Wisconsin Center for Investigative Journalism

New State Law Helps Debt Collectors

Makes it easy for debt buyers to target consumers with poorly documented claims.

Debate surrounds debt buyer law

The new law signed by Walker standardizes but in some cases loosens the required proof at the beginning of a lawsuit for these kinds of legal actions under the Wisconsin Consumer Act. Creditors and third-party debt buyers now must provide a single billing statement as proof at the beginning of a lawsuit.

Under the previous standard, they were required to show all documents “evidencing the transaction,” which could include the initial contract and a record of any charges and additional fees or interest. The law also was changed to make sure the new requirements apply to all creditors, including third-party debt buyers.

Born said in a press release after the Assembly passed his bill in November that the legislation “closes a loophole that has been exploited by bad actors to avoid paying debts.”

Streamlining litigation could hurt consumers, Fons said. “We don’t need it quicker,” she said. “We need more accountability, we need more accuracy.”

University of Wisconsin-Madison finance professor Jim Johannes testified in favor of the bill that standardizes what proof debt buyers must present in court, saying it closes a "loophole" that allowed debtors to avoid paying their debts. Photo by Coburn Dukehart of the Wisconsin Center for Investigative Journalism.

University of Wisconsin-Madison finance professor Jim Johannes testified in favor of the bill that standardizes what proof debt buyers must present in court, saying it closes a “loophole” that allowed debtors to avoid paying their debts. Photo by Coburn Dukehart of the Wisconsin Center for Investigative Journalism.

University of Wisconsin-Madison finance professor Jim Johannes, who testified in favor of the bill, said it standardizes courts’ interpretation of what is required in order to sue.

“It puts a fork in what you need as evidence when you approach the courts in the pleading stage of a case,” he said. “It provides clarity for the courts. Previously, before this the courts could interpret it any way they wanted to.”

For Stacia Conneely, this was not a problem. “That’s what judges are for, is to review the law and decide what they think it means,” she said.

Johannes said he believes the new law will protect consumers while preventing people from getting out of paying their debts.

“I am all about consumers,” he said. “But I’m not going to sit there and allow somebody to get around paying a debt just because they found a loophole in the law that a judge can now define what they need at the pleading stage.”

Conneely countered that the new law has created a different type of loophole — one that benefits creditors. Now, the required billing statement can be drawn up any time the creditor chooses. It may not include crucial information about the account’s history, she said.

“So it doesn’t provide the other information that people are going to need, such as how did it get to that amount, and that’s often the question people have,” Conneely said.

At the heart of the disagreement is who is responsible to prove a debt is accurate and can be legally collected — the consumer or the creditor.

In 2014, Georgia Maxwell, then-assistant deputy secretary of the Department of Financial Institutions, testified against Born’s bill.

“DFI would not support legislation that unduly shifts onto consumers the burden of determining the accuracy of the debt they may — or may not — owe,” Maxwell told the Assembly Committee on Financial Institutions.

In 2015, the CFPB took action against two of the nation’s largest debt buying companies, Encore Capital Group and Portfolio Recovery Associates. The agency charged that the companies often did not verify the debt, collected payments by “pressuring consumers with false statements” and were “churning out lawsuits using robo-signed court documents.” The companies were ordered to pay refunds and fines totalling tens of millions of dollars and to halt collection efforts on another $128 million in debt.

Other states have taken steps to fix the system. In 2013, Minnesota started requiring creditors to show evidence including the terms of the original contract and the chain of custody of the debt. New York also enacted stricter requirements in 2014 by changing court rules.

Conneely is keeping an eye on the number of judgments obtained by debt buyers each month now that the law has changed. She expects to see more, adding, “We’re just waiting to see how many more.”

The nonprofit Wisconsin Center for Investigative Journalism (www.WisconsinWatch.org) collaborates with Wisconsin Public Radio, Wisconsin Public Television, other news media and the UW-Madison School of Journalism and Mass Communication. All works created, published, posted or disseminated by the Center do not necessarily reflect the views or opinions of UW-Madison or any of its affiliates.

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