The long-slumping economy has been a boon to debt collectors, yet it’s become an even bigger windfall for the lawyers who sue them. Federal laws designed to protect consumers from abusive and unscrupulous debt collectors have become the tool for the newest form of “slip-and-fall” lawsuit where costly litigation is avoided in favor of quick settlements, industry insiders say.
In effect, some say the Fair Debt Collection Practices Act has morphed into little more than fodder for lawsuit mills cranking out hundreds of cases yearly — thousands nationally — enriching the lawyers filing them and minimally helping the consumers for whom the laws were written.
In the end and in spite of any settlement or judgment award, the majority of consumers who owed the underlying debt that created the lawsuit still owed it afterward.
Colorado has become one of the nation’s favored locales for federal consumer credit lawsuits, increasing by 63 percent last year, second only to Texas, whose numbers doubled.
The state ranked sixth for the number of lawsuits filed against debt collectors in 2010.
And two of every three Fair Debt Collection cases filed here since 2007 — there have been 1,403 of them — came from the same Colorado Springs attorney: David Michael Larson.
In fact, Larson has been so prolific in filing lawsuits against debt collectors — he averaged more than five per week last year — that only three other lawyers in the country have outdone him in the past decade, but not by much, according to WebReconn, a company that tracks Fair Debt Collection cases.
“The debt-buying industry is so broken and so bad, it enables some entrepreneurial lawyers to set up shop and do complaints without much thinking,” said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington, D.C. “But people usually don’t turn to a lawyer unless they really feel aggrieved.”
Larson did not return repeated calls and e-mails seeking comment. Several of his clients contacted for this story also would not comment.
Counsel’s brief pleads his case
Larson has bristled at suggestions that he’s doing anything other than helping protect consumers from unsavory debt collectors, once dedicating a portion of a court brief against the allegation.
“To suggest that artful pleading by plaintiff’s counsel Larson is somehow suspect . . . is a personal attack . . . and merits sanctions . . . for impugning plaintiff’s counsel Larson,” Larson wrote in his brief.
Though Larson eventually lost that case — a rarity, as nearly all his cases are settled quickly or obtain default judgments — it wasn’t before the presiding judge took notice of the 382 Fair Debt Collection lawsuits Larson filed between 2005 and 2007 alleging the same injuries in each.
“In each case . . . (Larson) alleged that the plaintiff(s) suffered from ‘economic loss, loss of self-esteem and peace of mind, and has suffered emotional distress, humiliation, and embarrassment,’ ” U.S. District Judge Wiley Daniel wrote in August 2008. “I do find it troubling that counsel used the same language in every case to describe an injury that is very individualized and will differ from plaintiff to plaintiff.”
Coincidentally, the number of cases Larson filed in 2009 dropped by 16 percent even though the total number of cases nationally remained the same, federal records show.
It’s not as if Larson hasn’t garnered respect from his peers, though, even those from across the courtroom.
“I’ll give him credit; he works his cases,” said one attorney who has faced him frequently but didn’t want his name used.
Much of what is at issue stems from a federal law that, while intending to protect consumers, leans so far in their favor that virtually any infraction can lead to a successful lawsuit, no matter how innocent the mistake, experts say.
“In this area of law, so much is cookie cutter and boilerplate, they can file 150 of the same complaints with mild variation and succeed in every one of them,” said Charity Olson, an attorney in Ann Arbor, Mich., whose firm does little more than defend Fair Debt Collection lawsuits. “Anyone who knows enough about the law can sue. I can call 10 collectors right now and I can get a dialogue in all of them that would have a basis for a suit.”
Enacted to protect consumers
Passed in 1977, the Fair Debt Collection Practices Act was meant to give consumers a way to fight back against collectors who saw no limits in how they could chase down a debtor. Late-night calls, persistently bothering someone at work, threats of legal action or arrest, even calls to friends and relatives merely to harass and embarrass. The stories are numerous — and often true.
“I’ve heard some of the audio tapes,” Olson said. “Even my own family went through it, and it made me furious. But the percentage is very very small. Sadly, 70 percent of the lawsuits are he-said, she-said.”
That’s because few collection companies record the exchanges or keep them long enough to defend a case.
The issue, too, is that collectors today are all battling for what few dollars consumers have left.
“There’s more debt than ever and people are desperately struggling and it’s harder to shake the money tree since there’s nothing left to pay back,” said Rheingold with the consumer advocate group. “The collectors’ behavior could be harsher because they’re all competing for the same apple on the one tree.”
Fair Debt Collection also prevents collectors from continuing contact after a consumer has told them to stop, and requires a collector to prove the amount is actually owed — sometimes not so easy, as many collectors buy debts for pennies on the dollar, often bundled with thousands of others.
Each collection call can be considered an infraction should the collector stray from what are typically very scripted contacts, Olson said.
The act also provides for $1,000 in statutory damages — nearly a given in every case. The issue is attorneys’ fees and costs: plaintiffs get them in a win or settlement; defense lawyers do not, no matter the outcome.
Real damages are harder to come by, and though some get them, most don’t.
“The statute has to change, to show real harm and damage done,” Olson said. “Merely being annoyed should not be actionable. It’s a colossal instance of malpractice, and the consumers are no better off. It’s the latest in slip-and-fall.”
And the underlying debt — the reason the consumer is being called in the first place — nearly always remains intact.
“I always wondered why the attorney never asks for the debt to go away,” said Denver attorney Adam Plotkin who has frequently represented debt collectors in Fair Debt Collection cases. “If the goal is to help consumers, then why not? It’s astounding that I see it less than 10 percent of the time.”
Cases submitted online
So how does Larson manage to land all the cases? The answer might be in his advertising. His website, CollectorAbuse.com, allows anyone to submit a case for review — online.
It even trumpets his victories. The largest, $15,000, was to a woman who was the wrong debtor, though collectors continued calling her.
Most others, though, were for $4,750 — $1,000 to the consumer and $3,750 to Larson.
In a recent judgment, Larson collected more than $6,700 because the case had gone on so long.
The reason: He’d forgotten to file judgment papers after he was declared the winner two years ago. Because of the time lag, the judge was ready to dismiss the case. But Larson reactivated it, did some more work and billed nearly $4,000 more. Records show his client got the same amount as she would have three years ago when it started: $1,000.
And the woman, a 76-year-old from Colorado Springs, still owed her original debt.
David Migoya: 303-954-1506 or dmigoya@denverpost.com
Well-intentioned law’s unintended consequences
The rules
The federal Fair Debt Collection Practices Act was meant to protect consumers against overly aggressive collectors and is enforced by the Federal Trade Commission. A few things to know:
What collectors cannot do
•Use abuse, unfair or deceptive practices such as lying.
•Contact outside the hours of 8 a.m. to 9 p.m. unless the debtor agrees otherwise, or at work if they are told not to.
•Continue contact after they’ve been told to stop. This does not stop the process, such as a lawsuit, just the telephone calls.
•Tell anyone else about the debt, including a message on a voice mail that someone else can hear.
•Publish names of those who refuse to pay debts.
What they can do
•Provide a validation notice of the debt within five days of contact.
•Sue for the debt and garnishee wages for any judgment.
David Migoya, The Denver Post