and amount of the last payment, (4) for account stated claims, the date the final account statement was mailed to the defendant, (5) an itemization of the amount sought itemized by principal, finance charges, fees charged by the original creditor, collection costs, attorney's fees, interest, and any other fees or charges, and (6) the date the debt was sold to the debt buyer plaintiff and the names of any previous owners and the dates of those sales. (328) Furthermore, at the default judgment stage, pursuant to the CCFA requirements, debt buyers should be required to provide (1) an affidavit from the original creditor explaining the basic facts giving rise to the debt, the default, the sale of the debt, as well as the amount due at the time of the sale, (2) an affidavit of sale by any subsequent debt seller, and (3) "an affidavit of a witness of the plaintiff, which includes a chain of title of the debt, completed by the plaintiff or plaintiff's witness." (329) Together, these requirements will sufficiently preserve due process and make certain that the standard for a default judgment for a sum certain as expressed in the case law is satisfied prior to the entry of judgments.
B. New York Should Enact the Consumer Credit Fairness Act (330)
The first step to solving the problem of improper default judgments is for New York to enact the proposed Consumer Credit Fairness Act. The CCFA would require debt buyers and debt collector plaintiffs to include more information about the defendant's debt in their court papers. (331) By requiring debt buyers to include information on the consumer's original contract and an itemization of the alleged debt broken down by purchases, interest, fees and other charges, the CCFA would better help courts to dismiss unsubstantiated claims and allow legitimate cases to proceed. (332) Moreover, at the default judgment stage, the CCFA would ensure that courts only enter judgments for legitimate claims that are for a sum certain. (333) Therefore, the CCFA will likely reduce the number of debt buyer lawsuits because debt buyers typically do not purchase all the information necessary to prove their cases at trial.
C. The Civil Court Should Revise Its Directive on Default Judgments for Purchased Debt to Comply with New York Case Law
In the alternative of passage of the CCFA, the Civil Court should revise its Directive on default judgments in consumer debt buyer lawsuits to bring it into accord with the evidentiary standard for default judgments expressed in the case law. Judge Straniere is correct to note that the substantial problems created by debt collection lawsuits require the courts to take steps to ensure that the due process rights of unrepresented debtors and even defaulting defendants are protected. (334) The Civil Court has already adopted several important measures. (335) Pursuant to the current Directive, however, debt buyer and original creditor affidavits in support of default judgments are permitted to consist of merely conclusory statements alleging that the plaintiff owns the debt and that the defendant owes a sum due. (336) In most cases, a debt buyer is able to obtain a default judgment without having to prove that it owns the defendant's specific debt or that the defendant owes the specific amount demanded. (337)
The Directive does not satisfy the evidentiary standard that the case law establishes because it does not require plaintiffs to prove that they have standing to pursue a collection action against the defendant. Moreover, the Directive is also silent on what proof is required for a sum certain. (338) Thus, debt buyers are able to obtain default judgments without having to produce essential facts, such as the terms and conditions governing the account, account statements from the original creditor, and information as to how the sum was calculated, broken down by principal, fees, and interest. (339) An affidavit that merely states that the defendant's debt was purchased in a pool of debts, without more, is ill-equipped to furnish courts with documentation and information to calculate the amount of damages to the high level of specificity requisite for a sum certain. Therefore, the Civil Court should amend the existing Directive to require debt buyers to prove that the claim is for a sum certain pursuant to the requirements laid out in the CCFA.
Courts throughout the state should also consider adopting a default judgment checklist, similar to those proposed and instituted by other jurisdictions. (340) A checklist would provide judges with important guidelines and allow plaintiffs to clearly establish that the underlying facts supporting their claims. Just as important, a default checklist would ensure fairness for defendants who fail to appear because they are unaware of the lawsuit or are unfamiliar with the litigation process.
D. New York Should Consider Amending The Debt Collection Procedures Law
New York should also consider adopting some of the measures codified in North Carolina's recent law addressing the flood of debt buyer lawsuits. (341) In particular, the legislature should examine the possibility of making it an unfair practice under New York's debt collection procedures law (342) for a debt buyer to attempt to collect on or initiate a collection action in situations where it lacks documentation that it is the owner of the defendant's specific debt or verification of the amount of the debt allegedly owed by the debtor. In North Carolina, for example, these reforms have caused the number of debt buyer lawsuits to decrease significantly. (343) These requirements do hot discourage legitimate collection actions; rather, they encourage debt buyers to obtain sufficient documentation and information to provide consumers with notice.
The ease with which debt buyers have been able to obtain default judgments is alarming, especially when one considers that debt buyers typically lack the requisite proof to support their claims. Courts therefore should adopt measures to make certain that debt buyers comply with well-established procedural and evidentiary standards. The requirement that a plaintiff's claim must be for a sum certain should be strictly enforced because it protects defendants with unequal access to representation and lack of notice. Moreover, these procedural protections are even more important in the consumer credit context, where complex and notoriously one-sided financial products create debts that are puzzling combinations of charges, interest rates, and fees.
The best solution is for New York to enact a law, such as the CCFA, that requires debt buyers to produce more documentation and information on the debts they are attempting to collect. Indeed, the CCFA would fill gaps in the current CPLR that debt collectors continue to exploit to the disadvantage of many low- and moderate-income New Yorkers. In the alternative, the Civil Court of the City of New York and other courts throughout the state should adopt directives that require plaintiffs in consumer credit actions to fully support their claims at the default judgment stage.
Although it is true that "like other contracts, credit contracts are of little value if the parties cannot enforce them," (344) it is also true that when debt collector plaintiffs "use the court system to enforce [credit obligations], the rules of evidence and legal precedents existing will then govern the transaction." (345) In large measure, debt buyers are not satisfying these requirements; instead, these entities routinely exploit the adversarial process and deny due process to many, especially those who live in low- and moderate-income communities and communities of color. With this disparity in mind, this Note urges legislatures and courts to preserve due process by requiring collectors to satisfy basic procedural and evidentiary standards.
Conor P. Duffy, J.D., 2013, Fordham University School of Law; B.A., M.A., Fordham University. I would like to thank my family, friends, and Molly for their love and support. This Note is the product of the Rev. George J. McMahon, S.J. Fellowship awarded by the Feerick Center for Social Justice and the Fordham Urban Law Journal.
(1.) Presumably, the drop in debt collection filings in New York City can be attributed to increased enforcement actions, reform measures, and advocacy. See infra Part II.A.
(2.) See CLAUDIA WILNER & NASOAN SHEFTEL-GOMES, THE LEGAL AID SOC'Y, NEIGHBORHOOD ECONOMIC DEVELOPMENT ADVOCACY PROJECT, MFY LEGAL SERVICES & URBAN JUSTICE CENTER, DEBT DECEPTION: HOW DEBT BUYERS ABUSE THE LEGAL SYSTEM TO PREY ON LOWER-INCOME NEW YORKERS 6 (2010), available at http://www.nedap.org/pressroom/documents/DEBT_DECEPTION_FINAL_ WEB.pdf; New York City Civil Court Filing Statistics 2006-2011 (on file with author). In 2011, 134,423 consumer cases were filed in Civil Court. Of these lawsuits, 107,618 went unanswered, 70,371 resulted in default judgments, and attorneys represented consumer defendants in 3,342 cases. See id.
(3.) See WILNER & SHEFTEL-GOMES, supra note 2, at 10. Wilner and Sheftel-Gomes's DEBT DECEPTION study was based on a random but representative selection of debt buyer filings in New York City between January 2006 and July 2008 and "a 451-case data set" that was comprised of people who called a legal hotline "because they had been sued by a creditor or debt buyer." Id. at 8. The study found that "91% of people sued by debt buyers and 95% of people with default judgments entered against them live in low- and moderate-income communities." Id. at 10. In addition, "51% of people sued by debt buyers and 56% of people with default judgments entered against them lived in communities in which the population is more than 50% black or Latino." Id.
(4.) See infra notes 127-28 and accompanying text.
(5.) See WILNER & SHEFTEL-GOMES, supra note 2.
(6.) FED. TRADE COMM'N, THE STRUCTURE AND PRACTICES OF THE DEBT BUYING INDUSTRY 11 (2013), available at http://www.ftc.gov/os/2013/01/debtbuyingreport.pdf.
(7.) Peter A. Holland, Defending Junk-Debt-Buyer Lawsuits, 46 CLEARINGHOUSE REV. POVERTY L. & POL'Y 12, 19 (2012). Indeed, it has been noted that one debt-buyer plaintiff filed on average 133 debt collection actions per day in Civil Court between 2006 and 2008. See Sykes v. Mel Harris, 757 F. Supp. 2d 413, 419 (S.D.N.Y. 2010).
(8.) Ste infra Part I.A.2.
(9.) See infra Part I.A.2.
(10.) See infra note 181.
(11.) See infra Part I.C.2.
(12.) See id.
(13.) See infra Part II.A-B.
(14.) Ste Collins Fin. Servs. v. Vigilante, 915 N.Y.S.2d 912, 918 (Civ. Ct. 2011) (quoting PDQ Aluminum Prods. Corp. v. Smith, 864 N.Y.S.2d 681, 683 (App. Term 2008) (internal quotation marks omitted)). Consumer advocates have noted that there is a specific conflict between the Civil Court's Directive, DRP-182, and the legal standard to make out a prima facie debt collection case. See, e.g., JIM BAKER, MATTHEW SCHEDLER & ANAMARIA SEGURA, UPDATES IN DEBT COLLECTION DEFENSE AND THE EVER-CHANGING CONSUMER RIGHTS LANDSCAPE 32-33 (2011), available at http://www.leapny.org/images/FE/chain235siteType8/site204/client/ Updates%20in%20Debt %20Collection %20Defense%20and %20the%20Everchanging%20Consumer%20Rights%20Landscape.pdf (arguing that a "notable omission" in the Civil Court's DRP-182 sample affidavits "is that the [plaintiff] does not have to specify the particular account number in any of the affidavits from the original creditor, [and rather can] simply attest to the sale of a 'pool of charged off accounts,'" and that the affidavits would not require proof sufficient to survive a Summary Judgment motion because they do not require debt buyers to produce information on the defendant's specific account); W1LNER & SHEFTEL-GOMES, supra note 2, at 27 n.102-03 (arguing that the then-recent Directive, DRP-182, does not require debt buyers to provide the court with sufficient proof for a sum certain); see also infra Part II.A-B.
(15.) According to the Federal Reserve, as of September 30, 2012, 8.9% of consumer debt is in some stage of delinquency, about $1.01 trillion of consumer debt is delinquent, and $740 billion of consumer debt is seriously delinquent (at least 90 days late). This number includes mortgages, student loans, credit cards, and other types of consumer debt. See FED. RESERVE BANK OF N.Y., QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT Q3, at 1 (2012), available at http://www.newyorkfed.org/research/national_economy/householdcredit/DistrictRep ort_Q321112.pdf.
(16.) Revolving credit is a "consumer-credit arrangement that allows the borrower to buy goods or secure loans on a continuing basis as long as the outstanding balance does not exceed a specified limit." BLACK'S LAW DICTIONARY 424 (9th ed. 2009).
(17.) BD. OF GOVERNORS OF THE FED. RESERVE SYS., CONSUMER CREDIT G.19 STATISTICAL RELEASE (2013) [hereinafter G.19 RELEASE], available at http://www.federalreserve.gov/releases/g19/current/g19.pdf.
(18.) See RICK JURGENS & ROBERT J. HOBBS, NAT'L CONSUMER LAW CTR., THE DEBT MACHINE: HOW THE COLLECTION INDUSTRY HOUNDS CONSUMERS AND OVERWHELMS COURTS 5 (2010), available at http://www.nclc.org/images/pdf/prreports/debt-machine.pdf (noting that between the years of 1996 and 2009 the total loans outstanding to consumers had doubled and that total credit card and other revolving debt approached $1 trillion at its peak during this period); see also ELIZABETH RENUART ET Al., THE COST OF CREDIT: REGULATION, PREEMPTION, AND INDUSTRY ABUSES 27-28 (4th ed. 2009) ("In the 1990s and 2000s, credit card debt grew substantially among all American families.... The debt burden is greatest on families with annual incomes under $10,000. For families in this category carrying on-going debt, the debt loan increased four times from 1989 to 2004, with an average debt load of 31% of total gross income."); WILNER & SHEFTEL-GOMES, supra note 2, at 3 (reporting that between 1990 and 2005, "the amount of outstanding credit card debt in the United States grew from $237 billion to more than $802 billion--an increase of 238%" (citing U.S. GOV'T ACCOUNTABILITY OFFICE, CREDIT CARDS: INCREASED COMPLEXITY IN RATES AND FEES HEIGHTENS NEED FOR MORE EFFECTIVE DISCLOSURES TO CONSUMERS 57 (2006))).
(19.) See WILNER & SHEFTEL-GOMES, supra note 2, at 3.
(20.) See James Surowiecki, House of Cards, NEW YORKER, Mat. 16, 2009, at 45 ("And these cards did not go unused: between 2000 and 2006, even as Americans' real income was essentially stagnant and their savings rate negligible, credit-card borrowing rose by about thirty per cent. Our willingness to spend beyond our means served the credit-card companies well: their profits jumped forty-five per cent between 2003 and 2008.").
(21.) JOSE A. GARCIA, DEMOS, BORROWING TO MAKE ENDS MEET: THE RAPID GROWTH OF CREDIT CARD DEBT IN AMERICA 6-7 (2007), available at http://www.demos.org/publication/borrowing-make-ends-meet-rapid-growth-creditcard-debt-america. Between 1989 and 2004, sixty-day late payment fees increased by 67 percent, and in 2005 households paid $7.9 billion in credit card fees. Id.
(22.) As of July 2012, consumers owed $850.7 billion in credit card debt, an amount that was 17% lower than the $1.03 trillion owed by consumers in 2008. See Consumer Borrowing Falls as Less Is Put on Credit Cards, N.Y. TIMES, Sep. 10, 2012, at B8; see also BD. OF GOVERNORS OF THE FED. RESERVE SYS., REPORT TO THE CONGRESS ON THE PROFITABILITY OF CREDIT CARD OPERATIONS OF DEPOS1TORY INSTITUTIONS (2012) [hereinafter REPORT TO CONGRESS ON PROFITABILITY OF CREDIT CARD OPERATIONS], available at http://www.federalreserve.gov/publications/otherreports/files/ccprofit2012.pdf (finding that outstanding credit card balances are "notably lower" than their high point in 2008).
(23.) See REPORT TO CONGRESS ON PROF1TABILITY OF CREDIT CARD OPERATIONS, supra note 22 ("Although profitability for the large credit card banks has risen and fallen over the years, credit card earnings have been almost always higher than returns on all commercial bank activities. Earnings patterns for 2011 were consistent with historical experience: For all commercial banks, the average return on all assets, before taxes and extraordinary items was 1.18 percent in 2011 compared to 5.37 percent for the large credit card banks.").
(24.) Surowiecki, supra note 20 ("Credit-card companies don't necessarily want revolvers to pay off their debts; if they did, there'd be no interest or fees to collect. They want their loans to be, in the words of a banking regulator, "a perpetual earning asset."); see Gretchen Morgenson, Given a Shovel, Americans Dig Deeper Into Debt, N.Y. TIMES, July 20, 2008, at A1 ("[B]ehind the big increase in consumer debt is a major shift in the way lenders approach their business. In earlier years, actually being repaid by borrowers was crucial to lenders. Now, because so much consumer debt is packaged into securities and sold to investors, repayment of the loans takes on less importance to those lenders than the fees and charges generated when loans are made."). According to the Federal Reserve, typically half of consumers surveyed reported that they pay their credit card balance in full each month before being charged interest. See REPORT TO CONGRESS ON PROFITABILITY OF CREDIT CARD OPERATIONS, supra note 22.
(25.) See generally Oren Bar-Gill, Seduction by Plastic, 98 NW. U. L. REV. 1373 (2004).
Consumer contracts are characterized by an asymmetry between the two parties: the seller of a good or the provider of a service on the one hand and the consumer on the other. One party is usually a highly sophisticated corporation, the other--an individual, prone to the behavioral flaws that make us human. Absent legal intervention, the sophisticated seller will often exploit the consumer's behavioral biases. The contract itself, commonly designed by the seller, will be shaped around consumers' systematic deviations from perfect rationality. Such biased contracting is not the consequence of imperfect competition. On the contrary, competitive forces compel sellers to take advantage of consumers' weaknesses.
Id. at 1373.
(26.) Elizabeth Warren, Unsafe at Any Rate, 5 DEMOCRACY 8, 11-12 (2007), available at http://www.democracyjournal.org/5/6528.php?page=all ("Part of the problem is that disclosure has become a way to obfuscate rather than to inform. According to the Wall Street Journal, in the early 1980s, the typical credit card contract was a page long; by the early 200s, that contract had grown to more than 30 pages of incomprehensible text."); see also THE PEW CHARITABLE TRUSTS, SAFE CREDIT CARD STANDARDS: POLICY RECOMMENDATIONS FOR PROTECTING CREDIT CARDHOLDERS AND PROMOTING A FUNCTIONAL MARKETPLACE 2 (2009), available at http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Credit_Cards/ Final8247_pct_CreditCard_v3.pdf ("[T]he vast majority of credit cards come with contracts which give issuers nearly unlimited power to raise interest rates, impose significant penalties and fees, process payments in ways which maximize interest charges and otherwise control the terms of credit, regardless of what was stated in previous disclosures. These practices can produce serious consequences, including rapid increases in household debt, unforeseen by most consumers."). But see infra notes 54-66 and accompanying text (describing the CARD Act of 2009 that prohibits some, but not all, of the predatory practices described above).
(27.) See AMY TRAUB & CATHERINE RUETSCHLIN, DEMOS, THE PLASTIC SAFETY NET: FINDINGS FROM THE 2012 NATIONAL SURVEY ON CREDIT CARD DEBT OF LOWAND MIDDLE-INCOME HOUSEHOLDS 9-10 (2012), available at http://www.demos.org/ publication/plastic-safety-net ("While the greatest single source of credit card debt was nonessential purchases, nearly hall of all households cite necessities such as home or car repairs, expenses related to job loss, business expenses, or household appliances, as the greatest contributors to their credit card balances.").
(28.) Id. According to the think tank Demos, in 2012, 40% of the low- and moderate-income families studied reported using credit cards to pay for basic living expenses such as rent, groceries, and insurance. Id. at 1.
(29.) Id. at 1. Before the financial crisis, a similar survey found that low- and moderate-income homeowners frequently refinanced an existing mortgage or obtained a second mortgage to pay off credit card debt. See TAMARA DRAUT ET AL., DEMOS & THE CTR. FOR RESPONSIBLE LENDING, THE PLASTIC SAFETY NET: THE REALITY BEHIND DEBT IN AMERICA 15 (2005), available at http://www.demos.org/ publication/plastic-safety-net-reality-behind-debt-america.
(30.) For instance, 65% of low- and moderate-income families carried credit card balances, compared to 46% of households with incomes over $100,000. See GARCIA, supra note 21, at 6.
(31.) See RENUART ET AL., supra note 18, at 734 ("While in the past credit card practices may have affected primarily middle-class consumers, low-income consumers have become a lucrative target for credit card lenders, because those consumers typically carry and pay big balances at high interest rates. One survey found that the average credit card debt of low- and middle-income households is $8,650.").
(32.) Id. at 735. There is also evidence to suggest that high interest rates and fees for credit card balances disparately impact minorities and women, as well as low-income consumers. See id. at 735 (noting that "African-American and Latino credit card holders who carry a balance are more likely than whites to be paying an interest rate over 20%," that "[n]early 15% of African-American revolvers and 13% of Latino revolvers pay these rates, versus 7% of whites," and that "[s]ingle women revolvers are almost twice as likely as single male revolvers to pay an interest rate over 20%").
(33.) See BD. OF GOVERNORS OF THE FED. RESERVE SYS., REPORT TO THE CONGRESS ON THE PRACTICES OF THE CONSUMER CREDIT INDUSTRY IN SOL1CITING AND EXTENDING CREDIT AND THEIR EFFECTS ON CONSUMER DEBT AND INSOLVENCY 5-12 (2006), available at http://www.federalreserve.gov/boarddocs/rptcongress/ bankruptcy/bankruptcybillstudy200606.pdf.
(34.) Id. In 2005 alone, credit card lenders sent six billion direct mail solicitations to potential customers. While direct mail solicitations decreased during the financial crisis, in 2011 nearly 5 billion direct mail solicitations were sent to consumers. See REPORT TO CONGRESS ON PROFITABILITY OF CREDIT CARD OPERATIONS, supra note 22, at 7-8 & nn.15-16.
(35.) Subprime borrowers have been defined as borrowers with a weakened credit history that includes late payments, defaults, bankruptcies, and other problems. See Background Definitions, FDIC, http://www.fdic.gov/about/comein/background.html (last updated July 13, 2007).
(36.) See BD. OF GOVERNORS OF THE FED. RESERVE SYS., supra note 33, at 5-6.
(37.) See id. at 6. Of these reasons, deregulation was especially influential in the growth of the consumer credit industry. Deregulation and the federal preemption of state usury laws allowed national banks and other depository institutions to avoid state caps on interest and fees. In 1978, in Marquette National Bank of Minneapolis v. First of Omaha Service Corp., the Supreme Court held that a national bank was subject to federal regulation and the laws of the state in which it was chartered, and not the usury laws of any other state. 439 U.S. 299 (1978). As a result, "national banks and other depositories established their headquarters in states that eliminated or raised their usury limits, giving them free rein to charge whatever interest rate they wanted." Carolyn Carter et al., The Credit Card Market and Regulation: In Need of Repair, 10 N.C. BANKING INST. 23, 33 (2006). In addition, in 1996, in Smiley v. Citibank (South Dakota), NA., the Supreme Court upheld the Office of the Comptroller of the Currency's definition of interest, which included late payment and other fees. 517 U.S. 735 (1996). Because of Smiley, "national banks and other depositories can charge fees in any amount to their customers as long as their home-state laws permit the fees and so long as the fees are 'interest' under the OCC definition." Carter et al., supra at 35. Thus, following the Smiley decision in 1996, penalty fee revenue increased from $1.7 billion in 1996 to $18 billion in 2007. See CAROLYN L. CARTER & ANDREW G. PIZOR, NAT'L CONSUMER LAW CTR., CONSUMER CREDIT REGULATION 376 (2012).
(38.) See BD. OF GOVERNORS OF THE FED. RESERVE SYS., supra note 33, at 6 ("Beginning in the late 1970s, court decisions and legislation by some states relaxed the restrictions on credit card interest rates, allowing national banks based in those states to charge market-determined rates throughout the country. The reduction in legal impediments, together with improvements in data processing and telecommunications, allowed for the development of risk-based pricing nationally and contributed to the growth of revolving credit.").
(39.) Id. at 6-7.
(40.) Id. at 10-12.
(41.) See Jessica Silver-Greenberg & Tara Siegel Bernard, Lenders Again Dealing Credit to Risky Clients, N.Y. TIMES, Apr. 10, 2012, http://www.nytimes.com/ 2012/04/11/business/lenders-returning-to-the-lucrative-subprime-market.html.
(42.) In addition, issuers also relied on universal default, which was a form of credit re-pricing where lenders "impose[d] penalty rates on consumers, not for late payment or any behavior with respect to the customer's account with that particular lender, but for late payments to any of the consumer's other creditors" or in circumstances where the consumer's credit score falls under a particular score. See RENUART ET AL., supra note 18, at 737; see also infra notes 54-66 and accompanying text (discussing the CARD Act reforms that banned this practice).
(43.) Ste RENUART ET AL., supra note 18, at 736.
(44.) See Kathleen Day, Credit Cards' Hidden Costs, WASH. POST, Oct. 12, 2006, http://www.washingtonpost.com/wp-dyn/content/article/2006/10/11/AR200610110185 0.html.
(45.) See RENUART ET AL., supra note 18, at 738. Thus, after the time period for the "teaser" or "introductory" rate elapses, the interest rate increases. Id.
(46.) See Discover Bank v. Owens, 822 N.E.2d 869, 873 (Cleveland Mun. Ct. 2(104) (holding that credit card issuer was unjustly enriched by its repeated charging of over-the-limit fees and other finance charges where borrower had paid $3,492 for a $1,900 debt, but issuer still alleged payment due of $5,564.28); see also Morgensen, supra note 24, at A1 ("[T]he lucrative lending practices of America's merchants of debt have led millions of Americans--young and old, native and immigrant, affluent and poor--to the brink. More and more, Americans can identify with miners of old: in debt to the company store with little chance of paying up.").
(47.) See JONATHAN ORSZAG & SUSAN MANNING, AN ECONOMIC ASSESSMENT OF REGULATING CREDIT CARD FEES AND INTEREST RATES 9 (2007), available at http://skaddenpractices.skadden.com/cfs/cfs_pdffAn%20Economic%20Assessment% 20of%20Regulating%20Credit%20Card%20Fees%20and%20Interest%20Rates.pdf ("Since then, however, innovation and deregulation have allowed for more efficient risk-based pricing and management of individual cardholder risk. Changes in technology, such as credit scoring, automatic access to consumer reports, and response modeling and other risk analysis techniques, have enabled credit card issuers to better track and assess changes in an individual's risk profile. As issuers became better able to assess borrower risk, they could then offer a broader variety of credit products to borrowers with more diverse rates and fees."). But see Adam J. Levitin, A Critique of the American Bankers Association Study on Credit Card Regulation (Georgetown Univ. Law Ctr., Georgetown Law & Econ. Research Paper No. 1029191, 2008), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=1029191.
(48.) The phrase "moral hazard" denotes "a condition in which the knowledge that a third party will bear the costs of some harm creates a risk that the actor may fail to take due precautions against occurrence of the harm." RICHARD SCOTT CARNELL ET AL., THE LAW OF BANKING AND FINANCIAL INSTITUTIONS 84 (4th ed. 2009).
(49.) See Levitin, supra note 47, at Ill. "Risk-based pricing occurs when lenders offer different consumers different interest rates or other loan terms, based on the estimated risk that the consumers will fail to pay back their loans." What Is Risk-Based Pricing?, CONSUMER FIN. PROTECTION BUREAU (Sept. 4, 2012), http://www.consumerfinance.gov/askcfpb/767/what-risk-based-pricing.html.
(50.) See AM. BANKERS ASS'N, NEW CREDIT CARD LAW: WHAT IT MEANS FOR CONSUMERS (2009), available at http://www.aba.com/aba/documents/CreditCards/ CreditCardLawFactSheet060209.pdf.
(51.) See RENUART ET AL., supra note 18, at 736.
(54.) Pub. L. No. 111-24. 123 Stat. 1734 (2009).
(55.) 15 U.S.C. [section] 1601 (2012).
(56.) Pub. L. No. 111-24, [section] 101(b), 123 Star. 1734, 1736 (2009).
(58.) Id. [section] 171 (to be codified at 15 U.S.C. [section] 1666i-1).
(59.) Id. [section] 172, 123 Stat. at 1738 (to be codified at 15 U.S.C. [section] 1666i-2).
(61.) Id. [section] 102, 123 Stat. at 1738 (to be codified at 15 U.S.C. [section] 1637(k)).
(62.) Id. (to be codified at 15 U.S.C. [section] 1637(1)).
(63.) Id. (to be codified at 15 U.S.C. [section] 16370)).
(64.) Id. [section] 105,123 Stat. at 1738 (to be codified at 15 U.S.C. [section] 1637(n)).
(65.) See TRAUB & RUETSCHLIN, supra note 27, at 2 (finding that, as a result of the CARD Act, "one third of households are responding to new information included on credit card statements by paying their balances down faster," that far fewer households are paying late, and that "those who did make late payments were significantly less likely to see their interest rate increase as a result").
(66.) See FRED WILLIAMS, FIGHT BACK AGAINST UNFAIR DEBT COLLECTION PRACT1CES: KNOW YOUR RIGHTS AND PROTECT YOURSELF FROM THREATS, LIES AND INTIMIDATION 74 (2011).
(67.) See FED. TRADE COMM'N, COLLECTING CONSUMER DEBTS: THE CHALLENGES Or CHANGE, A WORKSHOP REPORT 13 (2009), available at http://www.ftc.gov/ bcp/workshops/debtcollection/dcwr.pdf (outlining the debt collection industry and its growth); see also WILLIAMS, supra note 66, at 27 ("[The] army of professional collection workers is expected to swell, now that the consumer debt bubble has burst: The Bureau of Labor Statistics predicts that about 100,000 new collection jobs will be created in the decade that ends in 2016, a 'much faster' growth rate than average for all occupations."); Judith Fox, Do We Have A Debt Collection Crisis? Some Cautionary Tales of Debt Collection in Indiana, 24 LOY. CONSUMER L. REV. 355, 357 (2012) ("The debt industry is one of the few booming industries left in America.").
(68.) See FED. TRADE COMM'N, supra note 67, at 13.
(69.) See U.S. Debt Collections Industry Worth $12.2 Billion, PRWEB (Apr. 10, 2012), http://www.prweb.com/pdfdownload/9383739.pdf.
(70.) See Occupational Outlook Handbook, Bill and Account Collectors, U.S. BUREAU OF LABOR STAT., http://www.bls.gov/ooh/office-and-administrativesupport/bill-and-account-collectors.htm (last visited Apr. 19, 2013).
(71.) Unfortunately, some debt collectors rely on abusive and deceptive tactics to pressure consumers into paying delinquent debts and, sometimes, debts that the consumer may not even owe. Indeed, according to a 2012 report, the Federal Trade Commission (FTC) received more complaints about the debt collection industry than any other industry. See CONSUMER FIN. PROTECTION BUREAU, ANNUAL REPORT 2012: FAIR DEBT COLLECTION PRACTICES ACT 6 (2012), available at http://files.consumerfinance.gov/f/201203_cfpb_FDCPA_annual_report.pdf ("The FTC continues to receive more complaints about the debt collection industry than any other specific industry."); see also WIELIAMS, supra note 66, at 5 ("The rate of complaints is exploding, having more than tripled since 2003. The number-one complaint is that collectors are demanding money that people do not even owe, even grabbing it directly from their bank accounts"). But see Michael Klozotsky, The Facts Behind the Fantasies About Debt Collection Complaints, FORBES (Jun. 22, 2012), http://www.forbes.com/sites/insidearm/2012/06/22/the- facts-behind-the-fantasies-about-debt-collection- complaints/print/(questioning the veracity of the FTC complaint figures because the FTC "acknowledges that it neither verifies . . . complaints for legitimate violations of federal law.., nor scrubs them [the complaint statistics] for duplication").
(72.) See WILLIAMS, supra note 66, at 27.
(76.) See Soppet v. Enhanced Recovery Co., LLC, 679 F.3d 637, 638-39 (7th Cir. 2012) ("The situation is this: Customer incurs a debt and does not pay. Creditor hires Bill Collector to dun Customer for the money. Bill Collector puts a machine on the job and repeatedly calls Cell Number, at which Customer had agreed to receive phone calls by giving his number to Creditor.... The machine, called a predictive dialer, works autonomously until a human voice comes on the line. If that happens, an employee in Bill Collector's call center will join the call.").
(77.) See John Hechinger, Taxpayers' Fund $454,000 Pay for Collector Chasing Student Loans, BLOOMBERG (May 15, 2012), http://www.bloomberg.com/news/201205-15/taxpayers-fund-454-000-pay-for- collector-chasing-student-loans.html; see also WILLIAMS, supra note 66, at 89 (describing the bonus incentives at one debt collection agency).
(78.) See FED. TRADE COMM'N, supra note 6 (FTC study finding that the largest debt buyers paid an average of 4 cents per dollar of debt face value and that debt buying serves a function for consumer credit because by "reducing the losses that creditors incur in providing credit, debt collection allows creditors to provide more credit at lower prices-that is, at lower interest rates"); see also Debt Buyers' Ass'n v. Snow, 481 F. Supp. 2d 1, 4 (D.D.C. 2006) (noting that "an originating lender may sell a charged-off consumer loan to a Debt Buyer, usually as part of a portfolio of delinquent consumer loans, for a fraction of the total amount owed to the originating lender"); Peter A. Holland, The One Hundred Billion Dollar Problem in Small Claims Court." Robo-Signing and Lack of Proof in Debt Buyer Cases, 6 J. Bus. & TECH. L. 259, 260 (2011) ("The goal of the debt buyer is to purchase--for pennies on the dollar--debts that have already been deemed uncollectable by the original creditor, and then collect all, most or some of the debt and thereby make a handsome profit."). But see FEO. TRADE COMM'N, supra note 6, at 23 (noting "that although the price paid by debt buyers for debts is low relative to their face value, it does not necessarily follow that the profit from collecting on those debts will be high" because debt buyers do not always recover the full value of the debts they collect and they incur substantial costs throughout the collection process).
(79.) See Jessica Silver-Greenberg, Boom in Debt Buying Fuels Another Boom-In Lawsuits, WALL ST. J., Nov. 28, 2010, http://online.wsj.com/article/ SB10001424052702304510704575562212919179410.html.
(80.) See Lauren Goldberg, Note, Dealing in Debt." The High-Stakes World of Debt Collection After the FDCPA, 79 S. CAL. L. REV. 711, 725-26 (2006).
(81.) See FED. TRADE COMM'N, supra note 6, at 12.
(82.) See ROBERT J. HOBBS ET. AL., FAIR DEBT COLLECTION 7 (6th ed. 2008).
(83.) See FED. TRADE COMM'N, supra note 6, at 14 ("The number and type of debt buyers expanded rapidly in the 2000s, especially during the period from 2004-06, as a result of, among other things, increases in the amount of debt available for purchase and the ready availability of capital to finance debt-buying enterprises and debt purchases.").
(84.) See FED. TRADE COMM'N, supra note 6, at 12-13.
(85.) Id. at 13.
(87.) Id. at n.58 ("Federal regulations prohibit banks and other depository institutions from counting toward their capital requirements debts that are in bankruptcy or delinquent more than a specified number of days. Banks and other depository institutions must charge off installment loan debts by the end of the month in which the debts become 120 days past due, credit card loan debts by the end of the month in which they become 180 days past due, and debts in [sic] bankruptcy within 60 days of the bank's receipt of notification that consumers have filed for bankruptcy." (citing Uniform Retail Credit Classification and Account Management Policy, 65 Fed. Reg. 36903-01 (June 12, 2000))). "'Charge-off' status means the lender treats the amount as uncollectible for financial reporting and tax purposes." WILLIAMS, supra note 66, at 106-07.
(88.) See FED. TRADE COMM'N, supra note 6, at 13.
(89.) Id. at 17-19.
(90.) Id. at 17. It is also important to note that "debts that have been settled, challenged by consumers, or in active litigation are typically not included in portfolios" and if one of these "ineligible" accounts is sold, the buyer can return the account for a refund. Id. at 17-18.
(91.) Id. at 21.
(92.) Id. at 24 ("[D]ebt buyers paid substantially more for mortgage debt and significantly less for debts such as medical and utility debt.").
(93.) Newer debts are more expensive than older ones. Id. at 23-24 ("The FFC's analysis suggests that debt buyers paid on average 3.1 cents per dollar of debt for debts that were 3 to 6 years old and 2.2 cents per dollar of debt for debts that were 6 to 15 years old compared to 7.9 cents per dollar for debts less than 3 years old.").
(94.) Id. at 24 (finding that debt buyers on average "paid less for debts for which sellers previously hired third-party collectors to try to recover and for debts for which there was no information, or incomplete information, about third-party collection attempts').
(95.) Id. at 24-28 (detailing contractual agreements to purchase debt).
(96.) Id. at 25.
(97.) Id. at iii.
(98.) See WILNER & SHEFFEL-GOMES, supra note 2, at 5; FED. TRADE COMM'N, supra note 6, at 34-35.
(99.) See ROBERT J. HOBBS & CHI CHI Wu, NAT'L CONSUMER LAW CTR., MODEL FAMILY FINANCIAL PROTECTION ACT 4 (2012), available at http://www.nclc.org/ images/pdf/debt_collection/model_family_financial_protection_act.pdf (hereinafter Model Family Financial Protection Act).
(100.) See FED. TRADE COMM'N, supra note 6, at 35.
(102.) Id. at 40 (finding that while debt buyers may request documents free of charge for a specified period after purchase and purchase documents after that purchase, they rarely do so).
(103.) Id. at 26 ("Debt buyers often were given a defined amount of time (typically between six months and three years) to request a defined maximum number of documents at no charge. Some contracts also limited the frequency with which debt buyers could submit requests to obtain document copies. After the period for debt buyers to receive information at no cost ended, or after debt buyers had obtained the maximum number of free copies, whichever came first, the debt sale contracts specified a price (usually between five and ten dollars and sometimes higher per document) and quantity of documents that debt buyers had the option of purchasing.").
(104.) See WILNER & SHEFTEL-GOMES, supra note 2, at 5; see also HOBBS ET. AL., supra note 82, at 7 ("The debt buyers may bring thousands of collection suits on the claims they buy reducing them to judgment, flip the consumer to a new credit account, or simply put the debt on the consumer's credit report, ruining their credit rating.").
(105.) See, e.g., WILNER & SHEFTEL-GOMES, supra note 2, at 10; Patrick Lunsford, Encore Capital Reports Surge in Profit and Revenue; Close to $500 Million in 2011, INSIDEARM (Feb. 10, 2012), http://www.insidearm.com/daily/debt-buyingtopics/debt-buying/encore-capital-reports-surge- in-profit-and-revenue-close-to-500million-in-2011/; Silver-Greenberg, supra note 79 (reporting that a large debt buyer, Encore Capital Group, Inc., posted $33 million in profit in 2009, a jump of 139% from 2008).
(106.) See, e.g., ROBERT J. HOBBS & RICK JURGENS, NAT'L CONSUMER LAW CTR., THE DEBT MACHINE: HOW THE COLLECTION INDUSTRY HOUNDS CONSUMERS AND OVERWHELMS THE COURTS, (2010), available at http://www.nclc.org/images/ pdf/debt_collection/debt-machine.pdf; RACHEL TERP & LAUREN BOWNE, PAST DUE: WHY DEBT COLLECTION PRACTICES AND THE DEBT BUYING INDUSTRY NEED REFORM NOW (2011), available at http://defendyourdollars.org/pdf/ Past_Due_Report_2011.pdf; Holland, supra note 78.
(107.) See Andrew Martin, Automated Debt-Collection Lawsuits Engulf Courts, N.Y. TIMES, July 12, 2010, http://www.nytimes.com/2010/07/13/business/ 13collection.html.
(108.) See HOBBS ET AL., supra note 82, at 7.
(109.) See Martin, supra note 107 (describing the business model of Cohen & Slamowitz, a New York law firm with 14 lawyers on staff that has been filing "roughly 80,000 lawsuits a year").
(110.) See HOBBS ET AL., supra note 82, at 7.
(113.) See FED. TRADE COMM'N, REPAIRING A BROKEN SYSTEM: PROTECTING CONSUMERS IN DEBT COLLECTION LITIGATION AND ARBITRATION 5 (2010), available at http://www.ftc.gov/os/2010/07/debtcollectionreporcpdf.
(114.) See Nefertara Clark, Finance and Other Charges: Is Disclosure for the Sake of Disclosure Sufficient? Discussing the Nature of Finance and Other Charges Under the Truth-in-Lending Act, 33 S.U.L. REV. 313, 317-18 (2006) (distinguishing between an open end credit agreement, which "is a credit agreement whereby the consumer is allowed to purchase items on an ongoing basis, provided the outstanding balance dues not surpass the preset spending limit," and a closed-end credit agreement, which is "generally payable in pre-determined installments").
(115.) See HOBBS ET AL., supra note 82, at 4.
(116.) Id. at 5; see also Primer on Debt Collectors, COLUMBUS DISPATCH, Oct. 7, 2012, http://www.dispatch.com/content/stories/local/2012/1007/dc-primer-art-gtujjba 4-1.html.
(117.) See WILLIAMS, supra note 66, at 26.
(118.) See BLACK'S LAW DICTIONARY 266 (9th ed. 2009) ("To treat (an account receivable) as a loss or expense because payment is unlikely; to treat as a bad debt."); sec also FED. FIN. INST. EXAMINATIONS COUNCIL, 65 FR 36903-01, UNWORM RETAIL CREDIT CLASSIFICATION AND ACCOUNT MANAGEMENT POLICY 2 (2000) (describing "charge-off policy for open-end credit at 18(I days delinquency and close-end credit at 120 days delinquency").
(119.) See Silver-Greenberg, supra note 79.
(120.) See, e.g., HSBC Bank Nev., N.A.v. Higgins, 899 N.Y.S.2d 60 (N.Y. Civ. Ct. 200).
(121.) See HOBBS ET AL., supra note 82, at 7-8; see also WILLIAMS, supra note 66, at 84-86.
(122.) See infra Part I.C.
(123.) See Mary Spector, Debts, Delaults and Details: Exploring the Impact of Debt Collection Litigation on Consumers and Courts, 6 VA. L. & BUS. REV. 257, 259-60 (2(111); see also N.Y.C.P.L.R. 52(15 (McKinney 2013) (New York's Exempt Income Protection Act); Fox, supra note 67, at 363; see e.g., Chase Bank USA, N.A.v. Greene, 901 N.Y.S.2d 898 (N.Y. Civ. Ct. 21)(19) (discussing and applying New York's Exempt Income Protection Act).
(124.) Sec APPLESEED, DUE PROCESS AND CONSUMER DEBT: ELIMINATING BARRIERS TO JUSTICE IN CONSUMER CREDIT CASES 2 (2010), available at http://appleseednetwork.org/wp-content/uploads/2012/05/Due-Process-and-Consumer-Debt.pdf.
(125.) Id. In New York, a judgment holder is also entitled to 9% annual statutory interest of the judgment amount. See N.Y.C.P.L.R. 5004 (specifying that judgments may collect 9% interest); see also N.Y.C.P.L.R. 211(b) ("A money judgment is presumed to be paid and satisfied after the expiration of twenty years from the time when the party recovering it was first entitled to enforce it.").
(126.) APPLESEED, supra note 124, at 2.
(127.) Under the Fait Credit Reporting Act (FCRA) civil judgments may remain on a consumer's credit report for no more than seven years. In New York, however, if a judgment is paid within five years, it may only appear on the consumer's report for five years. Compare 15 U.S.C. [section] 1681c (2012), with N.Y. Gen. Bus. Law [section] 380-j(f)(ii) (McKinney 2013) (prohibiting "judgments which, from date of entry, antedate the report by more than seven years or until the governing statute of limitations has expired, whichever is the longer period; or judgments which, from date of entry, having been satisfied within a five year period from such entry date, shall be removed from the report five years after such entry date").
(128.) See MFY LEGAL SERVS., QUESTIONS AND ANSWERS ON CREDIT REPORTS (2011), available at http://www.mfy.org/wp-content/uploads/Questions-Answers-on-Credit-Reports.pdf.
(129.) Pub. L. No. 95-109, 91 Stat. 874 (1977) (codified as amended at 15 U.S.C. [section][section] 1692-1692p (2012)). In addition to the FDCPA, debt collectors and debt buyers are also subject to enforcement under the Section 5 of the Federal Trade Enforcement Act, which prohibits unfair or deceptive acts or practices affecting commerce. See 15 U.S.C. [section] 45; see also FED. TRADE COMM'N, supra note 6, at 4 (explaining FTC Act).
(130.) N.Y. GEN. BUS. LAW [section][section] 600-603 (McKinney 2013).
(131.) N.Y.C. ADMIN. CODE [section] 20-488 (2012).
(132.) S. REP. NO. 95-382, at * 2 (1977), reprinted in 1977 U.S.C.C.A.N. 1695, 1696 ("The committee has found that debt collection abuse by third party debt collectors is a widespread and serious national problem. Collection abuse takes many forms, including obscene or profane language, threats of violence, telephone calls at unreasonable hours, misrepresentation of a consumer's legal rights, disclosing a consumer's personal affairs to friends, neighbors, or an employer, obtaining information about a consumer through false pretense, impersonating public officials and attorneys, and simulating legal process."); see also Richard D. Gage, A Remedy Foreclosed? Mortgage Foreclosure and the Fait Debt Collection Practices Act, 81 FORDHAM L. REV. 283, 286 (2012) (examining the purpose, effect, and coverage of the FDCPA). 133. Id.
(134.) Id. at * 1.
(135.) Id. For the purposes of the FDCPA, "consumer" means "any natural person obligated or allegedly obligated to pay any debt." 15 U.S.C. [section] 1692a(3). Likewise, the term "debt" means "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or hot such obligation has been reduced to judgment." Id. [section] 1692a(5); see also Munk v. Fed. Land Bank of Wichita, 791 F.2d 130, 132 (10th Cir. 1986) (FDCPA did hot apply to loan for agricultural purposes because the loan was not for personal, family, or household purposes); cf. Graham v. Manley Deas Kochalski L.L.C., No. 08-CV-120, 2009 WL 891743, at * 10 (S.D. Ohio Mar. 31, 21109) (refinancing mortgage loan was a 'consumer debt' for the purposes of the FDCPA even though a small percentage of the loan was used for investment purposes); Randolph v. Crown Asset Mgmt., L.L.C., 254 F.R.D. 513,518 (N.D. Ill. 2008) ($60.00 business-related expense did not establish that a credit card was not used primarily for personal, family, or household purposes where the total amount of the debt claimed was $12,602.69).
(136.) 15 U.S.C. [section] 1692a(6) (2(112).
(137.) Id. [section] 1692a(6)(A).
(138.) Id. [section] 1692a(4).
(139.) Although debt buyers have claimed that the FDCPA does not cover their collection activities because they collect debts they own, courts have consistently rejected this argument. See Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1486 (M.D. Ala. 1987); see also McKinney v. Cadleway Props., Inc., 548 F.3d 496, 501 (7th Cir. 2008) (holding that purchaser of defaulted debt is a debt collector for purposes of the FDCPA); Fed. Trade Comm'n v. Check Investors, Inc., 502 F.3d 159, 171 (3d Cir. 2007) (holding that purchaser of bad debts was debt collector under the FDCPA).
(140.) 15 U.S.C. [section] 1692a(6); see Crossley v. Lieberman, 868 F.2d 566, 569 (3d Cir. 1989) (holding that attorney who regularly engaged in debt collection on behalf of clients was a debt collector); HOBBS ET AL., supra note 82, at 7.
(141.) 15 U.S.C. [section] 1692d.
(142.) Id.; see also Heintz v. Jenkins, 514 U.S. 291, 292 (1995).
(143.) 15 U.S.C. [section] 1692f.
(144.) Id. [section] 1692e.
(145.) Id. [section] 1692e(11).
(146.) Id. [section] 1692e(2)(A).
(147.) Id. [section] 1692c(b).
(148.) Id. [section] 1692g.
(149.) Id. [section] 1692g(a).
(150.) Id. [section] 1692g(b).
(151.) Id. [section] 1692c(c).
(152.) N.Y. GEN. BUS. LAW [section][section] 6110-603 (McKinney 2013).
(153.) Compare id., with 15 U.S.C. [section] 1692d.
(154.) N.Y. GEN. Bus. LAW [section][section] 600-603.
(155.) Id. [section] 602; see also Citibank (S.D.) N.A. v. Sablic, 865 N.Y.S.2d 649 (App. Div. 2d Dep't 2008) (dismissing claim for harassment because the New York Debt Collections Procedure Law does not create a private right of action).
(156.) NIY.C. ADMIN. CODE [section][section] 20-488 to -493 (2012).
(157.) Id. [section] 211-488.
(158.) Id. [section] 20-493.2.
(159.) Id. [section] 20-490. But see Berman v. City of New York, No. 09-CV-3017 (ENV)(CLP), 2012 WL 4514407, at * 11-16 (E.D.N.Y. Sept. 29, 2012) (striking down portions of the New York City Administrative code requiring debt collection lawyers to be licensed by the DCA for being in contravention of New York Judiciary law regulation attorneys and for violating the dormant Commerce Clause of the United States Constitution).
(160.) N.Y.C. ADMIN. CODE [section] 20-493.2.
(161.) R.C.N.Y. [section] 2-190 (2013), available at http://18.104.22.168/nyc/rcny/Title6_2-190.asp; see also N.Y.C. ADMIN. CODE [section] 20-493.2(a).
(162.) R.C.N.Y. [section] 2-190.
(163.) N.Y.C. ADMIN. CODE [section] 20-493.2(a).
(164.) R.C.N.Y. [section] 2-190(b).
(165.) Id. [section][section] 2-191 to -194.
(166.) See Goldberg, supra note 80, at 742; see also Fox, supra note 67, at 362; Holland, supra note 78; Spector, supra note 123, at 269.
(167.) See WILNER & SHEVTEL-GOMES, supra note 2, at 6 (quoting FEDERAL TRADE COMMISSION, COLLECTING CONSUMER DEBTS: THE CHALLENGES OF CHANGE 55 (2009)); see also U.S. GOVERNMENT ACCOUNTABILITY OFFICE (GAO), CREDIT CARDS: FAIR DEBT COLLECTION PRACTICES ACT COULD BETTER REFLECT THE EVOLVING DEBT COLLECTION MARKETPLACE AND USE OF TECHNOLOGY 41 (2009), available at http://www.gao.gov/new.items/d09748.pdf ("In Chicago's Cook County Circuit Court, more than 119,000 civil debt collection lawsuits were pending as of June 2008, according to a review by the Chicago Tribune. State officials in Ohio told us that municipal court judges there handle as many as 1,000 debt collection cases per week. A review by the Boston Globe found that at least 60 percent of small claims cases filed in Massachusetts in 2005 were filed by debt collectors.").
(168.) See JONATHAN SHELDON ET AL., NAT'L CONSUMER LAW CTR., COLLECTION ACTIONS: DEFENDING CONSUMERS AND THEIR ASSETS 4 (1st ed. 2008).
(170.) Ste Centurion Capital Corp. v. Guarino, No. 1117/05, 2012 WL 1543286, at * 3 (N.Y. Civ. Ct. Apr. 30, 2012) (noting that debt buyer plaintiff "adopted as a business plan to use the New York State court system as an arm of its collection activities"); see also ANIKA SINGH, THE URBAN JUSTICE CTR., DEBT WEIGHT: THE CONSUMER CREDIT CRISIS IN NEW YORK CITY AND ITS IMPACT ON THE WORKING POOR 9 (2007), available at http://www.urbanjustice.org/pdf/publications/CDPDebt_Weight.pdf, Goldberg, supra note 80, at 742; Holland, supra note 7. Debt buyers use debt collection lawyers to pursue collection actions against consumers. Indeed, the relationship between debt buyers and debt collection law firms is close; "some debt buyers are actually owned by the principals of debt collection law firms." Ste WILNER & SHEFTEL-GOMES, supra note 2, at 4.
(171.) See FED. TRADE COMM'N, supra note 113, at 8 (discussing two reasons why service of process fails: (1) because service fails "to reach the consumer if it is delivered to an old or otherwise incorrect address or it is delivered to the wrong person, such as someone with a similar name" and (2) because "[s]ome process servers may simply not serve the consumer but falsely assert that they have done so").
(174.) Id. at 16 (reporting that several judges who participated in a study of debt collection lawsuits commented that the most common question consumers in debt collection lawsuits have is, "Where is this from?" and that many consumers are puzzled by the timing and amount of the debts alleged in a complaint and who the plaintiff is).
(175.) See FED. TRADE COMM'N, supranote 6, at 1.
(176.) See Jessica Silver-Greenberg, Problems Riddle Moves to Collect Credit Card Debt, N.Y. TIMES DEALBOOK, Aug. 12, 2012, http://www.dealbook.nytimes.com/ 2012/08/12/problems-riddle-moves-to-collect-credit-card-debt/.
(177.) See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) ("A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.").
(178.) See FED. TRADE COMM'N, supra note 113, at 14-17.
(179.) See id. at 15.
(180.) Although the FDCPA has been consistently interpreted to prohibit collectors from suing on debts that have passed the statute of limitations, some debt collectors sue or threaten to sue on time-barred debts. Some collectors also "revive" time-barred debt by persuading consumers to make payments on debts that have passed the statute of limitations. As soon as the consumer makes such a payment, the statute of limitations begins to run anew. See id. at 28.
(181.) See Holland, supra note 78, at 266-67 ("Debtors who do receive notice usually appear without legal representation because they either (1) cannot afford an attorney, or (2) cannot find an attorney who will take their case....As a result, consumer debtors, who lack any knowledge of their legal rights, must resort to appearing pro se and stumble through complex procedural and substantive legal issues that even some trained attorneys do not fully understand.")
(182.) See id. at 265 (finding that in most cases debt buyers are able to obtain a default judgment because the consumer has failed to appear at trial). In New York City, the rate of default has diminished significantly, presumably because of stepped up enforcement actions, reform measures adopted by courts, and advocacy. Compare New York City Civil Court Filing Statistics 2011 (on file with author) (indicating that default judgments were entered in just over 50% of total consumer filings), with New York City Civil Court Filing Statistics 2009 (on file with author) (reporting that default judgments were entered in 66% of total consumer filings), and SINGH, supra note 170, at 18 (a 2007 report finding default judgments in 80% of cases studied). See also infra Part II.A. (describing measures adopted by the Civil Court of the City of New York).
(183.) See APPLESEED, supra note 124, at 28 (noting that consumers without attorneys are "at a significant disadvantage and can be pressured into one-sided settlements, settling for amounts similar to or greater than those demanded in the complaints, which may include unknown interest and fees.").
(184.) See FED. TRADE COMM'N, supra note 113, at 17.
(185.) Id. at 18-19.
(186.) See id. at 1.
(187.) See N.Y. CITY CIV. CT. ACT [section] 102 (McKinney 2013). Today the Civil Court has courts in New York, Bronx, Kings, Queens, and Richmond counties. See DAVID D. SIEGEL, NEW YORK PRACTICE 22 (5th ed. 2011).
(188.) CITY CIV. CT. ACT [section] 201 ("The court shall have jurisdiction as set forth in this article and as elsewhere provided by law. The phrase '$25,000,' whenever it appears herein, shall be taken to mean '$25,000 exclusive of interest and costs.'").
(189.) See Civil Court History, NYCOURTS.GOV, http://www.courts.state.ny.us/ courts/nyc/civil/civilhistory.shtml (last visited Apr. 8, 2013).
(190.) CITY CIV. CT. ACT [section] 400.
(191.) N.Y.C.P.L.R. 308 (McKinney 2013); see also CITY CIV CT. ACT [section] 402.
(192.) See APPLESEED, supra note 124, at 11-14; WILNER & SHEFTEL-GOMES, supra note 2, at 6.
(193.) See Velocity Invs., LLC v. McCaffrey, 921 N.Y.S.2d 799, 801-02 (Nassau Cnty. Dist. Ct. 2011) (discussing Plau v. Forster & Garbus, No. 2009-8236 (N.Y. Sup. Ct. filed July 9, 2009), a special proceeding commenced by the Chief Administrative Judge of the New York State Unified Court System). The Pfau action alleged that process servers were engaging in sewer service and filing false affidavits of service, and found that "[w]hen the defendants who had not been properly served did not appear, default judgments were entered." Id. at 801. A single process server had "signed affidavits of service swearing he had been in two different locations on the same date at the same time on at least 10 different occasions." Id. at 802; see also APPLESEED, supra note 124, at 12-13.
(194.) See APPLESEED, supra note 124, at 11-14 (detailing the problem of lack of notice, the response of consumer advocates, and the reform measures adopted by court officials).
(195.) N.Y. CITY CIV. CT. UNIFORM R. [section] 208.6(h) (201)8), available at http://www.nycourts.gov/rules/trialcourts/208.shtml#06.
(197.) Under the New York CPLR there are three ways to serve a litigant. Sec N.Y. C.P.L.R. 308 (McKinney 2013). First, litigants may be served by personal delivery, which entails hand delivering a copy summons and complaint to the defendant. Id. Litigants may also be served by substituted service, a process in which a copy of the summons and complaint is left with a person other than the defendant "of suitable age and discretion" at the defendant's residence. Id. Third, litigants may be served by "conspicuous place delivery", or "nail and mail", which requires the server to affix a copy of the summons and complaint to the door of the defendant's residence. Id. After service has been made, the plaintiff must file an affidavit of service, attesting that the person who carried out the service is over eighteen years old and not a party to the action, and describing the type of service and if applicable a description of the person served. Id. [section][section] 306, 2103. The defendant then has twenty days to answer if the service was personal service, and thirty days to answer if the service was substituted or "nail and mail." Id. [section] 402.
(198.) See APPLESEED, supra note 124, at 15.
(199.) N.Y.C. ADMIN. CODE [section] 20-403 (2012).
(200.) Id. [section] 20-410.
(201.) Id. [section] 20-406.
(202.) Id. [section] 20-406.3.
(203.) See APPLESEED, supra note 124, at 32.
(204.) Id. at 22-23, 28-29.
(205.) Cf. id. at 28.
(206.) Id. at 28-29 (noting that 13% of a sample defaulted on settlement agreements).
(207.) Id. at 27, 30.
(208.) See SHELDON ET AL., supra note 168, at 49.
(209.) Cf. Citibank (S.D.), N.A.V. Martin, 807 N.Y.S.2d 284, 289 (Civ. Ct. 2005).
(210.) See, e.g. Velocity Invs., LLC v. McCaffrey, 921 N.Y.S.2d 799, 805 (Dist. Ct. Nassau Cnty. 2011); Martin, 807 N.Y.S.2d at 291 (discussing prima facie case in account stated causes of action).
(211.) See, e.g., Camacho Mauro Mulholland LLP v. Ocean Risk Retention Grp., Inc., No. 09 Civ. 9114(SAS), 2010 WL 2159200, at *2 (S.D.N.Y. May 26, 2010) ("To establish a claim for account stated, a plaintiff must plead that: "(1) an account was presented; (2) it was accepted as correct; and (3)[the] debtor promised to pay the amount stated. The account stated is based upon prior transactions between [the parties] with respect to the correctness of the account items and balance due. Recovery on a claim for account stated is permitted on the theory that the parties have, by their conduct, evidenced an agreement upon the balance of an indebtedness." (internal quotation marks and citations omitted)); Velocity Invs., 921 N.Y.S.2d at 805 (holding that to establish an account stated plaintiff was required to show that statements were sent to the defendant and that the defendant failed to pay); see also IMG Fragrance Brands, LLC v. Houbigant, Inc., 679 F. Supp. 2d 395, 411 (S.D.N.Y. 2009).
(212.) Sec Holland, supra note 170, at 16-17 (citing 1 AM. JUR. 2D Accounts and Accounting [section] 26 (2013)).
(213.) Sec id. (quoting 1 AM. J UR. 2D Accounts and Accounting [section] 29 (2013)).
(214.) Sec Martin, 807 N.Y.S.2d at 291-92.
(215.) Sc'e id.
(216.) John R. Higgitt, A Nullity or Not?--The Status of a Default Judgment Entered Absent Compliance with CPLR 3215(f), 73 ALB. L. REV. 807 (2010).
(217.) While failure to appear is the most common reason for default, it is not the only one. For instance, "[a] defendant who bas duly appeared can be guilty of a default at a later stage of the action, such as by failing to show up at trial at the scheduled time." Sec SIEGEL, supra note 187, at 493.
(218.) N.Y.C.P.L.R. 3215 (McKinney 2013). Courts, however, have "generally displayed great leniency in vacating defaults, indicating a strong judicial disposition to sec cases determined on the merits." JACK B. WEINSTEIN ET AL., NEW YORK CIVIL PRACTICE: CPLR 5015.05 (citation omitted); sec also N.Y.C.P.L.R. 5015 (McKinney 2013) (providing grounds for relief from judgment or order). There is, however, a split between appellate departments in New York over whether the plaintiff's failure to produce requisite proof of the cause of action at the default judgment stage renders the default judgment a nullity. Compare Freccia v. Carullo, 462 N.Y.S.2d 38 (App. Div. 2d Dep't 1983), with Natradeze v. Rubin, 822 N.Y.S.2d 541 (App. Div. 1st Dep't 2006), and Gagan v. Kipany Prods. Ltd., 735 N.Y.S.2d 225 (App. Div. 3d Dep't 2001). See also Higgitt, supra note 216.
(219.) See Collins Fin. Servs. v. Vigilante, 915 N.Y.S.2d 912, 917 (Civ. Ct. 2011) (quoting Gagen v. Kipany Prods., 735 N.Y.S.2d 225 (App. Div. 3d Dep't 2001)); see also Eric Y. Wu, Note, Vigilante Justice." Ensuring that Consumer Credit Plaintiffs Are Not Above the Lawin Collins Financial Services v. Vigilante, 60 AM. U. L. REV. 1561 (2011) (discussing Collins and the standard for default judgments in consumer credit lawsuits).
(220.) See SIEGEL, supra note 187, at 494.
(221.) Id. (citing McClelland v. Climax Hosiery Mills, 169 N.E. 605 (N.Y. 1930)). If, however, the defaulting defendant fails to appear at any damages trial or hearing, "the plaintiff may put in affidavits to prove damages." Id.
(222.) See Vigilante, 915 N.Y.S.2d at 917 (quoting Woodson v. Mendon Leasing Corp., 790 N.E.2d 1156, 1162 (N.Y. 2003)).
(223.) N.Y.C.P.L.R. 3215(f).
(226.) See SIEGEL, supra note 187, at 497. See also Vigilante, 915 N.Y.S.2d at 916 (holding that a "complaint verified by an attorney for the plaintiff is not sufficient to enter a default judgment unless the attorney submits an additional affirmation in that regard specifically acknowledging he or she has personal knowledge of the facts").
(227.) N.Y.C.P.L.R. 3215(a); see also SIEGEL, supra note 187, at 494.
(228.) N.Y.C.P.L.R. 3215(a). A sum certain is "[a]ny amount that fixed, settled, or exact." BLACK'S LAW DICTIONARY (9th ed. 2009).
(229.) N.Y.C.P.L.R. 3215.
(230.) Sec SIEGEL, supra note 187, at 494.
(232.) Id. (citing WEINSTEIN ET AL., supra note 218, at 3215.04 (Clerk May Enter Default Judgment in Qualifying Cases)).
(233.) See SIEGEL, supra note 187, at 494 (citing the New York Court of Appeals in Reynolds Securities, Inc. v. Underwriters Bank & Trust Co., 378 N.E.2d 106 (N.Y. 1978), to hold that "only the most liquidated and undisputed claims can be taken care of by the clerk"): see also Higgitt, supra note 216, at 809-10 ("Only a narrow class of claims may be submitted to the clerk. In this regard, the statute contemplates 'a situation in which.., there can be no dispute as to the amount due, as in actions on money judgments and negotiable instruments.' Thus, causes of action seeking unliquidated damages--such as torts--or equitable relief do not fall within that reserved class. If the complaint (or summons with notice) asserts any claim other than one for a 'sum certain,' the plaintiff's application for a default judgment must be made to the court.").
(234.) 44 N.Y.2d 568, 572 (1978); sec also WEINSTEIN ET AL., supra note 218, at 32275 (Clerk May Enter Default Judgment in Qualifying Cases) (noting that the sum certain requirement "is intended to ensure that the computation of damages by the clerk will be ministerial and involve no exercise of discretion").
(235.) LVNV Funding, LLC v. Delgado, No. 29263/08, 2009 WL 2370987, at *3 (N.Y Sup. Ct. Aug. 3, 2009); Collins Fin. Servs. v. Vigilante, 915 N.Y.S.2d 912, 920 (Civ. Ct. 2011) (listing information necessary for sure certain, including a complete history of the consumer credit account, which is required "in every affidavit of facts so as to constitute proof'" for default judgment).
(236.) See Vigilante, 915 N.Y.S.2d at 918-19; see also infra Parts II.B-C.
(237.) See SHELDON ET AL., supra note 168, at 6.
(238.) See Sykes v. Mel Harris & Assocs., LLC, 285 F.R.D. 279 (S.D.N.Y. 2012) (decision certifying a class of plaintiffs pursuing a Civil RICO action alleging that debt buyer, debt collection law firm, and process server defendants engaged persistent robo-signing and conspired to fraudulently obtain thousands of default judgments in New York City); see also Gray v. Suttell & Assocs., No. CV-09-251-EFS, 2012 WL 1067962 (E.D. Wash. Mat. 28, 2012); Brent v. Midland Funding, LLC, No. 3:11-CV-1332, 2011 WL 3862363 (N.D. Ohio Sept. 1,2011).
(239.) See APPLESEED, supra note 124, at 28.
(241.) Midland Funding LLC v. Loreto, No. 008963/11, 2012 WL 638807, at *6 (N.Y. Civ. Ct. Feb. 23, 2012).
(242.) See FED. R. EVID. 803(6); sec also N.Y.C.P.L.R. 4518(a) (McKinney 2013).
(243.) N.Y.C.P.L.R. 4518(a); see also Chase Bank USA, N.A.v. Gergis, No. CV83761-10/KI, 2011 WL 2409647, at *3 (N.Y. Civ. Ct. June 15, 2011) (holding that "[lit is well settled law that in order for a witness to lay the foundation for the admission of a document as a business record pursuant to CPLR 4518[a], the witness must demonstrate personal knowledge of the business practices and procedures pursuant to which the document was made" (citation omitted)).
(244.) See Rushmore Recoveries X, LLC v. Skolnick, No. 21161/05, 2007 WL 150643 (N.Y. Sup. Ct. May 24, 2007) (holding that debt buyer could not satisfy business records exception to the hearsay rule because plaintiff's custodian of records could not have personal knowledge of account agreement between defendant and original creditor).
(245.) Ste Citibank v. Martin, 807 N.Y.S.2d 284, 289 (Civ. Ct. 2005); see also Palisades Collection, L.L.C.v. Gonzalez, No. 58564CV2004, 2005 WL 3372971, at *1 (N.Y. Civ. Ct. Dec. 12, 2005).
(246.) See Rushmore Recoveries X, 2(107 WL at *2 (holding that "the mere filing of papers received from other entities, even if they are retained in the regular course of business, is insufficient to qualify the documents as business records." (citation omitted)).
(247.) See, e.g., Palisades Collection, LLC v. Kedik, 890 N.Y.S.2d 230, 231 (App. Div. 4th Dep't 2009); Centurion Capital Corp. v. Guarino, No. 1117/05, 2012 WL 1543286 (N.Y. Civ. Ct. Apr. 30, 2012).
(248.) Martin, 807 N.Y.S.2d at 291.
(249.) sec Midland Funding LLC v. Wallace, No. 1788-08, 2012 WL 29074, at *4 (Mt. Vernon City Ct. Jan. 5, 2012) (holding that a "full chain of assignment in addition to documentary proof of the contract and debt is required" for prima facie consumer credit action); see also Midland Funding LLC v. Loreto, No. 008963/11, 2012 WL 638807, at *10 (N.Y. Civ. Ct. Feb. 23, 2012).
(250.) See supra Part I.A.2.
(251.) See SHELDON ET AL., supra note 168, at 47.
(253.) See Silver-Greenberg, supra note 176.
(254.) Advisory Notice, Consumer Debt Cases: C.P.L.R. [section] 3015(e); Validation; Allocutions of Stipulations, AN-9 (N.Y. Civ. Ct. June 21, 2008), available at http://www.nycourts.gov/courts/nyc/SS1/directives/AN/consumerdebt.pdf; sec also Advisory Notice, Consumer Debt Cases: Statute of Limitations, AN-11 (N.Y. Civ. Ct. Feb. 23, 2010), available at http://www.nycourts.gov/courts/nyc/SSI/ directives/AN/AN11.pdf.
(255.) Memorandum from Jack Baer, Chief Clerk, Civil Court of N.Y.C., Default Judgments and Time Barred Debt in Consumer Credit Actions (June 1, 2010), available at http://www.nycourts.gov/COURTS/nyc/SSI/directives/CCM/ CCM186A.pdf. Although New York's statute of limitations for consumer credit transactions is six years, New York CPLR [section] 202 ("the borrowing statute") "requires that the cause of action be timely under both New York and the jurisdiction where the cause of action accrued." Id. (citing Portfolio Recovery Assocs., LLC v. King, 927 N.E.2d 1059 (N.Y. 2010)).
(256.) Directives and Procedures, Default Judgments on Purchased Debt, DRP-182 (N.Y. Civ. Ct. May 13, 2009) [hereinafter DRP-182], available at http://www.nycourts.gov/courts/nyc/SSI/directives/DRP/drp182.pdf; see also Memorandum from Jack Baer, supra note 255.
(257.) DRP-182, supra note 256.
(261.) Cf. Citibank v. Martin, 807 N.Y.S.2d 284, 291 (Civ. Ct. 2005) (holding that because "courts are reluctant to credit a naked conclusory affidavit on a matter exclusively within a moving party's knowledge, an assignee must tender proof of assignment of a particular account or, if there were an oral assignment, evidence of consideration paid and delivery of the assignment" (citation omitted)); see also Midland Funding LLC v. Wallace, No. 1788-08, 2012 WL 29074, at *4 (Mt. Vernon City Ct. Jan. 5, 2012) (holding that under New York law, "a full chain of assignment in addition to documentary proof of the contract and debt is required in order to prove a prima facie case in a consumer debt action where the plaintiff is an assignee of the original creditor," and that absent a full chain of assignment a plaintiff is "'unable to show its standing to sue the defendant and a lack of standing renders a litigation a nullity, subject to dismissal without prejudice"). 262. PRS Assets v. Rodriguez, No. 17301/05, 2006 WL 1707947, at *1 (Dist. Ct. Nassau Cnty. June 21, 2006).
(263.) Woodson v. Mendon Leasing Corp., 790 N.E.2d 1156, 1162 (N.Y. 2003).
(264.) Section 3215(f) of the C.P.L.R. requires plaintiffs to submit "proof of the facts constituting the claim, the default and the amount due by affidavit made by the party." N.Y.C.P.L.R. 3215(f) (McKinney 2013). If the plaintiff meets this burden, then the clerk may then enter a judgment for the plaintiff. Id.; see also Joosten v. Gale, 514 N.Y.S.2d 729, 732 (App. Div. 1st Dep't 1987) ("CPLR 3215 does hot contemplate that default judgments are to be rubber-stamped once jurisdiction and a failure to appear have been shown. Some proof of liability is also required to satisfy the court as to the prima facie validity of the uncontested cause of action."); Velocity Inv., LLC v. McCaffrey, 921 N.Y.S.2d 799, 805-06 (Dist. Ct. Nassau Cnty. 2011) (holding that a default judgment was hot proper where the plaintiff could not show that it had a prima facie case based on non-hearsay evidence).
(265.) Ste Joosten, 514 N.Y.S.2d at 732 (holding that a complaint verified by an attorney is insufficient for default judgment when the attorney lacks personal knowledge of the facts constituting the claim).
(266.) LVNV Funding, LLC v. Delgado, No. 29263/08, 2009 WL 2370987, at *3 (Dist. Ct. Nassau Cnty. Aug. 3, 2009); see also Palisades Collection, LLC v. Kedik, 890 N.Y.S.2d 230 (App. Div. 4th Dep't 2009); Proposed Brief of Amici Curiae Camba Legal Services, Inc. et al. as Amici Curiae Supporting Objectors-Appellants and Arguing for Reversal, Vassalle v. Midland Funding, LLC, No. 11-3814, 2012 WL 256644, at *27-28 (6th Cir. Jan. 19, 2012).
(267.) Velocity Inv., 921 N.Y.S.2d at 805.
(268.) Sec Giordano v. Berisha, 845 N.Y.S.2d 327 (App. Div. 1st Dep't 2007) (affirming trial court's denial of appellant's application for default judgment because the appellant did not establish proof of the underlying contract, the assignment, or the "particulars of the contract assigned" to the appellant).
(269.) Velocity Inv., 921 N.Y.S.2d at 8(15; sec also Citibank v. Martin, 807 N.Y.S.2d 284, 289 (Civ. Ct. 2005) (holding that the plaintiff's affidavit must establish proof of the original agreement between the lender and the card holder, as well as any revision to that agreement, proof that the agreement was mailed to the defendant, and "copies of credit card statements which serve to evidence a buyer's subsequent use of the credit card and acceptance of the original or revised terms of credit").
(270.) Velocity Inv., 921 N.Y.S.2d at 805 (holding that judgment should not have been entered where plaintiff failed to produce statements or establish that statements were business records).
(271.) Sec Martin, 807 N.Y.S.2d at 291 (holding that "an assignee must tender proof of assignment of a particular account").
(272.) Velocity Inv., 921 N.Y.S.2d at 805.
(273.) Sec Am. Express Bank, FSB v. Dalbis, No. 300082/10, 2011 WL 873512, at *12 (N.Y. Civ. Ct. Mar. 14, 2011) (noting that third-party debt collection lawsuits typically do not contain a "nano of a modicum of a scintilla of a prima facie case so as to be entitled to a judgment whether it be by default or otherwise" (internal quotations omitted)); LR Credit 21 LLC v. Paryshkura, 914 N.Y.S.2d 614, 616 (Dist. Ct. Nassau Cnty. 2010) ("The judges of this Court, and the lawyers practicing before them, know all too well that debt buyers rarely have readily available proof to establish an assigned debt claim."). 274. See APPLESEED, supra note 124, at 23-24.
(275.) See FED. TRADE COMM'N, supra note 6, at 35.
(276.) Id. at iii.
(277.) See Collins Fin. Servs. v. Vigilante, 915 N.Y.S.2d 912, 918 (Civ. Ct. 2011).
(279.) Id. at 915.
(280.) Id. at 914.
(282.) Id. at 915-16.
(283.) See Wu, supra note 219, at 1571-72 (examining the Vigilante decision and calling for other courts to impose similarly strict evidentiary requirements for default judgments in consumer debt cases).
(284.) See supra Part II.A.
(285.) See Consumer Credit Fairness Act, S. 2454, 21113 Leg., Reg. Sess. (N.Y. 2013), available at http://open.nysenate.gov/legislation/bill/S2454-2013.
(294.) In addition to the following legislative efforts, in 2012, the National Consumer Law Center published the Model Family Financial Protection Act to encourage state legislatures to take up debt collection reform. Sec ROBERT J. HOBBS & CHI CHI WU, NAT'L CONSUMER LAW CTR., MODEL FAMILY FINANCIAL PROTECTION ACT 2 (2012), available at http://www.nclc.org/images/pdf/debt_collection/model_family_financial_ protection_act.pdf. Pursuant to the Model Act, prior to the entry of a default judgment or summary judgment, the debt collector or debt buyer plaintiff must provide the court with detailed evidence substantiating the claim. Id. at 23-24. The Model Act states that "[t]he only evidence sufficient to establish the amount and nature of the debt shall be properly authenticated business records" that satisfy the appropriate business record exception under the particular state's rules of evidence. Id. at 24. This evidence must also include the same documentation needed to collect on the debt, or initiate a lawsuit, such as a copy of the original contract evidencing the debt and an itemization of all charges, interest, and fees. Id. In addition, the Model Act provides consumers with the right to a default judgment with costs for lost wages and transportation if the plaintiff fails to appear or is unprepared to proceed without good cause for a continuance (Title I of the model act comprehensively addresses common abuses in the credit and collections industries, for example the Act would create special protections for consumer form contracts or contracts of adhesion. Likewise Title II addresses property exempt from collection.).
(295.) N.C. GEN. STAT. ANN. [section] 58-70-150 (West 2013); sec also Consumer Economic Protection Act of 2009, S. 974, 2009 Leg., Reg. Sess. (N.C. 2009). Pennsylvania also requires a plaintiff to attach "a cardholder agreement and statement of account, as well as evidence of assignment" to their complaint. Atl. Credit & Fin., Inc. v. Giuliana, 829 A.2d 340, 345 (Pa. Super. Ct. 2003).
(296.) N.C. GEN. STAT. ANN. [section] 58-70-115.
(298.) Id. [section] 58-70-130.
(299.) See Terry Carter, Payback: Lawyers on Both Sides of Collection are Feeling Debt's Sting, ABA J. (Dec. 1, 2010), http://www.abajournal.com/magazine/ article/payback_lawyers on both_sides of collection are feeling_debts_sting/; Paul Tharp, New Debtor-Protection Legislation Puts the Big Chill on Debt Buyers, N.C. LAW. WKLY., http://nclawyersweekly.com/reprints/begnoche051710/(last visited Mar. 31, 2013); see also CARLENE MCNULTY & AL RIPLEY, N.C. JUSTICE CTR., NC DEBT BUYER LEGISLATION (2012), available at http://www.stateinnovation.org/Events/ Event-Listing/Policy-Directors-Webinar-Series-2011-12/Zombie-Debt/McNulty-and-Ripley---NC-Debt-Buyer-Legislation- Feb.aspx (noting that "very few cases" have been filed since the bill became law because it is difficult for debt buyers to comply with the law).
(300.) H.R. 80, 2013 Leg., 88th Sess. (Minn. 2013), available at http://wdoc.house.leg.state.mn.us/leg/LS88/HF0080.3.pdf; see also Jennifer Bjorhus, Minnesota Looks to Toughen Laws for Pugnacious Bill Collectors, STAR TRIB., Jan. 15, 2013, http://www.startribune.com/politics/statelocal/186812441.html. Similarly, the California state senate has passed the proposed Fait Debt Buyer Practices Act, which would require debt buyers to produce more documentation regarding a consumer's account to collect on that account or pursue collection through litigation. See S. 890, 2011 Leg., Reg. Sess. (Cal. 2011), available at http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill-id=201120120SB890. 301. H.B. 6173, 2013 Leg. (Conn. 2013).
(302.) Id. at 16.
(303.) See id.
(305.) Id. at 17.
(306.) Id. at 17-18.
(307.) Id. at 18.
(308.) Id. at 18-19.
(309.) MD. RULE 3-306; sep also STATE COLLECTION AGENCY LICENSING BD. & OFFICE OF THE ATTORNEY GEN. OF MD., REPORT TO SENATE JUDICIAL PROCEEDINGS COMMITTEE (2011) [herein after MD. REPORT], available at http://dlslibrary.state.md.us/publications/Exec/DLLR/HB358Ch332(8)_2011.pdf.
(310.) See MD. REPORT, supra note 309, at 2.
(311.) MD. RULE 3-306(d).
(312.) MD. RULE 3-509.
(313.) See Administrative Directive of the Chief Judge of the Court of Common Pleas for the State of Delaware, No. 2012-2 (Aug. 22, 2012).
(318.) MASS. UNIFORM SMALL CLAIMS R. 7(d), available at http://www.mass.gov/ courts/courtsandjudges/courts/districtcourt/uniform-small-claims-rules.pdf; see also Memorandum from the Appleseed Network to Trial Court Judges (2005), available at http://www.appleseednetwork.org/wp-content/uploads/2012/10/Appleseed-Judicial-Memo-Electronic.pdf.
(319.) FED. TRADE COMM'N, supra note 113, at E-9.
(321.) See supra note 228 and accompanying text.
(322.) Ste supra Part I.A.1.
(323.) See supra Part II.A.
(324.) Collins Fin. Servs. v. Vigilante, 915 N.Y.S.2d 912, 920 (Civ. Ct. 2011).
(325.) See supra Part II.B (discussing the Vigilante decision's requirement for a sum certain).
(326.) Reynolds Sec., Inc. v. Underwriters Bank & Trust Co., 378 N.E.2d 106, 109 (N.Y. 1978).
(327.) See supra Part II.B.
(328.) See supra Part II.C. These requirements are similar to those proposed by the FTC in response to the many evidentiary and due process problems endemic in debt collection lawsuits; see also FED. TRADE COMM'N, supra note 113, at 17.
(329.) Ste supra notes 290-92 and accompanying text.
(330.) As of this writing, the CCFA is still being considered by the legislature. The Senate version of the bill was referred to the Judiciary Committee on January 17, 2013. Sec S. 2454, 2013 Leg., Reg. Sess. (N.Y. 2013), available at http://open.nysenate.gov/legislation/bill/S2454-2(113. The Assembly, however, passed the CCFA on April 22, 2013. See Assemb. 2678, 2013 Leg., Reg. Sess. (N.Y. 2013), available at http://m.nysenate.gov/legislation/bill/A2678-2013.
(331.) Sec supra Part II.C.
(332.) See id.; sec also Memorandum from MFY Legal Services to N.Y.S. Legislature (Feb. 11, 2013), available at http://www.mfy.org/wp-content/ uploads/MFY-CCFA-Memo-of-Support-21113-Final.pdf (arguing that the CCFA would "prevent debt buyers from continuing to exploit gaps in out state's Civil Practice Law and Rules, while allowing legitimate cases to proceed").
(333.) See supra Part II.C.
(334.) See Centurion Capital Corp. v. Guarino, No. 1117/05, 2012 WL 1543286, at *4 (N.Y. Civ. Ct. Apr. 30, 2012).
(335.) See supra Part II.A.
(336.) See id.
(337.) See supra Part II.A-B.
(338.) See id.
(340.) See supra notes 327-29 and accompanying text.
(341.) See supra notes 295-99 and accompanying text.
(342.) See supra notes 152-65 and accompanying text.
(343.) See supra notes 295-99 and accompanying text.
(344.) See FED. TRADE COMM'N, supra note 6, at 11 (quoting BENJAMIN E. HERMALIN ET AL., 1 HANDBOOK OF LAW AND ECONOMICS 99 (A. Mitchell Polinsky & Steven Shavell eds., 2007)).
(345.) Am. Express Bank, FSB v. Dalbis, 927 N.Y.S.2d 814 (Civ. Ct. 2011).
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|Title Annotation:||I.C.2. Debt Collection Lawsuits in New York City through Conclusion, with footnotes, p. 1174-1200|
|Author:||Duffy, Conor P.|
|Publication:||Fordham Urban Law Journal|
|Date:||Mar 1, 2013|
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