A divided federal appeals court in New York allowed more than 100,000 potential plaintiffs to pursue class action litigation accusing Leucadia National Corp and a law firm of fraudulently cutting corners to win default judgments in debt collection cases.
Tuesday’s 2-1 decision by the 2nd U.S. Circuit Court of Appeals came after the U.S. Consumer Financial Protection Bureau and Federal Trade Commission warned that a contrary ruling could undermine the Fair Debt Collection Practices Act, a 1977 law designed by Congress to police unscrupulous debt collectors.
The lawsuit focused on “sewer service,” a long-running practice where debt collectors fail to serve complaints on debtors, and later falsely certify to courts that service was made and that the cases have merit.
Sewer service often ends in default judgments because debtors do not know to appear in court. It can lead to bank account seizures, wage garnishments and ruined credit scores.