The opinions of Texas bankruptcy judges aren’t usually important to anyone other than anxious debtors and long-faced creditors. But a recent ruling by a federal judge in Dallas deserves wider attention.
U.S. Bankruptcy Judge Stacey G.C. Jernigan writes in plain language that she believes Ally Financial Inc., the nation’s top auto finance company, violated federal bankruptcy rules designed to protect debtors.
As readers of The Dallas Morning News Dave Lieber Watchdog column first learned, she accuses the lender of improperly harassing debtors who’ve filed bankruptcy to get them to pay off a debt they no longer owe. After seeing evidence and hearing testimony, she concludes that Ally routinely sent form letters designed to confuse debtors in the hope of picking up extra monthly payments.
The judge cites testimony from an Ally official that the company has sent these improper letters for five years. She questions the company’s “ulterior motive” and states she believes the process is designed to force people into paying when they shouldn’t — a practice she calls “unacceptable.”
The judge can’t do anything outside her jurisdiction, but she prohibits Ally from sending these letters to anyone living in the court’s Northern District of Texas.
Bankruptcy Judge Stacey Jernigan
She also orders Ally to pay the recipient of the letter $11,000.
The judge declined to talk to me for this Watchdog report.
Ally spokeswoman Susan Fitzpatrick offers limited comment to The Watchdog: “While Ally disagrees with some of the language in the ruling, we respect the court’s decision and have paid the damage award to the plaintiff. It is important to note that Ally’s process complies with all bankruptcy requirements.”
Ally slipped past Toyota Motor Credit Corp. this year to become the nation’s top auto lender. The company edged Toyota by only one-tenth of a percent with $67 billion in outstanding loans and leases, according to AutoFinanceNews.net.
The bankruptcy case involves a Balch Springs woman’s filing that included a Silverado truck, actually in the possession of the woman’s estranged husband.
Ally was notified of the bankruptcy and the company was listed as a creditor. But two months after the 2013 filing, Ally sent Tequilla Marie Law a letter with the words “AMOUNT NOW DUE” and “LAST DAY FOR PAYMENT” on the account.
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“You are late in making your payment(s),” it warned. The amount cited as owed was $6,000 (although the actual balance was $12,000).
The unsigned letter from Ally acknowledges her bankruptcy but warns she should pay or “we may take the vehicle.”
The letter’s warning language, the judge writes, is “subtle and troubling.”
“The court is left with the uncomfortable concern for how many other debtors have received similar letters and sent in payments to Ally, thinking they better do it to avoid trouble with Ally …
“This may have been the precise business strategy of Ally,” the judge writes. “Send the letter and maybe the debtor will send in a payment.”
While some sophisticated debtors would understand they do not have to pay, most would get confused by bankruptcy terms and “legal nuance,” the judge writes.
Aside from paying damages, Ally was ordered by the judge to pay legal fees to the winning lawyer, John J. Grieger Jr. of Legal Aid of NorthWest Texas in Dallas.
No one from Ally testified on behalf of the company at one hearing, causing a scolding from the judge. When the judge demanded to know more, Ally responded in writing that the letters go to “every debtor” who has completed bankruptcy, who has an account more than 50 days past due, and who is not in possession of their vehicle.
In follow-up testimony, an Ally official said use of the letters began in 2008. That’s what the judge had feared, and that’s what she tries to stop in her ruling, at least in North Texas.
“Hopefully,” the judge writes, “this will serve as a cautionary tale.”
Staff writer Marina Trahan Martinez contributed to this report.
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