New York officials still reaping millions from predatory lenders
The good times continue to roll for two New York City marshals whose work collecting debts for predatory lenders is making them millionaires.
Vadim Barbarovich, who already had the most lucrative city job in 2017, made 11% more last year, earning $1.9 million, according to documents released in response to a public-records request. His main competitor in collections work for the cash-advance industry, Stephen Biegel, almost doubled his take to $1.4 million.
The two marshals were the subjects of a Bloomberg News article in November detailing how they collect debts from small-business owners across the country by seizing cash from bank accounts and pocketing a share for themselves, often stretching the limits of their jurisdiction. The article prompted Mayor Bill de Blasio to declare that "the entire model needs a new look."
Five months later, the only sign of change is the steady climb in marshals' earnings.
"The marshals haven't been deterred one bit," said Shane Heskin, a lawyer who represents borrowers and has filed complaints against Barbarovich and Biegel. "People were very upset about this conduct and expected something to be done about it, and as far as I can see on my end, it's business as usual."
The Department of Investigation, which oversees the city's 35 marshals, said it has "been in touch with City Hall" but wouldn't say whether any policy changes were in the works. Diane Struzzi, a spokeswoman for the agency, said an investigation of Barbarovich, disclosed last year, still hadn't been completed. She declined to comment about whether any marshals had been disciplined recently for overstepping their jurisdiction.
De Blasio didn't reappoint Barbarovich when his five-year term expired in November, but he's allowing him to remain on the job. The mayor's office had no comment, and Barbarovich and Biegel didn't respond to requests for comment.
"I can't believe we don't have laws to stop what these people are doing," said Merle Heckman, a Roanoke, Virginia home-builder who said his bank account was emptied of $140,000 after Barbarovich and Biegel filed demands this year. He said a cash-advance salesman tricked him into taking on unsustainable debt, costing him his entire business. "I'm 75 years old. I'm going to have to live on my Social Security for the rest of my life."
Most marshals concentrate on tasks like evicting tenants and towing cars with unpaid parking tickets. Barbarovich and Biegel are the go-to marshals for an industry known as merchant cash advance, in which unregulated companies lend to businesses such as pizza shops and construction contractors at annualized interest rates that can top 400%. Allegations of fraud are common in the industry, which is a magnet for convicted felons.
Confessions of judgment
The city plays a pivotal role in this nationwide business, in part because New York State law is uniquely friendly to a legal instrument known as a confession of judgment. Many cash-advance companies demand that borrowers sign one as a condition of a loan. In effect, they're agreeing to lose in court if a dispute about repayment arises.
No matter where in the country lenders and borrowers operate, these loans typically include a New York confession of judgment. Cash-advance companies have obtained more than 25,000 such judgments in the state since 2012, Bloomberg News reported in November.
Unlike most other officers who enforce civil judgments, such as county sheriffs, New York City marshals aren't paid a government salary. Instead, they keep about 5% of money they recover and compete against one another for business, giving them an incentive to collect as much as possible. The city, in turn, gets a cut of the marshals' fees.
While sheriffs can enforce judgments only in their home counties, marshals grab money from bank accounts across the country. They're supposed to deliver all money demands by hand to a bank officer within the five boroughs of New York. But city officials allow them to use a loophole to vastly expand their reach. If an out-of-state borrower has an account at a bank like Wells Fargo that has a presence in New York, the marshal can visit the local branch and demand the money.
The Department of Investigation acknowledges that banks don't have to comply with such orders if they require transferring cash from states where no judgment is in effect. But the city allows marshals to issue the orders anyway, saying they might not know for sure where the money is located and banks do.
"As directed under CPLR 5232(a), you are required to immediately turn over to me all property of the judgment debtor," the marshals' written orders proclaim, referring to the state's Civil Practice Law and Rules. A few banks reject such demands, but most comply.
"They say if you do not comply with this levy, you will be in violation of a court order," said Heskin, the lawyer for borrowers. "To me, that's not telling a bank they have an option."
Heskin said marshals frequently ignore even the minimal constraints on their jurisdiction, demanding money from banks that don't have any connection to New York. Marshals will fax an order to Michigan or mail one to Ohio. That's prohibited under the rules, but there don't seem to be any consequences, he said.
Heskin, a partner at White & Williams LLP in Philadelphia, said he has reported numerous instances of such behavior over the past two years. He provided Bloomberg News with copies of emails to Department of Investigation officials. The department typically responds by saying it is investigating. So far, he said, nothing has come of these inquiries.
The department sent a memo to marshals in December, reminding them that all money demands must be served in person and within city limits. Struzzi declined to say whether it had found any violations.
Only a "very, very small number" of marshals do cash-advance work, said Michael Woloz, a spokesman for the Marshals Association of the City of New York. He said marshals merely enforce judgments and aren't responsible for lapses by lenders or courts.
Barbarovich, a former hospital property-control coordinator, works out of an office in the Brooklyn neighborhood of Sheepshead Bay. Biegel, a former police lieutenant, works in Manhattan.
Barbarovich's $1.9 million in earnings after expenses is more than seven times what Mayor de Blasio took home last year, and the most of any city marshal, the financial records show. Biegel was the third-highest earner among marshals.
The records cover a period that mostly predates de Blasio's December comments, but state court records indicate that the pair have continued to pursue out-of-state money in 2019.
Although the city appoints and oversees marshals, the office is governed by state law. In January, Assemblywoman Yuh-Line Niou submitted a bill calling for the establishment of a task force to investigate reports of marshals' involvement with predatory lending and to consider abolishing the position.
"We should examine whether or not they are still useful," said Niou, who hopes to have a hearing on the matter. "They weren't created for this purpose. That's what it's mutated to be."