A Sum Uncertain: Preserving Due Process and Preventing Default Judgments in Consumer Debt Buyer Lawsuits in New York

Article excerpt

Introduction   I. Background on Consumer Credit, Debt Collection, and Debt      Collection Lawsuits      A. Consumer Credit and Debt Collection         1. Consumer Credit         2. Debt Collection: Industry and Players         3. Debt Collection: Process      B. Debt Collection Regulation         1. Federal Regulation: The Fair Debt Collection            Practices Act         2. New York State and New York City Debt            Collection Regulation      C. Debt Collection Lawsuits         1. General Overview and the Role of Debt Collection            Lawsuits in the Debt Buyer's Business Model         2. Debt Collection Lawsuits in New York City  II. Conflict: Preventing Inappropriate Default Judgments in      Debt Buyer Lawsuits      A. The 2009 New York City Civil Court Directive      B. What Is a Sure Certain? The Directive's Conflict with         New York Case Law for Verification of a Debt      C. New York's Proposed Consumer Credit Fairness Act      D. Debt Collection Reform in Other States         1. Legislative Efforts         2. Reforms Adopted by Courts III. Solutions: Requiring Proof and Defending Due Process      A. What Constitutes a Sum Certain?      B. New York Should Enact the Consumer Credit         Fairness Act      C. The Civil Court Should Revise Its Directive on         Default Judgments for Purchased Debt to Comply         with New York Case Law      D. New York Should Consider Amending the Debt         Collection Procedures Law Conclusion 

INTRODUCTION

Since the mid-2000s, the Civil Court of the City of New York ("Civil Court") has been overwhelmed by debt collection lawsuits. Between 2006 and 2008, debt collectors filed approximately 300,000 lawsuits per year, and although these numbers have decreased since this peak period, (1) debt collection lawsuits continue to clog Civil Court dockets. (2) These judgments are especially troublesome because they disproportionately impact New York City's low- and moderate-income communities and communities of color. (3) Moreover, because a judgment remains on a defendant's credit report for at least five years in New York, it can prevent a person from obtaining employment or a promotion, housing, and access to other credit. (4) Debt buyers, entities that purchase defaulted debts, file many of these lawsuits. (5) Although debt buyers claim that they reduce the losses that creditors incur in extending credit to consumers, (6) they also pursue litigation for profit] Debt buyers purchase bad debt for pennies on the dollar and pursue collection, in part, through litigation. (8) Frequently, however, debt buyers do not purchase enough documentation or information to support a consumer collection lawsuit. (9) To make matters worse, consumer defendants often lack notice of these lawsuits and many are unable to afford an attorney. (10)

If a defendant does not respond to the summons and complaint, or fails to appear in court at any point in the litigation, the debt buyer can apply for a default judgment. (11) Moreover, if the debt buyer's claim is for a sum certain or a sum which by computation can be made certain, a court clerk--not a judge--will review the application for the default judgment. (12) Under New York's Civil Practice Law and Rules (CPLR), if the debt buyer's claim is for a sum certain, the clerk may enter judgment so long as the debt buyer attaches an affidavit to the application stating that, among other things, it purchased the defendant's debt in a "pool of debts." (13) This practice, however, does not comply with New York case law, which requires plaintiffs at the default judgment stage to prove the facts constituting the claim, and that there is "no reasonable question about the amount of the judgment" sought. (14) This Note examines this conflict, the various approaches to preventing inappropriate default judgments in debt buyer lawsuits, and provides solutions to the problem of inappropriate debt buyer default judgments. …