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PBRC to focus on debt collection firms

Protecting low-income consumers from unscrupulous third-party debt collectors will be a major priority of the Pro Bono Resource Center of Maryland in the next year, the organization’s incoming president said Tuesday.

John J. “Jack” Condliffe

John J. “Jack” Condliffe, who takes office July 1, said he will make greater use of the center’s six-month-old Consumer Protection Project, under which volunteer attorneys represent individuals in such cases.

Condliffe said public concern about exploitation of the poor in debt collection should be as great as the attention paid to the mortgage foreclosure crises, because a good credit rating is necessary to get a loan approved.

“You get a judgment against you and you can’t buy a home,” he said.

Third-party debt collectors are those who buy accounts receivable from a fellow debt collector for pennies on the dollar, in the hope that they can succeed where the seller has failed.

The job became harder as of Jan. 1, thanks to recent change in court rules. Now, to prevail in Maryland District Court, a debt collector must show that the money is, in fact, owed, and that the plaintiff is the rightful owner of that debt.

However, Condliffe says, some third-party debt collectors still use the courts to prey on the poor, hoping they will not show up for court so the collectors can receive a default judgment.

The center’s Consumer Protection Project provides “representation in these scummy debt cases,” said Condliffe, of Levin & Gann PA in Towson.

Peter Holland, a consumer protection attorney and law professor, provides training for lawyers who volunteer in the project.

Nationwide, third-party collection cases “are filed by the tens of thousands because they depend on the default judgments,” said Holland, who directs the consumer protection clinic at the University of Maryland Francis King Carey School of Law.

The debt collection issue received judicial attention in September, when Maryland’s top court approved a rule requiring collectors to provide courts with greater documentation.

Under the new rules, consumer-debt collectors must submit documentation to the district court, detailing that there is, in fact, a debt — which must be itemized — and that they are its true owners.

To prove ownership, the new rules require the firm to present a chronological listing of the names of all prior owners of the debt, the date of each ownership transfer and an authenticated copy of each bill of sale to each of the owners, including itself.

Holland said he is in the midst of a statistical study to quantify the effect of the new rules.

“It could be they decided not to file anymore, but I doubt that,” he added.

State regulators and legal-aid providers pressed for the new rules last year, saying the prior standard favored debt collectors by requiring only that they provide the district court with a statement of the alleged debtor’s liability, including the amount of the claim and the interest owed.

Under the old rules, Holland said, collectors could even present affidavits and purchase agreements that contained disclaimers stating the debt might no longer be owed, Holland said. Collectors relied on the debtors not being represented by counsel.

“When [lawyers] get a hold of these cases, they see right through them,” Holland said. “Anyone who looks at these [documents] sees the problems.”

The new rules also assist unrepresented consumers by reiterating to judges that the affidavits must identify the debtor, the debt and the chain of ownership, Holland said.

“To the credit of the bench, many judges are exercising increased scrutiny to ensure compliance with the law and I think that’s having an impact,” he said. “I think the bench is increasing scrutiny and is denying the default judgments.”

The scope of debt-collection claims in Maryland district courts came to the fore in January 2010, after debt collection law firm Mann Bracken LLP announced it was going out of business.

Following the announcement, Chief Maryland District Judge Ben C. Clyburn dismissed without prejudice the firm’s open debt collection cases, which numbered in the tens of thousands.