May 10, 2014

NY's top judge proposes tougher burden of proof for debt collectors

New York's chief judge is joining the fight against a growing trend of false credit card debt lawsuits through a new rule that will increase the burden of proof on plaintiffs.

Chief Judge Jonathan Lippman, announced the new rules last Wednesday in the New York State Court of Appeals. The rules would require plaintiffs in credit card debt cases to provide testimony from the original creditor, a copy of the credit agreement, each prior owner of the debt and prior value of the debt with the current amount owed, including interest and other charges. Plaintiffs would also be required to submit an affidavit proving the statute of limitations for a debt case has not expired.

Currently, debt collectors can submit unreviewed, or "robosigned," affidavits with basic, if any, information about the debt's history and hearsay allegations.

According to Lippman more than 100,000 consumer credit lawsuits are filed in New York courts every year. The current statute of limitations for these cases is six years. According to Lippman, in the six years during which a case can be filed multiple third-parties could have bought and sold the debt at issue.

Lippman said these debts, which he called "zombie debts," are hard to fight in court because often it is difficult for debtors to validate important information such as whether they actually owe the debt, if the amount owed is correct and whether the plaintiff actually owns the debt.

Lippman also said 98 percent of debtors are unrepresented by attorneys.

"It is hardly surprising, then, that significantly more than half of consumer credit cases filed in New York courts result in default judgments," Lippman said.

The new rules will undergo a 30-day public comment period ending on May 30 and will be implemented on June 15.

Lippman's efforts coincide with work done by the Attorney General's Office and the state Legislature, both of which have shown support for the new rules.

"The ability to collect a debt should not come at the expense of consumers, who have been abused time and again during the litigation process in New York," Attorney General Eric Schneiderman, said. "I commend Chief Judge Lippman for proposing these important reforms — ones that will promote a fairer legal process for thousands of consumers."

According to Schneiderman's office, the attorney general receives hundreds-of-thousands of complaints each year about debt collection activity in New York, and has investigated several cases of fraudulent debt collection practices.

Late last year Schneiderman provided recommendations to New York's Office of Court Administration for rules to ensure fair due process for debtors. According to Schneiderman's Office many of the recommendations Schneiderman made were included in Lippman's proposals.

Chair of the Assembly committee on the Judiciary, Helene Weinstein, sponsors a bill called the Consumer Credit Fairness Act, that creates a three-year statute of limitations for credit card debt cases and requires information be sent by debt collectors to defendants, including their rights under state law and the initial debt collection correspondence.

Weinstein, D-Brooklyn, supports Lippman's proposed rules, but said her legislation is still necessary. "The legislation is still needed to both put into law the reforms proposed by the chief judge and provide a way for people to challenge judgments made against them," Weinstein said.

"The one thing the legislation does, that can't obviously be done by rules, is to shorten the statute of limitations. When those debts linger, all that happens is fees and interest keep increasing."

Weinstein said the accumulation of fees and interest is what really hits debtors hard when cases are filed.

"It's not fair. It doesn't comport with due process," Lippman said of current practices for credit card debt cases. "Let's put [plaintiffs] to the proof."

www.legislativegazette.com

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