A court agreed with AARP that a proposed nationwide settlement of an unfair debt collection class action lawsuit was inadequate.
Midland Funding, LLC, one of the nation’s largest debt collectors, was sued in Ohio, California, and Virginia, charged with violating state and federal consumer protection laws by filing false affidavits — sworn statements about the facts — to obtain judgments in court. The practice, known as “robo signing” makes the affidavits untrustworthy because in reality, no one checks to make sure the facts asserted are accurate. The lawsuits were stayed while the Ohio plaintiffs – the first to file – attempted to reach a nationwide settlement. The proposed settlement provided $5.5 million in damages (approximately $10 per class member) and released Midland Funding from all legal challenges to the judgments entered in reliance on false affidavits. The notice failed to inform class members that they would be giving up the right to challenge judgments entered against them based on the false affidavits.
Consumers who would be forced to comply with the terms of the settlement, including those who filed separate state lawsuits, objected to the settlement. AARP’s friend-of-the-court brief, filed by attorneys with AARP Foundation Litigation, urged the court to reject the settlement as an inadequate and unfair remedy that will prevent class members from challenging any judgment even if state law permits a challenge. The brief detailed wide-spread robo-signing abuses by debt buyers. Debt buyers collectively file millions of collection lawsuits, overwhelming state courts with ill-prepared lawsuits based on false affidavits about debts which the collector cannot prove are owed. Most judgments obtained by debt buyers are entered by default in reliance on such false affidavits. The brief also pointed out that Midland Funding obtains through this settlement what it has been unable to obtain through lobbying: a significant weakening of consumer and debtor protection laws.
The federal appeals court agreed. It ruled that the proposed settlement did not meet the test of finding a class action settlement to be “fair, reasonable and adequate.” Citing the great discrepancy between the relief obtained by the named plaintiffs — cancellation of thousands of dollars of alleged debt while absent class members would get $10 each — the court found they were not adequate class representatives. The court also found the notice failed to alert absent class members of the significant rights they were giving up, and it failed to prevent Midland Funding from engaging in the same bad practices in the future. The court ruled that the district court had abused its discretion in approving the settlement.
What’s at Stake
Older people are particularly at risk of unfair and abusive debt collection practices, since they often live on fixed incomes, face unexpected expenses (such as health care costs), and do not necessarily have adequate resources to preserve their independence, financial security, or even to provide the basic necessities of life.
Vassalle v. Midland Funding was decided by the U.S. Court of Appeals for the Sixth Circuit.