March 24, 2017: Imagine this: you’re reviewing your paystub and something doesn’t look quite right. With a little digging, you discover that a debt buyer is garnishing your wages. Unbeknownst to you, the debt buyer had acquired an old, charged-off debt from a credit card company, filed a lawsuit, and obtained a default judgment for the debt. But the debt record was full of errors, and the debt buyer didn’t bother to check whether it had the right person. When you challenge the default judgment in court, the debt buyer moves the dispute into expensive, private arbitration to gain the upper hand and try to prevent you and others from fighting back. Such abuse of low- and moderate-income consumers is common in the debt buying industry. But a recent ruling from the Court of Appeals of Maryland will make it easier for consumers to hold debt buyers accountable for these practices.
The Court held in Clifford Cain, Jr. v. Midland Funding, LLC that a debt buyer waives its right to arbitrate when it files a small claims action to collect from individual consumers. It also held that when a debt buyer obtains a judgment in district court, it waives the right to arbitrate any related claims. The Court’s decision agrees with two amicus briefs filed by the Public Justice Center, Civil Justice, Maryland Consumer Rights Coalition, and Maryland CASH Campaign in August and December 2016. Washington, DC-based Public Justice (unaffiliated with the Public Justice Center) represented plaintiff Clifford Cain in this class action lawsuit to force Midland Funding to give up profits made from invalid judgments.
The briefs from the PJC and allies sought to educate the Court about the industry’s practice of relying on inaccurate information to collect debts and to “forum shop” by filing small claims in courts, only later to move to arbitrate in a private forum if the debtor challenges the claim. Because debt records are frequently riddled with errors, debt buyers often try to collect debts from the wrong people, send notices to old addresses, collect the wrong amount of debt, or even try to collect the same debt twice. Despite the documented inaccuracy of purchased, charged-off debt records, debt buyers robo-sign thousands of affidavits verifying the debt records’ accuracy without reviewing the records themselves. They then file the lawsuits against individual consumers on the assumption that the consumer won’t show up to challenge the accuracy of the affidavit (which is likely if the address on file is wrong or out of date) and the small claims court will issue a default judgment based on the robo-signed affidavit. We expect that the Court’s ruling will give consumers more leverage to challenge these illegal default judgments.