About 3,500 people will have about $10 million in personal debt forgiven by a collection agency, thanks to a settlement in federal court Friday that resolved a lawsuit over the agency's right to sue debtors in Maryland.

As part of the settlement in U.S. District Court in Baltimore, an average $2,800 in debt will be erased for all 3,500 plaintiffs. Each of the two lead plaintiffs will receive a $2,000 payment as well.

The settlement was reached between two Frederick men who led the class action suit — Jason Hauk and Freddy Velazquez — and LVNV Funding LLC, a Greenville, S.C.-based company that buys consumer debt from companies and often sues debtors to collect payment.

The case hinged on the right of LVNV to sue debtors in state court, even though the firm had not been licensed in Maryland as a debt collector. LVNV obtained its license after it had begun many of the lawsuits against individuals.

The lawsuit accused LVNV of "systematic, intentional, and predatory debt collection activities" against its Maryland debtors.

LVNV did not admit any wrongdoing in the settlement.

The thousands of plaintiffs "think this is an outstanding result," said Phillip Robinson, an attorney who represented them. "I think it's a good result for the defendant, too."

Hauk, who owed more than $7,600, and Velazquez, who owed more than $1,000, could not be reached for comment.

An LVNV attorney, Ronald S. Canter, said that although the company "feels its interpretation of the law, which is in keeping with the licensing agency's initial guidance, is reasonable, they have decided to settle this matter with the plaintiffs rather than face protracted litigation with an unknown outcome."

The settlement follows a similar one in March, in which 10,000 debt collection cases were dropped in Maryland by a different agency.

Typically, collection agencies buy consumer debt — known as "accounts receivables" — for pennies on the dollar. Agencies use various techniques to get consumers to pay back the debt, and a portion of those payments is shared with the original creditor.

Court activity between debtors and collection agencies has ratcheted up in recent years, with consumers fighting allegedly predatory collection practices. Some debtors have filed lawsuits and complaints with the government, often demanding that the agencies show proof that they are owed the debt.

As part of the settlement, LVNV won't pursue the debts it tried to collect in state court against the 3,500 people while it was unlicensed. The agency also can't sell those debt accounts to other collection firms.

And LVNV must delete information it gave to the major credit bureaus for each of those debtors, a move designed to help improve their credit ratings, according to the settlement.

Attorneys representing the class action plaintiffs were expected to receive $150,000 from LVNV to cover their fees.

The debt collection industry is large, employing more than 200,000 people nationwide. An industry analysis by Price Waterhouse Cooper found that the debt recovered in 2007 by collection agencies totaled $58 billion — with more than $40 billion returned to the original creditors.

gus.sentementes@baltsun.com

http://twitter.com/gussent An earlier version of this article incorrectly described the settlement of a class-action suit against LVNV Funding LLC. Only the two lead plaintiffs in the case will receive a payment of $2,000 each under the agreement reached Friday in U.S. District Court in Baltimore. The rest of the roughly 3,500 class members will not receive any payment. The Baltimore Sun regrets the error.

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