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FTC Moves to Reform Debt Collection

The Federal Trade Commission announced Monday it is calling for an overhaul of the current system for resolving consumer debt collection disputes, citing problems with how courts settle debt collection lawsuits. According to the FTC, often collectors do not properly notify plaintiffs that lawsuits have been filed and, beyond that, many of these suits contain faulty information.

Additionally, the FTC pointed out that debt collection lawsuits are often settled through default judgments, as many plaintiffs fail to show up for court hearings, which usually results in a garnishment of wages.

These concerns, released in a report on Monday, come at a time when debt collections filings are piling up. According to the The New York Times, one New York law firm has filed 80,000 debt collection lawsuits each year for the past decade.

Other debt attorneys with whom we spoke have seen an increase in business, but pointed out that the upswing has little to do with an increase in debt-ridden individuals.

“In this economy, fewer and fewer companies can afford to keep bad debt on their books for nearly as long,” Seattle-based attorney Matthew King said.

Additionally, more cases are actually making it into the courtroom as the threat of litigation no longer entices debtors to settle with collectors. The increase in volume has lead many law firms to use computer software to prepare cases. Programs such as Commercial Legal’s Collection-Master can be used to send out collection letters and prepare summonses, but their use can lead to other problems.

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