By Abby Tolchinsky and Ellie Wertheim
December 17, 2009
This column is the third in a series about mediating during an economic recession. We have focused on two general facets: the impact to litigants and to the mediation process itself. In this column, we explore a unique program, offered in Manhattan Civil Court, geared toward consumers with mounting debt and creditors seeking to recoup monies they have loaned.
In March 2007, Judge Fern A. Fisher, then-administrative judge, issued a directive establishing “Mandatory Consumer Credit Mediation.” In so doing, Judge Fisher acknowledged the increasing number of cases as well as the nearly eight-month delay between filing an answer and the pre-arbitration conference.1 Cases are screened by court clerks, and appropriate cases are scheduled for Part 3-M, the mandatory mediation part, within just 15 days of filing an answer.2 Anecdotally, since the establishment of the Part, it has become increasingly challenging for creditors to recoup loans and debtors faced with unemployment (or under-employment) to keep up with their payment obligations. Therefore, the mission of the Part has never been more relevant.
In its practical application, the consumer credit mediation program addresses cases in which debts are in the range of $5000.01 to $25,000. In order to participate, at least one party must be pro se (nearly always the debtor) and all the parties must agree that some amount of money is due and owing to the creditor. In other words, cases involving identity theft would not fall under the purview of the Consumer Credit Mediation Program.
Though the mediation is mandatory, once inside the room, participation is completely voluntary. Furthermore, the process is confidential and has no bearing on a subsequent litigated outcome, if one should become necessary. If the process breaks down, the “fruits of the mediation” cannot be used in court. Where the parties mediate to agreement, however, settlements are reduced to court order and defendants are allocuted by the judge.
All of the mediators are volunteers with the agency Safe Horizon.3 In addition to a basic 40-hour mediation training and subsequent 12-week apprenticeship, each mediator receives special training in the issues that arise in a consumer credit case. The mediators do not provide legal advice; however, should a pro se litigant need help understanding the legal implications of the case, the mediator may suggest adjourning the session.
Pro bono attorneys are available, through the court, to provide legal information, as opposed to legal advice, to litigants in contested cases as well as mediations. At a minimum, the mediator will ensure that the debtor understands any legal terminology that may come up during the conversation. In addition, the mediator explains that, by settling a case in mediation, the parties are giving up their right to a trial.
Mediators begin each session explaining the voluntary and confidential nature of the process and offering the parties an opportunity to express their understanding of the conflict. Generally, the creditor’s attorney has been through the process before, in contrast to the debtor, who may never have participated in mediation.
The attorneys, who regularly negotiate settlements in the mediation forum, may directly address pro se litigants and ask what payment schedule is affordable. While this is a pragmatic, outcome-driven approach, the mediator must be mindful in offering the pro se litigant a chance to participate more fully in exploring the issues presented in the case. Oftentimes, the debtor may wish to explain why he has fallen behind in payments.
Thus, from the outset, the mediator is concerned with creating an atmosphere that re-sets the initial power imbalance between the parties. This is accomplished by emphasizing the voluntary nature of the process as well as by ensuring each party has an opportunity to tell their story. For example, a debtor may have lost health insurance, have an ailing spouse or a new, lower paying job, yet fully desire to negotiate a new feasible payout schedule. When the debtor has an opportunity to explain that he is not trying to avoid or deny an obligation to pay, a conversation about each party’s sense of fairness may break open an impasse.
Ideally, the parties work together, negotiate and come to a mutually agreed upon outcome, one that is workable and takes into account each of their priorities—to collect payment and to provide payment in a manageable and predictable framework. While everyone leaves such a mediation satisfied, the settlement is not, as one might expect, the mediator’s goal; the mediator is mindful not to force the parties into an agreement. Rather, the mediator wants to provide a forum in which both parties can be heard, consider their priorities and look for solutions that may be mutually acceptable.
Anecdotally, the vast majority of consumer credit mediations do result in agreements—during its first year as a pilot program, 82 percent of mediations resulted in agreements—even those that do not settle in mediation demonstrate a benefit from the process. Judges report that litigants who have spent even minimal time mediating return to the courtroom better informed and closer together in their positions and views of the dispute; their cases tend to resolve quickly.
From the perspective of the pro se defendant, mediation provides a space for his voice and his story to be heard. It can be a humanizing experience to explain that one has been going through particularly hard financial times. The creditor’s recognition of the personal story behind the numbers and the contracts further humanizes the process. If debtors have a vested interest in determining the new terms of payment, the thinking goes that such ownership of the solution will result in timely payments.
When an agreement has been reached in principle, the mediator will question both parties, thereby confirming that such an arrangement does meet their needs and will work in the future. Particularly for the defendant, the mediator will emphasize that future default may damage one’s credit rating and result in a judgment. Therefore, it is important to arrive at a workable solution. The mediator typically will read the stipulation aloud and ensure the pro se litigant’s understanding and ability to pay. Here, again, the mediator is addressing a presumed power imbalance.
From the perspective of the creditor, faced with an increasing number of financially strapped borrowers, mediation offers several benefits: first, and most obvious, getting paid. Second, attorneys for creditors and collection agencies may not have access to the full chain of custody for evidence necessary to prevail in litigation. Mediation offers an alternative forum where there’s a problem with the evidence. Finally, the humanizing aspect of hearing each other’s perspective, rather than viewing the pro se defendant as a statistic, helps lead to meaningful solutions.
Success on Many Levels
In the end, the results reached in these mediations may not vary significantly from what a litigated result may look like. After all, creditors know their bottom line prior to entering mediation, as do debtors. However, the process affords each the ownership of the outcome and helps move cases quickly through the court. For each, the value of saving time and money in litigation is also a consideration in calculating what an acceptable mediated outcome may look like. Debtors do not have to appear in court time and again, spending time away from work and family. Attorneys do not have to spend months gathering evidence, subpoenaing witnesses for business records and other such relevant information, all in pursuit of a payment plan. Even if creditors do prevail at trial, it may be difficult to collect the judgment.
It is worth noting that the scope of the program runs beyond credit card debt. Other examples include students defaulting on college debts, interpersonal loans and other forms of borrowing. The success of the program can be measured not only in cases mediated to agreement, but also in offering people in financial stress a chance to resolve their conflict. Perhaps more important, the success of consumer credit mediation is that it benefits all the parties in the conflict. In this regard, it is similar to the foreclosure mediation we wrote about in which everyone involved benefits when a deal is negotiated.
The success of the program in some respects mirrors the foundation of mediation itself—the idea that all the parties involved in a conflict have interests underlying their positions, i.e.: “I should be paid”; “I can’t afford to pay too much but want to get out from under this”; “My docket is over-crowded and at least the case will move more swiftly if they can take time and speak with each other now.”
Each of these needs and interests is served by the mediation. For the parties in the dispute, sitting with a mediator and voicing their view of the conflict and listening to the other person’s viewpoint, ideally breaks open a space for understanding and perhaps even resolution. Volunteer mediator and detective in the NYPD Community Affairs Bureau Jeff Thompson, explains, “The best job I can do is to have them each weigh their options and figure out what is best for them.”
Abby Tolchinsky and Ellie Wertheim are partners at Family Mediation.
1. Often we refer to one of the universal benefits of mediation as the opportunity to relieve overburdened court dockets.
2. City Court of the City of New York, Directives and Procedures, effective March 12, 2007.
3. Safe Horizon, for 25 years, has been providing mediation and conflict resolution services as well as training to the New York City community.