The majority of the 300,000 New Yorkers sued annually for bad debt have their wages garnished and bank accounts emptied on fraudulent grounds, after their debt collectors don't take suitable steps to notify them they are being sued, said Johnson Tyler, an attorney for South Brooklyn Legal Services who helps low-income people fight illegal debt collection.
The Department of Consumer Affairs has received 2,667 debt collection complaints in the past three years, according to a fact sheet the department displayed at a press conference this week.
In some cases, the Bloomberg administration has helped debtors ensnared by bad collectors get restitution for their losses. In the past three years, DCA restored $4.2 million in wrongful debt, charging back on average $1,559 per violating company, according to the fact sheet.
The New York attorney general's office is seeking restitution for other debtors and DCA has forced some violating companies to pay fines or surrender their licenses. Between January 2008 and March 2010, at least 32 paid a median fine of $300, according to testimony given by Tyler. During that time, at least 11 had their licenses revoked.
Some advocates feel that civil penalties like those may not be enough.
"Sometimes a slap on the hands is not enough to make them reform their practices," Carolyn Coffey, co-author of a 2008 report analyzing debt collector's abuse of the court system. "If they have to pay a fine, sometimes they see that as the cost of doing business, a criminal charge, that's something different."
But few of the business owners who have for years flouted pre-existing laws have ever faced criminal charges and few ever will, advocates say.
Tyler said that he knows of only one person who's ever been convicted on related criminal charges – William Singler, the owner of Long Island-based American Legal Process. Singler pled guilty in January to a charge of "scheme to defraud" for failing to provide proper legal notice to thousands of New Yorkers facing primarily debt-related lawsuits.
The New York Attorney General's office, which prosecuted Sigler, is prosecuting another process server on similar grounds; and the office has already garnered criminal convictions against 10 bad collectors. But a spokesman said criminal charges are not their primary tools of enforcement.
DCA aggressively pursues criminal charges against fraudulent debt collectors, by referring the offending businesses to the district attorney's office, Commissioner Jonathan Mintz said during a press conference held Monday to announce the latest policy change. "It's up to the DA's office after that," Mintz said.
The Manhattan district attorney's office arraigned 52 people on scheme-to-defraud charges in 2009, but a spokesperson for the office said it's unclear how many of those arraigned were debt collectors. Additionally, DCA doesn't track the number of cases it refers to the DA's office.
"I haven't seen any major indictments coming down, or any press conferences," held about it by the district attorney, Coffey said. "I'm guessing that it's below their radar."
One reason so few process severs face criminal charges is that, under the old law, it was too time consuming and complicated to prove a pattern of fraud, advocates say. To prove that a process server consistently failed to serve, an investigator would need to utilize a special computer program or a team of other investigators to analyze thousands of pages of documents, including some documents that he or she couldn't access without a subpoena.
"I'm pretty convinced that you could have the whole freshman class at Pace Law School, Brooklyn Law School and NYU Law School trying to catch process servers in fraud and everyone would come out saying, 'Wow that was a frustrating experience,' " Tyler said.
There is no consensus that bad debt collectors should be criminally charged.
"I don't necessarily see that the best way to go about pursing these cases is in the criminal arena," said Janet Ray Kalson, chair of the civil court committee of the New York City Bar association. "I think it's better in the civil arena because the standard of proof" there is lower.
Advocates are placing most of their hope in the city's two new policies, which don't create new criminal penalties or increase the existing ones.
One of the policies, outlined in a set of regulations by DCA, could thwart debt collectors' efforts to collect illegitimate debts – old, already paid-off debts and old, unpaid debts for which the statute of limitations has expired. The second new policy – outlined in a City Council bill that Bloomberg signed into law last month – could help New Yorkers sued by debt collectors learn about the legal action against them early enough to fight it.
Under the new policies, a debt collector must supply, upon request, proof of the consumer's original debt, with an itemized list of fees and other charges contributing to the balance. And process servers must prove that they actually serve debtors and other defendants with court summonses by carrying a GPS to the defendant's address. The new city law also allows debtors and other defendants to sue and collect damages from offending process servers.
These changes will make it easier for victims of illegal debt collectors to get compensation, advocates say. "It makes it easier to prove fraud and it gives attorneys some incentive to pursue it," Tyler said.