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Empire Justice Center Testimony Before Joint Committees on Consumer Affairs and Aging

Assembly Standing Committee on Consumer Affairs and Protection

December 1, 2008


Prepared by:

Peter Dellinger

Saima Akhtar

Presented by:

Don Friedman 


10:30 a.m.
Assembly hearing Room 1923, 19th Floor
250 Broadway
New York City, NY


I. Introduction:

Thank you for the opportunity to present testimony at this important hearing. My name is Don Friedman and I am presenting this testimony on behalf of my colleagues with the consumer unit at the Empire Justice Center. For those of you who are not familiar with Empire Justice, we are a non‐profit legal services organization with offices in Albany, Rochester, White Plains and Central Islip (Long Island). Empire Justice provides support and training to legal services offices statewide, undertakes policy research and analysis, and engages in legislative and administrative advocacy. We also represent low‐income individuals, as well as classes of New Yorkers, in a wide range of poverty law areas including consumer law.

We would like to begin by thanking Assemblymember Pheffer, Assemblymember Dinowitz and your esteemed colleagues in the Assembly for supporting and passing the Exempt Income Protection Act (S.6203‐B Volker / A.8527‐A Weinstein). The Exempt Income Protection Act (EIPA) closed a loophole in New York’s debt collection law, which had previously allowed banks to restrain accounts containing exempt income like Social Security, disability benefits, and pensions. The loophole allowed the income in these accounts to be frozen and therefore inaccessible to seniors and others even though the money was exempt from collection under both Federal and New York State Law. The enactment of the EIPA was a critical step toward curbing abusive debt collection practices and keeping limited funds in the hands of seniors and other who desperately need the money. We applaud the Assembly for taking this important step to make economic security for lower and moderate income individuals a reality and we look forward to working with you to enact similar consumer protections for vulnerable New Yorkers in the coming year.

It is well known that seniors are particularly vulnerable to credit card debt. Many use credit cards as a plastic safety net to make essential purchases they could not otherwise afford.  Their strong ethic of paying what they are told that they owe is precisely what the credit card companies exploit. [1] When these debts become over‐whelming, seniors often become victims of unlawful debt collection litigation tactics used by largely unregulated corporate debt buyers. [2] Debt buyers are new and big and growing; they purchase the defaulted debt owed by thousands of consumers from the original creditor (often a credit card company) for pennies on the dollar, and then try to collect on these debts by using the courts. [3] In 2005, these companies held about $170 billion in credit card debt less than five years old. [4]

All too often, debt buyers bring suits against consumers seeking payment for debts, which have been previously paid. This now occurs with such frequency that these cases have a special name: “Zombie Debt”. An increasing number of similar cases arise from identity theft or mistaken identity. Debt buyers also bring cases against consumers for payment of stale debt, where the statute of limitations has already expired. Many debt buyer suits are routinely filed by their lawyers without investigation or proof of the amount actually owed by the consumer, and cases may be based on clerical errors or include illegal fees and charges. [5]

The number of consumer cases filed by debt buyers in courts throughout New York State has exploded and involves billions of dollars. According to the Urban Justice Center, approximately 320,000 consumer debt cases were filed in the five boroughs comprising New York City in 2006. [6] Almost 90% of these cases were brought by debt buyers. [7] In each of these 320,000 cases, the creditor was represented by an attorney. According to the Urban Justice Center, in 96% of these same cases, the consumer‐defendant never was represented by counsel. [8] Thus, it is hardly surprising that a default judgment for the debt buyers was entered in 80% of these cases. [9]

Today, this testimony will address questions posed in the invitation to this hearing regarding common consumer scams perpetrated against senior citizens and legislation that could help alleviate these scams. The staff at the Empire Justice Center has worked with a number of senior citizens in Western New York who were subjected to unfair debt collection lawsuits that resulted from zombie debt. In response to the recurrent problems with debt collection, the Empire Justice Center supports four proposed legislative actions that would protect consumers from unscrupulous debt collection practices and create new solutions for those subjected to these scams.

II. Debt Buyers v. Vulnerable Seniors:

The following case is an example of the unfair and frequently illegal tactics used by these debt buyers in suing seniors for zombie debt; their inadequate factual investigation before filing suit; and their manipulation of the New York courts to obtain a default judgment for money not owed by the consumer.

In October 2004, Gladys Rogers, a 70 year old retired widow living on Social Security and a small pension in Rochester, New York, faced a dilemma. She owed money on a credit card, which she couldn’t afford to pay. To avoid a lawsuit, she made a bargain with a company associated with the debt collection law firm Wolpoff & Abramson. Mrs. Rogers agreed to pay $75 every month until amount of the remaining debt, about $1500, was paid off completely.

Mrs. Rogers made her payments for the next eight months. When she tried to make her ninth monthly payment, however, it was returned to her. The debt collector had closed its post office box. Mrs. Rogers then contacted Wolpoff & Abramson to obtain a new address for her payments, but the company never responded. At that time, the total amount of the outstanding debt owed by Mrs. Rogers was $867.

Meanwhile, Mrs. Roger’s credit debt didn’t disappear. It was eventually bought for pennies on the dollar by a major debt buyer, Palisades Acquisition XVI L.L.C. 

Ironically, Palisades then chose Wolpoff & Abramson as its lawyers for collection of Mrs. Roger’s credit card debt. Without warning, in September 2007, they sued her claiming she owed $5596.24 in credit card debt. Palisades did not explain why or how Mrs. Rogers now owed this enormous sum, when at best, she last owed $867 to Wolpoff & Abramson in July 2005. Notwithstanding their erroneous math, the debt buyer also demanded interest on this money, running from the time of her last installment payment.

Mrs. Rogers could not afford an attorney to defend herself in this suit. Instead, she and her grandson spent over 50 hours contacting Wolpoff & Abramson on 11 separate occasions attempting to explain that, at best, Mrs. Rogers only owed $867 for this debt. On four separate occasions, they sent Wolpoff & Abramson copies of October 2005 repayment agreement; copies of her cancelled checks and bank statements. They also sent a copy of Mrs. Roger’s postmarked and returned July 2005 envelope containing her installment payment, stamped by the post office indicating that the company’s post office box had been closed leaving no forwarding address.

Wolpoff & Abramson and Palisades ignored Mrs. Rogers, and all her letters, facsimiles, and proof. Instead, in December 2007, they obtained a default judgment against Mrs. Rogers for $7016.01 in Rochester City Court, including interest and costs. Under New York judicial procedure, no judge ever saw or reviewed any of Palisades’ claims or their purported evidence that Mrs. Rogers owed this sum to Palisades.

Realizing that Wolpoff & Abramson had ignored her completely, Mrs. Rogers contacted Assembly member David Gantt for help, and he referred her to the Empire Justice Center for legal assistance. We agreed to help Mrs. Rogers with her case. Now that Mrs. Rogers had an attorney, the plaintiff became far more responsive. In October 2008, Palisades and Wolpoff & Abramson (now known as Mann Bracken) agreed to forgive any and all outstanding credit card debt owed by Mrs. Rogers, and agreed to pay her $18,000 in return for dismissal of her unfair debt collection and consumer counterclaims against these debt collectors. [10]

III. Legislation to Protect Seniors from Problem Debt Buying and Collection Practices:

A. Expand the Availability of Civil Legal Services.

While Mrs. Rogers finally achieved a satisfactory result in her case because of Assemblymember Gant’s intervention and her ability to find an attorney willing to defend her without cost, hundreds of thousands of other seniors are not so fortunate. Across the state, the lack of available legal representation for defending these suits is a massive problem that will only increase as the economy worsens and consumer credit card default increases.

The shocking findings made by the Urban Justice Center mirror other indicators that show the harm to low‐income individuals resulting from the lack of legal representation available to them. In September 2005, the Legal Services Corporation published Documenting the Justice Gap in America, which quantified the unmet need for legal services nationally. [11]  The report found that at least 80% of low income Americans’ civil legal needs were going unmet. The study’s findings revealed a truly disturbing pattern of low income individuals being denied justice solely because our system lacks the capacity to serve them. Here in New York, similar studies have found that the number of New Yorkers left unrepresented due to our
state’s civil legal services delivery system’s lack of resources is at a similar or even more shameful level, and continues to decline, despite the best efforts of the Assembly Majority. [12]

Yet in this case, as in many others, legal representation is one of the critical components of effecting better outcomes for seniors and other consumers. Clearly access to representation in these matters is unlikely to occur without additional resources. One obvious solution would be for the New York Legislature to work with the Governor to restore funding for civil legal services to the 2007‐08 level in the Executive Budget and to provide additional resources for civil legal services providers to develop expertise in this area. This would go a long way toward providing affected seniors access to competent legal counsel so that they are able to adequately defend themselves against debt buyers in these lawsuits. [13]

B. Increase the Standard of Proof a Plaintiff‐Creditor Must Produce to Obtain a Default Judgment on a Consumer Debt.

Another possible solution is to prevent debt buyers from unscrupulously manipulating the courts and obtaining default judgments without adequate proof that a defendant‐consumer actually owes the amount claimed by the debt buyer. By simply requiring some proof of the debt owed, the number of unsubstantiated cases and frivolous claims brought against consumers, including seniors, who are unable to defend themselves would reduce or eliminate a vast number of cases like that of Mrs. Rogers. For this reason, the Empire Justice Center recommends that, for entry of default judgment in consumer debt cases, debt buyers be required to provide the same level and standards of proof necessary to obtain summary
judgment on their debt claims.

C. Pass a Revised Version of A.8153A (Pheffer) that Requires the Licensing and Bonding of Debt Collectors, and Creates a Private Enforcement Mechanism.

Certainly, third‐party debt collectors, such as Palisades Acquisition XVI L.L.C., should be subject to state regulatory oversight and required to obtain a debt collection license from the State of New York, as proposed in Assembly Bill 8153A. New York is one of only twelve states that does not require state licensing of debt collectors. Also, the proposed bonding requirement in this legislation could help ensure that aggrieved consumers can obtain adequate compensation from debt collectors for unlawful debt collection practices.

In response to the massive number of debt collection cases filed by debt buyers, as noted above, there are few and inadequate resources available for the New York Attorney General and local civil legal services programs throughout the state to adequately enforce the requirements of bill A.8153A. Furthermore, we believe that the Committee must recognize the need for private rights of action in the enforcement of debt collection regulatory statutes.  Since the New Deal, large scale compliance with consumer and labor laws has been most effectively achieved, at the lowest governmental cost, when affected individuals have been granted a private right of action for enforcement of their rights under these laws and regulations. Moreover, these statutes have been adequately enforced as private actions because the right to reasonable attorney fees is an integral part of the statutory enforcement scheme. The Empire Justice Center supports and encourages the passage of a revised A.8153A that mandates the licensing and bonding of debt collectors, and creates a private right of action with payment of reasonable attorney fees for the enforcement of these requirements.

D. Expand the Scope and Damages Provisions of New York’s Deceptive Acts and Practices Statute, Gen. Bus. Law §§ 349 and 349‐c.

Every state has a statute or collection of statutes intended to target unfair and deceptive acts and practices (UDAP) that occur in the course of consumer transactions. A strong UDAP statute contributes to consumer protection in two significant ways. First, UDAP statutes that truly protect consumers are flexible. A UDAP statute can protect consumers from deceitful debt collection practices, automobile sales, lease of goods, mortgage transactions and any of hundreds of other commercial transactions. The scope of the protection offered is determined primarily by the language of the statute. Thus, a thoughtfully crafted UDAP statute will serve many consumers and apply to a widely varied array of commercial transactions. Even as new consumer schemes emerge and begin harming consumers, the flexibility of a good UDAP statute will provide an already existing route to relief for the consumer.

Additionally, UDAP statutes generally create a right of private enforcement for a consumer who has been subjected to unfairness or deception in a business transaction. The UDAP statute creates a direct mechanism for a consumer to seek compensation for the harm they experienced. The private legal remedies provided in a strong UDAP statute can deter further misconduct by businesses and ease the expectation of enforcement by government agencies.

New York’s UDAP‐type statutes, Gen. Bus. Law §§ 349‐350‐f, currently fail to offer consumers meaningful protection. Currently, New York’s UDAP‐type statute applies to only to deceptive practices, but not those that are unfair or unconscionable. [14] A ban on unfair statutory debt collection tactics could prevent billing or collection of any fees or charges that are not expressly authorized by the original credit agreement, as exemplified by Palisades’ attempt to collect from Mrs. Rogers. [15]

Still more problematic, punitive damages awarded to the consumer in New York are limited generally to $50, or $1000 in cases where the court finds the violation was willful. [16] If there is sufficient proof, the court may award punitive damages up to $10,000 if the victim of the scheme was a senior citizen and the scam was directed at the primary resources (home, pension, Social Security, etc.) of the senior. [17] In reality, the inadequacy of the current punitive damages provisions mean that it is almost impossible for the New York statute to deter debt collection schemes targeting senior consumers. For a business like Palisades Acquisition, the possibility of paying the maximum in punitive damages in a single case like Mrs. Rogers’s does not offset the potential income from collection of money from other senior citizens whose zombie debts were pooled with Mrs. Rogers. In a case like that of Mrs. Rogers, a class action authorized under the UDAP statute would offer broad protection to other New Yorkers in the same situation dealing with the same collection company and would act as a more likely deterrent. The Empire Justice Center recommends expanding the scope of Gen. Bus. Law §349 to include practices that are unfair or unconscionable, explicitly permit class action law suits, allow punitive damages for any UDAP violation that are three times the actual damages incurred by the plaintiff, and permit the court to assess statutory damages up to $10,000 per statutory violation in addition to the plaintiff’s reasonable attorney fees and costs.

IV. Conclusions:

The Empire Justice Center is extremely concerned about dubious debt buying and collection practices that are expanding at a time when many seniors are losing value in their homes which are often their primary asset. As seniors continue to feel the pressures of the current economy, New York’s seniors will be less and less likely to be able to afford to hire a private attorney to look into a problem with an old credit card bill. Therefore, we strongly urge the Assembly to work with the Senate and the Governor to:

  • rovide more funding to critical legal services that help senior citizens resolve debt and credit schemes
  • Increase the standard of proof a plaintiff‐creditor must produce to obtain a default judgment on a consumer debt
  • Require all debt collectors in New York to obtain a state license and post a bond before conducting business
  • Expand New York’s Deceptive Acts and Practices Law to protect consumers harmed by unfair or unconscionable transactions.
  • Increase the punitive damages provisions of New York’s Deceptive Acts and Practices Law in order to create an actual deterrent to individuals or business who would engage in unfair or deceptive business practices.

Once again, we thank you for the opportunity to speak about this critical issue today. Please feel free to contact Peter Dellinger should you have any questions.


End Notes:

[1] National Consumer Law Center, The Life and Debt Cycle: the Implications of Rising Credit Card Debt
Among Older Consumers, (July 2006).
[2] New York State is one of the 12 states which does not regulate third-party debt collectors. New York City
and Buffalo attempt to regulate third debtor collector activity under municipal laws and licensing.
[3] National Consumer Law Center, Collection Actions: Defending Consumers and Their Assets, Sec. 1.4
[4] Id.
[5] Urban Justice Center, Debt Weight, the Consumer Credit Crisis in New York City and Its Impact on the
Working Poor, (October 2007). Available at:
[6] Id. at 3.
[7] Id. at 13.
[8] Id. at 1.
[9] Id.
[10] Palisades Acquisition XVI, LLC v. Gladys Rogers, Index No. 2007 CV 19438 (Rochester City Court 2008).
[11] Documenting the Justice Gap in America: The Current Unmet Civil Legal Needs of Low-Income Americans
(September 2005). Available at
[12] New York State funding for civil legal services was all but eliminated in the 2008-09 Executive Budget and
was restored to 50% of the 2007-08 level by the Legislature, primarily the Assembly Majority. Total losses sustained
over the course of the 2008-09 budget year now total 55%.
[13] In this respect, the Empire Justice Center supports the legal services funding recommendations made by
the Urban Justice Center in its study, Debt Weight, the Consumer Credit Crisis in New York City and Its Impact on
the Working Poor, at 21.
[14] McKinney Gen. Bus. Law § 349(a) (2008).
[15] See, 15 U.S.C. 1692(f)(1) (2008).
[16] McKinney Gen. Bus. Law § 349(h) (2008).
[17] McKinney Gen. Bus. Law § 349-c(2) (2008).