Bills Would Encourage Predatory Lawsuits Against WI Consumers
Would Encourage Out-of-State Debt Buyers to Sue Consumers for Debt They May Not Owe
MADISON – A pair of bills currently making its way through the state legislature would drastically reduce proof requirements for debt collection lawsuits against Wisconsin consumers and open the door for out-of-state debt buyer companies to clog Wisconsin’s courts with unsubstantiated, frivolous lawsuits. Senate Bill 92 is to be heard in committee on Tuesday, 12/15. Its Assembly companion, AB 117, was passed in November. Governor Walker’s Department of Financial Institutions voiced serious concerns (see p. 2) about a similar bill in 2014.
“Our laws should encourage a fair financial marketplace, not unsubstantiated lawsuits by predatory, out-of-state debt buyers who target Wisconsin consumers,” said Peter Skopec, WISPIRG director. “No one ought to be dragged to court to pay a debt they don’t owe, and that a collector can’t prove they owe. Unfortunately, predatory debt buyers’ business model is built on exactly that practice. SB 92 and AB 117 would make it easier than ever for bad actors to prey on Wisconsin consumers, and we’ll all have to pay the price.”
SB 92/AB 117 would lower the burden of proof for debt buyers and collectors seeking to file a collection lawsuit against Wisconsin consumers. Debt buyer companies purchase old debt for pennies on the dollar and then aggressively work to collect those obligations, including in court, often without accurate information about whether they are collecting the right debt from the right person. SB 92/AB 117 would also make it impossible for a consumer to recover attorney fees from a debt collector if the consumer was wrongfully taken to court, unless the consumer can prove that the collector brought the frivolous suit “willfully or intentionally.”
“Debt buyers make money by taking people to court, whether they actually owe a debt or not,” said Mary Fons, who has been practicing consumer law for the past 30 years. “Predatory debt buyers’ business model relies on being able to attempt debt collection without substantial proof, in hopes that enough people will just pay up. Without a detailed breakdown of consumers’ alleged debt, consumers will have a much harder time contesting unsubstantiated or fraudulent collection attempts.”
Frivolous collection lawsuits, which are facilitated by reduced proof requirements as proposed by SB 92/AB 117, seek payment for debts past the statute of limitations, already discharged in bankruptcy, previously paid, resulting from identity theft or previously disputed for fraud and inaccuracies. In September, the federal Consumer Financial Protection Bureau took action against the nation’s two largest debt buyers and collectors for using deceptive tactics to collect bad debts. Encore and Portfolio Recovery Associates were found to regularly and knowingly have purchased debts that are inaccurate or unenforceable, but nonetheless to have “filed lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves.” Another abusive collector, Georgia-based Frederick J. Hanna & Associates has also recently been taken to task. The CFPB alleges that “between 2009 and 2013 the firm filed more than 350,000 debt collection lawsuits in Georgia alone [and] collected millions of dollars each year through these lawsuits, often from consumers who may not actually have owed the debts.” Furthermore, “[s]ince 2009, the firm has dismissed over 40,000 suits in Georgia alone, and the CFPB believes it does so frequently because it cannot substantiate its allegations.”
A bill with similar provisions to SB 92/AB 117 was met with concern by the Walker administration in 2014. Georgia Maxwell, then-Assistant Deputy Secretary at the Department of Financial Institutions, testified in 2014 that “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.” DFI was also troubled by a provision, again included in SB 92/AB 117, that would take away a consumer’s ability to recover attorney fees unless a debt collector’s violation was willful and intentional.
A 2014 WISPIRG analysis found that collection practices were the second-most common reason for consumers to complain to the CFPB about any financial service. Collectors trying to recover debt from the wrong person accounted for 25 percent of all collection complaints.
The Wisconsin Public Interest Research Group (WISPIRG) is a state-wide, non-partisan advocate for the public interest. WISPIRG works to protect consumers and promote good government. We investigate problems, craft solutions, educate the public, and offer meaningful opportunities for civic participation.
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