Debt Collection Litigation Breeds Fear and Paralysis Among Consumers

Debt Collection Litigation Breeds Fear and Paralysis Among ConsumersADA, Okla.  (Profitable.com)  Recently, national news media have begun to focus new light on the alarming irregularities in the U.S. debt collection industry and the widespread use of litigation as a debt collection tool. Pre-Paid Legal Services, Inc. (NYSE: PPD) and its 38 independent provider law firms from markets throughout the U.S. and four provinces of Canada are focusing on this industry issue.

During the first half of 2010, Pre-Paid Legal Services independent provider law firms responded to more than 79,000 legal service requests from PPD members (customers) related to collection issues, or seven percent of the 1.1 million requests during the six-month period.

Repairing the System

In its July 2010 report, “Repairing a Broken System,” the U.S. Federal Trade Commission said, “The system for resolving disputes about consumer debts is broken.”

While at one time, the telephone was the primary tool utilized by collection agencies, major industry debt buyers — using data-driven debt processing tools — are now focusing on litigation and the justice system as means of collecting debts. Using this systemic process, the corporate debt buyers may skip some consumer communication and proceed directly to litigation.

In its July 2010 report, “The Debt Machine,” the National Consumer Law Center, a consumer advocacy organization, said, “Lenders, debt buyers and other creditors have learned how to use small claims and other low-level courts as a low-cost machine for turning claims into judgments against consumers who have fallen behind on payments.”

“This approach is flawed because it taxes the court system with an over abundance of collection suits and because it’s often utilized as a ‘scare tactic’ against consumers,” said Harland C. Stonecipher, founder and Chairman of the Board of Pre-Paid Legal Services, Inc.

PPD Provider Attorney Perspectives

Jeff Lippman, an attorney with Weinstock, Friedman & Friedman, P.A. (www.weinstocklegal.com), PPD’s independent provider law firm for Maryland and Washington, D.C., believes the problems for consumers are three fold: fear, ignorance and inaction.

“People get nervous when they receive a collection letter. This can quickly turn to fear when they are confronted with the prospect of a lawsuit. This may lead to paralysis and inaction,” he said. “If they would only face the problem, armed with the right information and assistance, they would have a much better chance of resolving or challenging the issue,” Lippman said.

Michael Fiffik, an attorney with Welch, Gold & Siegel, P.C. (www.wgspc.com), PPD’s provider law firm for Pennsylvania, believes this approach to collections highlights the weaknesses in this aspect of the justice system.

“Neither the consumer nor the collection agency are properly served by this approach. Poorly gathered collection data from the collection agencies and uninformed, under represented consumers equals a recipe for injustice,” Fiffik said. “It’s garbage in and garbage out. This is not justice under the law,” he said.

Evans, Lowenstein, Shimanovsky & Moscardini, Ltd. (www.elsm.com) Attorney David Bloom – the PPD provider law firm for Illinois — has said, “Creditors have a right to collect the debts that are owed to them, but they should not be able to garnish wages or take other such actions unless they can absolutely prove that the debt is owed.”

According to Bloom, “In many cases, it’s simply a question of knowing the language and procedures involved in such litigation.

“One PPD member contacted our office about a debt he didn’t think he owed. Under his Pre-Paid Legal Service plan, we drafted a letter to the attorney for the collection firm requesting proof of the debt. They couldn’t produce these documents and therefore they dropped the legal action,” Bloom said. “In all too many instances, these debt buyers and their legal counsel are counting on uninformed consumers to simply pay up whether the debt is authentic or not,” he said.

In 2009, the Federal Trade Commission received an estimated 88,200 consumer complaints about third-party debt collectors, and coupled with in-house debt collector complaints, this totals an estimated one out of five complaints to the FTC about this industry.

Given these numbers and the aggressive methods now being used particularly among debt buyers, Chairman Stonecipher offers some simple, practical advice.

“Talk to your attorney before you talk to theirs, and if you don’t have one, Pre-Paid Legal Services can help,” he said.

About PPD Provider Law Firm Network System — PPD maintains a rigorous monitoring system and conducts surveys which provide feedback on the customer service experience of PPD members with the provider law firms. This is one of the distinguishing characteristics of PPD’s “Provider Law Firm Network System.” The average tenure for provider law firms in the PPD network is more than 12 years.

About PPD — We believe our products are one of a kind, life events legal service plans. Our plans provide for legal service benefits provided through a network of independent law firms across the U.S. and Canada, and include unlimited attorney consultation, will preparation, traffic violation defense, automobile-related criminal charges defense, letter writing, document preparation and review and a general trial defense benefit. We have an identity theft restoration product we think is also one of a kind due to the combination of our identity theft restoration partner and our provider law firms. More information about us and our products can be found at our homepage at http://www.prepaidlegal.com.

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