The Racketeer Influenced Corrupt Organization act–or RICO–is a federal law most famously used to prosecute members of the Mafia and other organized crime groups. But a judge in the Southern District of New York recently allowed a consumer-class action lawsuit, based in part on RICO claims, to proceed against a debt collection law firm, its debt buyer client, and a process serving company.
According to this Daily Finance story, the lawsuit alleges that the defendants’ business model is as follows: (1) buy debt with little documentation that the debt is accurate; (2) file lawsuits claiming personal knowledge of the debt but using robo-signed affidavits instead; (3) deliberately fail to tell the “debtor” that the lawsuit is pending (a practice called “sewer service”); (4) get a “default” judgment against the debtor when she fails to show up in court to defend herself; and (5) enforce the judgment, including by freezing the debtor’s bank account.
Points 1, 2, 4, and 5 are the basic formula used by debt buyers and their attorneys across the country. Where this case differs is the added allegation of an organized “sewer service” scheme. In his ruling, Judge Denny Chin ruled that there was enough evidence that the three defendants colluded to effect sewer service on unsuspecting consumers to bring the defendants under the RICO definition of a criminal enterprise.
A Lawsuit That Dirty Debt Collectors Should Be Worried About | Daily Finance | 1/4/11 (via Consumerist)