April 2, 2013
Judge OKs claim vs debt buyer for 'deceptive' tactics
NEW YORK (Reuters) - The largest U.S. buyer of unpaid consumer debt must face a consumer's claims that it engaged in deceptive practices during litigation to collect a debt, a state judge has ruled.
Nassau County District Court Judge Michael Ciaffa said it was the first time a New York state court had decided a debt buyer could be sued by a consumer under section 349 of the state's General Business Law, which says "deceptive acts or practices in the conduct of any business" are unlawful.
Midland Funding sued Adriana Giraldo last year to collect a disputed $12,553 credit card debt that it said it purchased in 2011, one of thousands of accounts it buys from banks each year. Giraldo filed a counterclaim alleging the company had violated the statute. She said it had brought the lawsuit without proof she owed the money and was attempting to "deceive and mislead" her into paying the bill.
On a motion to dismiss the counterclaim, Midland said that the statute could be used to target "deceptive and misleading" practices in business, not in litigation.
The court disagreed, saying in its March 22 ruling that Giraldo had standing to bring the counterclaim.
"The Court sees no reason why a debt buyer should be deemed immune from liability under GBL §349 simply because its deceptive actions occur in the context of pursuing civil litigation," he wrote.
Debt buyers would not be liable under the statute simply because they did not have evidence that the consumer owed money at the time they filed a complaint, the judge said. It was sufficient that evidence was "readily available" during the course of the court proceedings.
Giraldo's is one of 2,000 currently active suits from Midland in Nassau District Court, the ruling said. Midland has filed more than 20,000 cases since 2006 in that court alone, averaging more than 3,000 per year over the last 6 years, the ruling said.
A lawyer for Giraldo, Jesse Langel, said that the ruling highlights a potential avenue of legal recourse for consumers who believe they were wrongly targeted for collection.
"There's no immunity for litigating attorneys, debt buyers or other debt collectors to make deceptive representations during the course of litigation," Langel said.
In a statement, Midland senior vice-president and general counsel Greg Call said that the company "respectfully disagrees" with the ruling. "We are confident in the facts of this case and will continue to engage with the court and counterparty in an effort to find a fair resolution," he said.
Banks that sell consumer debt to third-party buyers like Midland have recently come under scrutiny. Reuters reported in March that some of the largest U.S. banks are facing a multi-state probe into whether they helped debt collectors pursue faulty judgments against consumers. The banks at the time declined to comment.
The case is Midland Funding LLC v. Adriana Giraldo, Nassau District Court, First District, No. 021859-2012.
For Midland: Cohen & Slamowitz.
For Giraldo: Jesse Langel.
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