RICHMOND — Private companies are buying the consumer debt of Virginians at a fraction of the loan amount, and then suing them to try to recover it and a new analysis found the lawsuits frequently go unchallenged.
The Virginia Poverty Law Center, with assistance from The Pew Charitable Trusts, found debt buyers filed 86,000 lawsuits in the Commonwealth last year. More than half the cases involved total debts of less than $2,000.
Jay Speer, executive director of the Virginia Poverty Law Center, said the companies purchase unpaid medical and credit card debt but there is often no proof of the debt being owed, as many times, companies only receive a name, address and dollar amount from the original creditor.
“Most people are pretty intimidated by going to court, so they don’t go,” Speer explained. “They get a default judgment, and then they can garnish your wages or take your bank account or something like that. The consequences can be pretty severe. The problem is the use of the court system to collect debts where they really don’t have any evidence in many cases to prove that the person actually owes it.”
The report showed creditors attempted to garnish wages or bank accounts in nearly 80,000 cases but more than 80% of the garnishment attempts recovered no money.
Speer pointed out a law has already been offered to states to address shortcomings in the debt-buying process. If passed in Virginia, the Uniform Consumer Debt Default Judgments Act would create a new notice to be sent to the person being sued for defaulting on a debt.
“First of all, it gives people a much better notice about why they’re being sued, so they can understand why they need to go to court,” Speer noted. “It prohibits the court from giving a judgment unless the person suing can prove that the debt is owed.”
Currently, 16 states prohibit arrest for failure to appear in such cases, unless the failure seems to be willful. Consumer debt collection lawsuits are the most common type of civil court case in Virginia, with more than 190,000 cases filed last year alone.
