New York Attorney General Andrew Cuomo

Attorney General Andrew Cuomo announced criminal charges today against Long Island-based American Legal Process (“ALP”) and its CEO and President William Singler for a fraudulent business scheme in which the company allegedly failed to provide proper legal notification to thousands of New Yorkers facing debt-related lawsuits, causing them unknowingly to default and have costly judgments entered against them without the chance to respond or defend themselves.

According to the court papers filed today, ALP, as a legal process server, was hired by high-volume debt collection law firms in New York to serve legal papers, usually a summons and complaint, notifying individuals that they are being sued and must answer the complaint.

ALP, however, allegedly engaged in “sewer service,” which is basically where the process server does not make any legitimate attempt to notify the consumer of the lawsuit. As a result, thousands of judgments were allegedly obtained against unsuspecting New Yorkers, many of whom first learned they were being sued when they found their bank accounts frozen or their wages garnished.

In addition, Cuomo announced his intent to sue one of ALP’s largest customers, the collections law firm of Forster & Garbus, for violations of New York State’s consumer protection laws. According to Cuomo, Forster & Garbus used ALP to serve over 28,000 summons and complaints across the state, but failed to supervise the company and relied on legal papers from ALP that it knew or should have known were false.

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The fallout from Dateline NBC’s debt collections episode has generated a real buzz in the collections industry.

Just this week we saw this editorial from InsideARM, which offers some pretty good rebuttals to all the collection agency boneheads that were posting on that site. All of their comments since the airing have been about how unfair Dateline’s treatment was of the “Asset Receivable Industry.”

Then, of course, you have NARCA (National Association of Retail Collections Attorneys) coming out with their press release arguing about how unfair the treatment was by NBC’s Dateline.

The point that these debt collectors continue to miss is that Dateline NBC and reporter Chris Hansen never claimed they were showing typical behavior of the debt collection industry. They simply were showing that in many cases (and they did show a number of them), there were horrible debt collectors, such as LHR, out there that are violating debtors’ rights with little or no regard for the law. “Where’s the Outrage” from Paul Legrady makes that point very well and challenges his colleagues in debt collection to try and work toward fixing the bad actors and not just griping about press coverage.

I could not agree more.

Dateline NBC and Chris Hansen aired a segment on Friday night that highlighted the growing debt problem in the United States and focused specifically on debt collection agencies and their shady collection tactics.

Harvard Law Professor and Debt Expert Elizabeth Warren

This episode is a must see for anyone interested in debt and debt collection. So, if you had better things to do on Friday night than sit around and watch TV shows about debt collection, the complete episode in 6 segments is below with a summary of content of each section.

The first two sections feature profiles of debt and an interview with Harvard Law Professor Elizabeth Warren. Professor Warren says in this segment that credit card debt is a huge problem in the U.S. today and is destroying the middle class. She sites the “tricks and traps” that credit card companies use to lure consumers into debt: “Credit card companies have put the loan sharks out of business… [they] would make Tony Soprano blush.” Pretty strong words against the credit card industry, but Professor Warren has never been afraid to take credit card debt issues on head on.

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Dateline NBC's Chris Hanson

Debt Collectors will get the Dateline NBC treatment on Friday night, March 27th at 10pm Eastern and Pacific. Reporter Chris Hanson, most famous for his work exposing child predators on “To Catch a Predator,” will “expose dirty tactics used by some collection agencies.” According to NBC, hidden cameras will be involved, so this should be a really interesting show to watch on Friday night.

The episode of Dateline is titled “Debt in America and Its Collectors” and is part of a series called “Inside the Financial Fiasco.” Collection agencies abusing consumers is a serious issue in our country and it is great to see Dateline NBC and Chris Hanson tackling this issue with their trademark style.

However, everyone is not so excited. Without even having seen anything but the preview (below), Patrick Lunsford of InsideARM is lamenting the fact that it will be unfair and biased, with this from his article on the show:

To pre-suppose that the show will be an unfair view of the ARM industry is a bit beyond us at this point. I seriously can’t imagine what manner of awfulness will be foisted upon the public in this segment. I guess that we should withhold judgment until the piece airs, but I can’t see a piece that touts itself as a hidden camera expose of the ARM industry being even-sided.

While it’s always great to see “foisted” used in an article, I’m not sure how Patrick already knows the show will be so unfair? Maybe, it’s because Patrick, as an InsideARM expert, is well aware that there are a lot of debt collectors out there breaking the law every day, and if Chris Hanson is on the case, he’s bound to expose a number of them on national TV Friday night. Even better than Patrick’s “warning” to fellow debt collectors are the comments below the post. Apparently it’s not required to take an economics class to be a debt collector.

Tune in on Friday night or check back here on Saturday for an update on the episode.

West Virginia Attorney General Darrell McGraw

West Virginia Attorney General Darrell McGraw is at it again… in a good way. McGraw has been on a mission to shut down payday lenders and their collection agencies that operate in his state. McGraw’s office began their crackdown on the internet payday lending industry in 2005.

Since then, McGraw’s office has successfully concluded 75 investigations of Internet payday lenders and their collection agencies, which have netted a total of $1,784,772.82 in cash refunds and cancelled debts for 6,612 West Virginia consumers.

Now, McGraw has sued not only 7 online payday lenders, but also 5 of their accomplice collection agencies. The really great thing about this is that McGraw is not just going after the lenders, but also their collection agencies.

The problem with online payday loans is that they are illegal in many states (and some are illegal in all states, as they operate offshore), yet they are using legitimate, licensed U.S. collection agencies to do their dirty work.

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New Jersey Debt Collectors Pressler & Pressler, LLP are under attack for their collection practices. A New Jersey consumer, Scott Mills, has exposed some of their tactics and publicizes their practices on his blog. His list of complaints against them is lengthy.

Well, it turns out Pressler & Pressler fought back and filed a claim against Scott Mills for libel. However, on Friday the judge dismissed the preliminary injunction motion in a victory for Mr. Mills.

To add insult to injury for Pressler, Scott’s website and his story were picked up by a Huffington Post blogger who wrote this article on Scott and his case.

Seems like a bad week for Pressler & Pressler. However, at least they’re not collecting on dead people! For more on their practices, see the video below:

Press Release
March 13, 2009

West Virginia Attorney General Darrell McGraw today announced that his office has entered into a settlement agreement with Brady and Caruso which will provide $9287.87 in refunds and $282,953.84 in debt cancellation for approximately 174 West Virginia consumers. Brady and Caruso, LLC, doing business as Brady, Caruso, and Associates, LLC, is a Nevada limited liability corporation that collects debts from its headquarters in Amherst, New York.

The Attorney General’s investigation was prompted by a complaint that a consumer received a collection call from Brady and Caruso but was not able to dispute the debt or determine whether she owed it because the collector could not verify the debt that she allegedly owed. Under federal law, debt collectors are required to send consumers a written notice within five days of their initial contact. The notice is required to provide the amount of the debt and the name of the creditor to whom the debt is owed. The consumer has 30 days from the date of this notice to dispute the debt in writing. If the consumer disputes the debt, the debt collector is required to provide verification of the debt, including the name of the original creditor, or a copy of the judgment. If the collector cannot provide such verification, it must stop all collection efforts. The Attorney General’s investigation of Brady and Caruso also revealed that it was not registered or bonded to collect debts in West Virginia.

The consumer also complained that the debt collector threatened to place a lien against her property if she did not pay the debt. Under West Virginia law, liens may not be placed against property unless the creditor first sues the debtor and obtains a judgment in court. West Virginia law prohibits the use of threats and coercion in debt collection and explicitly prohibits threatening that nonpayment will result in the taking of any action that requires a court order if the collector does not tell the consumer that it must obtain a court order before such action can be taken.

Under the terms of the settlement, Brady and Caruso will close all the West Virginia accounts, write those accounts down to a zero balance, take the necessary steps to delete any negative credit reporting in connection with those accounts, and refund any amounts paid on the accounts. The settlement also requires the collector not to resell the accounts. Consumers who are covered by this settlement will receive letters confirming the amount of debt cancellation and refunding any payments they made.

Today, the New York Times has an article about collecting debts from deceased people.

The article features DCM Services of Minneapolis and includes an interview with their CEO. DCM Services offers free yoga classes and massages to their collectors. I suppose after selling your soul all day collecting from the relatives of recently deceased, a little yoga or a neck rub can really lighten your spirit? There is also foosball in the break room and catered lunches twice per month. Sounds like pretty good work, so long as you don’t look in the mirror every day.

Other collection agencies that collect on dead people’s debts by contacting grieving relatives who often have no legal obligation to pay are:

• Weltman, Weinberg & Reis, a Cleveland law firm headed up by Scot Weltman
• Phillips & Cohen Associates of Westampton, N.J with Adam Cohen as chief executive. Incidentally, their collectors are trained in all 5 stage of grief, presumably to better take advantage of each stage.
• DCM Services of Minneapolis with chief executive, Steven Farsht arranging yoga and massages for those who pry money from the dead’s relatives.

It’s amazing to me that this is allowed to exist under Federal Law and FDCPA. At the very least there should be some upfront disclosures that notify the deceased’s relatives of the fact that, in almost every state, there is absolutely no obligation of a surviving relative to assume the deceased’s debts. For these debt collectors prey on grief or the idea that the deceased will rest in peace if their credit card debt are taken care of is really about as low as it gets.

What is surprising is how delusional the executives of these collection agencies, law firms or ambulance chasers (you take your pick) are. The fact that three CEO’s would give interviews to the New York Times and have the nerve to discuss their yoga classes or training in the 5 stages of grief is beyond me. Do they really think anyone in their right mind would view this as ethical or even tolerable behavior? I hope they get kicked out of their country clubs for this.

However, what’s even worse to me is the tone the New York Times takes in this article. Not only do they not present an outraged viewpoint, they seem to spin the massages and free lunches in a positive light. They even point out how these agencies refer angry customers to counselors and then call them again in a week when they’ve been “counseled” without so much as pointing out what a racket this is.

Shame on you New York Times and DCM Services.

UPDATE: US Senator Charles Schumer of New York has called for a federal investigation into the collection practices featured in the New York Times article.