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New York State is waging a campaign against rogue debt collectors, and New York Attorney General Andrew Cuomo is currently suing 35 law firms and two debt collectors, trying to overturn 100,000 judgments in which the companies allegedly broke the law. The firms and collectors all hired American Legal Process (ALP), a Long Island-based company that failed to serve thousands of consumers with legal papers, Cuomo alleges. Many victims discovered they were being sued only when they found their wages garnished or their accounts frozen.

Several independent groups confirmed what elected officials have already found: abusive attempts to get paid, followed by slapdash and unsubstantiated lawsuits. Lawyers for municipal employees in New York City noticed a trend: When they demanded discovery for proof that a debt was actually owed, the collections company often dropped the legal case.

Suspicious, the attorneys investigated. They found that in 238 cases in which they requested discovery, collections agencies failed to substantiate their claim 94.5 percent of the time.

Even in the rare cases when a bill collector responded to requests for information, “rather than showing that the debt was owed, its own documentation often proved the opposite,” the report found. “The cases in the study bear a common thread: in many instances debt buyers sued consumers when they clearly had no legitimate claims. Debt buyers sued in cases of identity theft and mistaken identity, when their records did not reflect payments by the defendant, and when the debt was beyond the statute of limitations.”

Such sloppy legal work is made possible because so many consumers never try to fight back. Debt collectors won 94.3 percent of the 457,322 lawsuits they filed in New York City between January 2006 and July 2008, according to a study led by the Legal Aid Society and published in May 2010. Most were default judgments, meaning the consumers never appeared in court to defend themselves. Only 10 percent of the people sued actually answered the summons, the society found; only 1 percent hired a lawyer.

“Debt buyers routinely file frivolous lawsuits against low-income New Yorkers even though they have no evidence to prove the debts are owed,” according to the report. “The abusive practices described in this report have flourished because of the gross imbalance of power between represented debt buyers and unrepresented New Yorkers.”

There’s a tremendous amount of money at stake. The top 26 debt collection companies in New York City took more than $1 billion in court-ordered judgments from city residents during the two-and-a-half-year study. As judges and elected officials begin to crack down on collections agencies using existing laws, many experts say that new legislation is needed to reign in the collections industry and protect consumers’ rights.

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