Academic journal article Vanderbilt Law Review

Adminization: Gatekeeping Consumer Contracts

Academic journal article Vanderbilt Law Review

Adminization: Gatekeeping Consumer Contracts

Article excerpt

Introduction

When Margaret Donnelly, an eighty-five-year-old widow suffering from a congestive heart disease, woke up that morning, she did not realize she was hours away from facing a warrant for her arrest.1 But that was the message the county sheriff had for her. He explained to her that a lawsuit was filed against her for a debt of $1,471 in the local court.2 He also informed her that because she failed to appear in court, the judge entered a default judgment against her, which she now had to pay from her meager income. This news caught Ms. Donnelly by surprise-she never heard about the lawsuit. Admittedly, even if she had, there was little she could do, as hiring a lawyer would overextend her budget. This is despite the fact that the case had no merit whatsoever: the debt was paid in full many years ago and, in any event, no evidence was brought to support the claim.3 Worryingly, the lawsuit was part of a pattern of abusive lawsuits filed by a local law firm that targeted over one hundred thousand consumers, a practice facilitated by the difficulty consumers like Ms. Donnelley face in accessing the courts and challenging these unmeritorious lawsuits.4 A large body of evidence shows that millions of others in the courts also face "a silent, shameful crisis that inflicts suffering and costs the nation money, legitimacy, and decency."5

Open doors, they say, may tempt the saints. Every year, about eight million debt claims are filed by large companies and debt buyers against consumers.6 Of those, over six million lawsuits turn into default judgments, with little, if any, judicial oversight.7 One in three consumers is estimated to be at risk of facing such a lawsuit.8 As with Ms. Donnelly's case, many of these debt claims lack merit and involve debts that are resolved, expired, inflated, and in some cases, outright fraudulent.9 A recent study found, for example, that debt buyers knowingly purchase debts that are well beyond the statute of limitations, with at least twelve percent of the debt portfolio of large debt buyers consisting of stale debt.10 In 2016, Citibank and two of its affiliates were ordered to pay $11 million and forego the collection of $34 million in consumer debt for the filing of false affidavits which misstated both the size of the debt and its age.11 J.P. Morgan Chase reached a $136 million settlement for its role in selling debts that were legally uncollectable to debt buyers.12 The Consumer Financial Protection Bureau ("CFPB") also recently took action against a large debt buyer who was ordered to pay over $2.5 million for its attempt to knowingly collect on "fraudulent debts, debts that consumers had paid or settled, and debts that were so old that they could no longer be legally collected."13 The regulator itself concluded that "[t]he system for resolving disputes about consumer debts is broken."14

To solve the problem of such unmeritorious claiming, this Article proposes the "Adminization" of civil litigation. Adminization places a gatekeeper administrative agency between consumers and debt collectors, which is tasked with autonomously investigating and finding bad cases before they reach court. After filing and before litigation, a sample of cases will be audited by an administrative agency, and where fraud is found, large fines can be issued against the offender. Both economic analysis and psychology suggest that the mere prospect of detection can deter wrongful behavior, and much more so when it is coupled with severe fines.15 Using samples, audits, and fines, Adminization will provide a fresh and cost-effective solution to consumer credit contracts litigation-the most common form of all civil litigation.

A few different institutional arrangements could support Adminization, such as federal agency review through one of the existing consumer protection agencies (the Federal Trade Commission ("FTC") or the CFPB); state attorney general offices and state level consumer agencies; or some combination thereof. …

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