Yesterday Missouri Attorney General Chris Koster joined forces with Legal Services of Eastern Missouri, Legal Aid of Western Missouri, Legal Services of Southern Missouri, and Mid Missouri Legal Services to propose reforms aimed at curbing what he describes as “abusive debt collection lawsuits in Missouri.”

In a letter addressed to the Missouri Supreme Court’s recently formed Commission on Racial and Ethnic Fairness, Koster called for changes to court rules in an effort to prevent unscrupulous collection practices. The changes, wrote Koster, “would advance the Court Commission’s efforts as well as the Calls to Action recommended by the Governor’s Ferguson Commission.”

In his letter to the Commission, Koster outlined three proposed amendments to Missouri’s rules of civil court procedure aimed at curbing the alleged abusive litigation practices:

  1. Require debt collectors to produce documentary proof at the outset of litigation establishing their right to pursue collection of the debt in question. This would help prevent invalid lawsuits.
  2. Preclude debt buyers from manipulating court procedures with stalling tactics in which they repeatedly request consumers to appear in court hoping to obtain a default judgment the first time the consumer misses a court date. This tactic permits debt collectors to recover on debt without presenting evidence to the court or allowing the targeted consumer to challenge that evidence. The proposed change would protect consumers by limiting the circumstances in which a default judgment could be granted.
  3. Strengthen the proof needed before creditors can recover attorneys’ fees and litigation costs by requiring that creditors’ attorneys attest that the fees sought were contractually authorized, necessary, and actually performed to recover on the debt, and that costs claimed were legitimate. This would temper unjustified and excessive awards of attorneys’ fees and litigation costs.

Koster also announced that his office had filed new proposed consumer protection regulations to target similar types of abuse in the industry. Specifically, those regulations would deem it unlawful to file suits on time-barred debt or to try and trick a consumer into unwittingly reaffirming a debt. Enforcement actions for violating the rules could include criminal lawsuits or civil suits brought by the Attorney General’s Office or private counsel.

In support of his argument for change Koster highlights an article that was recently published in ProPublica entitled The Color of Debt: How Collection Suits Squeeze Black Neighborhoods (ProPublica, October 8, 2015). insideARM discussed that article in an October 14, 2015 story on “Disparate Impact.”

In the letter, Koster also referenced publicly traded debt buyer PRA Group (PRAA) and a case that made national headlines in May of this year. insideARM wrote about that case on May 15th. See Jury Sends Message to Debt Buyer. In that case a jury awarded Guadalupe Mejia $251,000 in compensatory damages and $82,999,000 in punitive damages for her counter-claim against the Portfolio Recovery Associates, LLC., a wholly owned subsidiary of PRAA, alleging malicious prosecution and impermissible collection practices.

insideARM Perspective

The action by Attorney General Koster highlights many of the major “hot buttons” in today’s debt buying and legal collection industries.  They are highlighted in almost every regulatory dialogue or enforcement proceeding:

1)     Chain of Title Concerns

2)     Out-of-stat debt

3)     Meaningful Attorney Involvement – Attorney Review of Files

4)     Abuse of the legal process, including

  • Dramatic increase in number of collection suits filed
  • Lack of documentation
  • Sewer Service
  • Default Judgment process

5)     Disparate Impact of collection practices

The ARM industry must deal with these issues head-on in the coming months. As the ability to communicate with consumers regarding delinquent accounts becomes more difficult, litigation is often the only alternative. With CFPB rulemaking on the horizon, it is likely many of these issues will be addressed.

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