Debt-buying industry and lax court review are burying defendants in defaults
After more than four decades as a commercial litigator, Ward Benshoof was shocked at what he learned two years ago while handling a post-judgment debt-collection case. What had been accepted as evidence seemed to have no more substance than the shadow of smoke. And as he later learned, it also was not evidence at all.
His pro bono client’s life had been seized up in such fear that she pawned her wedding ring to feed the maw of a default judgment against her in Los Angeles County Superior Court, obtained by one of the nation’s biggest debt buyers.
It was too late to undo the judgment, but Benshoof sued the debt buyer, alleging that its repeated phone calls to the woman were harassing and illegal. The company turned over phone recordings in discovery that showed the calls weren’t as heated as the woman thought.
“I still think they crossed a line,” says Benshoof, a partner and big-firm commercial litigator in the Los Angeles office of Alston & Bird.
The debt buyer settled, discharging the debt of $5,000, which included interest on the original $3,500 loan, and gave back $2,600 the woman had managed to pay on the judgment.
But Benshoof remained curious. His client still insisted she’d never taken out a loan, though she once might have co-signed one. The bank that originated the loan and later sold the debt happened to be a client of his firm, so Benshoof called and asked about it, providing her name and Social Security number. The bank had no record of her involvement in any debt.
“It was one of several eye-opening experiences for me in this case,” Benshoof says. “I felt naive. How could the court have entered a judgment?”
He looked deeper into this head-scratcher. The only evidence provided in discovery was a spreadsheet with little more than his client’s name and some dollar figures. And he found that no judge had given so much as a side glance at the debt buyer’s lawsuit. A clerk simply processed the creditor’s claim based on a document stating little more than this person owes us this much, and the fact that she was served with the suit, then entering judgment after it went unchallenged. (Benshoof’s client had never heard of the company pursuing her and considered the various contacts junk mail or spam.)
California’s courts were relying on an antiquated law reaching back to the 1800s, when merchants kept so-called books of account—handwritten ledgers with amounts owed—and those spare records sufficed in a smaller world. Now with about 80,000 such cases each year in Los Angeles alone, that law helped move things along.
Critics put it more harshly: “Most courts nationwide have some version of that limited-evidence requirement and have allowed themselves to become co-opted and thus part of the problem,” says Peter Holland, who recently returned to his full-time practice in Annapolis, Maryland, after running the consumer protection clinic at the University of Maryland School of Law for five years.