Wednesday, January 13, 2016

Consumers Sued Over Old Debts Cannot File Class Actions Due to Arbitration Clauses


Corporations are using arbitration clauses in consumer contracts to ban class action lawsuits, anticipating that individual consumers cannot afford to bring cases to court against large corporations.  Generally, the arbitration clauses are in the contracts made with the original lenders, and not with the debt collectors. Often times, the debt collectors cannot produce copies of the arbitration agreements in court. Consumer advocates argue that the arbitration agreements should not be enforced since they are entered into with the original lenders and not with the debt collectors.

Midland Funding, part of the Encore Capital Group, garnished consumer bank accounts collecting on old debts.  In some cases, the debts were not even owed.  When the consumers tried to file a class action lawsuit in 2013, Midland Funding had the lawsuit dismissed.  The consumers were left with arbitration as the only recourse.  Since class action claims are not allowed in arbitration proceedings, each individual consumer would need to file separately.  Unfortunately, many consumers cannot afford to arbitrate their claims, so the debt collectors avoid accountability.  Records show that Encore only faced 38 arbitration cases from 2010 to 2015.

According to the New York Times, more than 67,000 collection cases were filed in 2014 in New York state by consumer debt collection companies trying to collect debts from consumers.

For more information, go to http://www.nytimes.com/2015/12/23/business/dealbook/sued-over-old-debt-and-blocked-from-suing-back.html?_r=0

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