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Courthouse 'Rocket Dockets' Give Debt Collectors Edge Over Debtors

Early on a chilly Friday in January, Franklyn Williamson walked into courtroom 264B of the Prince George's County, Md., district courthouse. An athletic 55-year-old realtor in Silver Spring, Williamson had canceled a Florida trip to appear in court that day. He wasn't there for a trial or an official hearing, however. Like the 169 other people on the docket that morning, Williamson had received an official court summons for a one-on-one meeting with a debt collector.

Greeting Williamson in the courtroom was a handwritten sign instructing him in English and Spanish to check in with a court clerk, who was seated next to an empty judge's chair. As defendants lined up to approach the bench, the clerk sorted their files into stacks for plaintiffs' attorneys representing American Express (AXP), Capital One (COF), SunTrust (STI) and several large debt collection companies.

The attorneys sat around tables in the front, some stationing themselves in the jury and witness boxes. Defendants retreated to the back benches to wait for their names to be called. Eventually, one of the plaintiffs' attorneys picked up Williamson's file and beckoned him up to what Maryland's district courts refer to as his "resolution conference." Consumer advocates have another name for them: rocket dockets.

At first glance these sessions resemble legally mandated mediation: they take place in courtrooms and are administered by clerks and uniformed bailiffs. Attorneys from the Pro Bono Resource Center of Maryland, a local legal aid service, monitor the proceedings and offer some defendants assistance. A court interpreter is often on hand to help non-English-speaking debtors.

What's missing is a judge or other neutral moderator. Whether debtors realize that and that they have no legal obligation to sit down with their debt collectors is a hotly debated topic.

Many of the defendants are "just really not prepared at all. Most of them do think they're at trial," says Nicole McConlogue, the Pro Bono Resource Center of Maryland's consumer protection project manager, who regularly advises people summoned to the resolution conferences.

These debt-collection dockets, which are also used by the district court of Maryland's Montgomery County, are the most formalized version of a process familiar in overworked courts around the country. Consumer attorneys in California, Connecticut, Illinois, Indiana, Massachusetts, Michigan, New York, Texas and Washington describe various local-court efforts to streamline the processing of debt-collection lawsuits by eliminating judges. Some of these courts automatically route cases to traditional mediation sessions presided over by neutral third parties. More commonly, judges and courtroom staff encourage or instruct defendants to step outside for "hallway conferences" with debt collection attorneys, the consumer representatives say.

Courts are relying on these shortcuts to handle a flood of debt-collection lawsuits even as the basis for some of the suits has been called into question. Banks and debt buyers have been facing mounting regulatory scrutiny over serious flaws in their debt collection processes and paperwork, to the extent that one large credit card issuer has stopped filing collections lawsuits entirely. But the tightened standards for how banks and debt collectors handle defaulted consumer debt do not appear to have trickled down to local courts.

"We know that the banks need more oversight in what [debt] they sell," says Peter Holland, a University of Maryland law professor and a longtime critic of the dockets. "We know that the debt buyers need more oversight of what they sue over. So putting them into a courtroom that doesn't have a judge or a neutral [party] overseeing the process just magnifies the potential for error."

Consumer advocates and collections industry groups alike estimate that there are millions of debt-collection lawsuits filed annually, though nobody compiles statistics at a national level. In New York state alone, more than 200,000 debt collections lawsuits were filed in 2011, according to a June report from the nonprofit New Economy Project. In Maryland, third-party debt buyers alone filed 37,000 collections suits in 2011 and 22,000 the following year, according to an upcoming paper by Holland. The defendants tend to be members of minority groups with low incomes and few resources to hire their own lawyers.

Because banks and third-party debt collectors have made them the preferred venue, local courts have been struggling for years to cope with the caseloads. The volume has been especially high since the financial crisis struck. Judge Ben C. Clyburn, the Chief Judge for the District Court of Maryland, estimates that debt-collection cases constitute 70% of his court's entire civil docket.

When credit card customers and other small-time borrowers become delinquent, banks typically send out letters demanding repayment before resorting to filing a collections suit. JPMorgan Chase (JPM) recovered $1.4 billion in 2010 from credit card customers even after they had formally defaulted on their debts, according to Securities and Exchange Commission filings. In cases where even legal efforts fail, banks often write off the debt entirely and sell third-party collectors rights to try to collect it for pennies on the dollar of face value.


(3) Comments



Comments (3)
It started in January, debt collection agencies will be under the direction of the Consumer Financial Protection Bureau. Many had wait for the CFPB to bring that market in, but time will tell if it is important.
Posted by juliacampbell | Tuesday, April 29 2014 at 12:53AM ET
The Maryland Courts should invest in self help centers, where those without lawyers can go for orientation and be presented all of their options, before they go to an unattended conference that has the imprimatur of being a judicial settlement. All the materials and agreements should be put by the creditors in plain language before they can be used (and translated if the person speaks a language other than English at home or at their request). As in the Turner case, the courts should be making easy to understand forms (online guided interviews or the like) that can help the defendant create a complete response--and that inform the person of the process and the options, before they commit to going to a voluntary process where they might enter into agreements that they don't understand, accept debt they don't owe, or commit to terms that are not realistic, and in the process perhaps damage their credit record even more. If self help and useful online forms are developed by the courts, eventually they will be less overwhelmed by the volume of cases. Other states are owning these issues in other states, including NY courts and California Courts. In NY courts they have just approved a new set of services staffed by navigators. It would be great if Maryland and other courts invest in systems/tools that can help them manage the process/volume while at the same time educating the party with less power and less resources. The American College of Bankruptcy offers grants to create projects--maybe that funding can be increased to create new solutions to this problem in Maryland and beyond, and maybe other federal funders can also study this space and see if there other ways to improve the process for those in litigation mode and without a lawyer in their case.
Posted by c4johnson | Tuesday, February 11 2014 at 8:15PM ET
Going on 6 years after the Financial Crisis, it's hard to believe the US financial services industry is still stacked against consumers, and that the CFPB isn't uncovering these types of collections abuses rather than American Banker. It's reminiscent of Bloomberg News uncovering Chase's London Whale fiasco rather any of the hundreds of resident examiners dispersed throughout the bank from 3 federal regulatory agencies.
Posted by jim_wells | Tuesday, February 11 2014 at 4:11PM ET
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