Decision by Judge Dear highlights need for credit card reform

August 28, 2012 By Simon Goldenberg, Esq. and Arthur Lebedin, Esq.
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Credit card debt lawsuits are not an anomaly on the Kings County Supreme Court calendar.  Papers submitted by plaintiffs with the names American Express or Citibank come across the desks of Brooklyn Supreme Court judges, such as Judge Noach Dear, many times a day.

But rarely do these cases make the headlines. As the New York Times reports, approximately 95 percent of these lawsuits result in a default judgment for the banks. For Judge Dear, this large number of default judgments seemed too significant to ignore.   

In a recent case, American Express v. Tancreto, Judge Dear condemned the credit card company for not adequately providing its users with binding credit card agreements. A credit card agreement is generally a contract outlining a user’s obligation to pay back, in full, any balance he/she may carry on a particular credit card. Such agreements are typically mailed to users upon receipt of a credit card or shortly thereafter.

In the Tancreto case, Judge Dear found that since American Express could not prove that a credit card agreement was ever mailed to Ms. Tancreto, she was under no obligation to pay her disputed credit card bill of $16,107.12.
While the ruling in the Tancreto case appears extreme, Judge Dear is attempting to, in his words, bring attention to a larger issue, namely the “history of inaccuracies and sometimes outright abuse,” in consumer credit cases.
“I would say that roughly 90 percent of the credit card lawsuits are flawed and can’t prove the person owes the debt,” Dear recently told the New York Times.

Taking a deeper look at the papers submitted in credit card debt lawsuits, Judge Dear noticed boiler-plate complaints reminiscent of the robo-signed mortgage documents uncovered in the foreclosure debacle. These complaints often contained significant errors. In another case, American Express v. Berger, Dear noted that the documents submitted lacked any indication “of reliability or trustworthiness.”  

It has become common practice for banks and debt buyers to use litigation as a collection method. This has proven to be an effective strategy, since most people never respond to the summons, and a default judgment is entered for the full claim amount, and sometimes court costs, attorney’s fees, and interest. The judgment may then be executed by bank seizure, wage garnishment or a lien on property. It can also be reported to the credit bureaus as an adverse item for up to seven years.

Many of these cases involve persons that did not receive proper notice of the suit, and thus defaulted on their appearance. Some of these defendants first learned of their lawsuit when they received a marshal’s notice, or worse yet, when their bank accounts are frozen, or their employer is served with a garnishment notice. Further, when the validity of the debt is contested, the supporting documentation and affidavits are oftentimes insufficient to meet the collector’s burden of proof.

Unfortunately, the debtor bears the expense for defending a debt collection lawsuit, regardless of which party prevails. For some, the pragmatic solution is to settle in order to limit their defense costs and possible exposure. Sometimes negotiation is the most practical, efficient and affordable way to resolve an account.

 A debate has ensued as to whether regulation of the industry is necessary, and more importantly, whether it will help actually protect consumers. The most effective tool available to pursue consumer collection violations is the Fair Debt Collection Practices Act. However, it does not apply to original creditors, and its statutory damage limit of $1,000 is insufficient to discourage some violations. The Card Act of 2008 limited some of the banks predatory tactics and has increased consumer awareness of their interest rate and other terms, but it still falls short of the protection that is needed.

If anything can be learned from the recent economic meltdown, major industry reforms need to take place in order to avoid possible catastrophe.

The Law Office of Simon Goldenberg, PLLC, is located at 615 Degraw St., Brooklyn, and is dedicated to consumer protection. Attorney Goldenberg specializes in consumer advocacy and concentrates his legal practice in the areas of debt resolution, credit card lawsuit defense, debt collection harassment, and bankruptcy. He has completed training in the field of credit scoring and credit restoration. Goldenberg is a graduate of Hofstra University School of Law.Arthur Lebedin is an associate attorney with the firm.  He concentrates on matters involving state and federal consumer credit litigation and resolution, student loan litigation and resolution as well as consumer bankruptcy. He graduated from Suffolk University Law School and is fluent in Russian.

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