New York has taken a big step against debt collectors. A class-action lawsuit will end their practice of claiming that they have served debtors with notice. In fact, many collectors simply toss the notices away. The practice is called “sewer service.”
When people do not have enough money, they may miss payments on their credit cards. The credit card companies sell the debt for pennies on the dollar to collection agencies. The collection agencies try to get as much money as they can from the person who is in debt.
Debtors are supposed to get collection notices. When debtors do not get them, they do not show up in court. The collector is able to get a default judgment against the debtor. The collector can seize the debtor’s personal property. This includes bank accounts. For the debtor, penalties and fines grow. Credit ratings go down. It becomes harder to get a job or rent an apartment. Life can become a nightmare for lower-income families.
New Yorkers had about $800 million in judgments against them before the class-action lawsuit. Now, the judgments against them will be dismissed. The collection companies doing the harm will not be able to continue the practice.
The court ordered $59 million in payments returned to 75,00 people who had made payments to the collectors.
Process servers were a big part of the problem. They are supposed to deliver the notices. They get paid more if they are successful in delivering the notices. That is why they say notices have been delivered even if they have not been. That practice will end.
New York officials are saying they hope this settlement will change things around the country. For the most part, it is the poor and minorities who are the victims.
Source: The New York Times November 13, 2015