In the fall of 2007, Kevin Zurrin and his wife, Jennifer Levy, were shocked to learn that they were being dunned for almost $20,000. A writ of property garnishment had been filed in the city’s Circuit Court, and a law firm was coming after them.

Levy says she has no idea of that debt’s origin. An affidavit judgment for more than $9,000 had been filed in 1999, along with a writ of wage garnishment, but she says she never heard about it until eight years later.

Angered that they could be held responsible for a debt they knew nothing about—and that had been documented with little more than a computer printout of Levy’s name and Social Security number—the couple decided to fight. They filed motions, they hired a lawyer, they appealed. They lost. By August 2009, they were desperate. In a hearing before Baltimore Circuit Judge Lynn Stewart, Levy railed about the injustice. “They made these allegations, but they haven’t proven anything,” Levy said. “They throw one piece of paper and put it with another and say you owe $20,000!”

All these years later, Levy had no idea how to compel her adversaries to prove there was ever any debt at all. That matter, it appeared, had been settled during the Clinton Administration, when a judge granted the debt collector a default judgment after Levy did not show up for court (she says she was never properly served). Stewart told Levy she had no jurisdiction to hear the matter and bade the couple, and two representatives from Peroutka and Peroutka, one of the state’s larger debt-collection law firms, goodbye.

Three months later the debt, and the suit seeking to collect it, was dismissed. After years, Stephen Peroutka withdrew as attorney for the plaintiff, which enabled the couple to get the suit vacated and the debt stricken. Zurrin says that means it isn’t even on his wife’s credit report: “If it were, then they would be in violation of federal laws,” he says.

Zurrin and Levy’s multi-year battle was unusual in only one respect: They won. Every year, tens of thousands of lawsuits are filed in Maryland court by collectors working for debt buyers seeking to collect unpaid medical bills, credit card balances, and car loans—along with interest and attorney’s fees that often multiply the original balance. A substantial portion of these debts are “time barred”— uncollectible because of the three-year statute of limitations that governs most debts. But nine times out of 10, the defendant does not show up to court so, until recently, collectors routinely got default judgments on even these debts, giving them the right to garnish the wages and assets of debtors.

Now the game appears to be changing. Since June, the state Commissioner of Financial Regulation has brought cease and desist orders against four debt-collection companies.

Penalties for one company, LVNV, whose collection-agency license was suspended on Oct. 25, could exceed $50 million, according to the agency’s summary order. That company alone, which has offices around the country, filed more than 25,000 collections actions in Maryland. It collected debts for years without a license. The state agency also says that “tens of thousands” of the company’s cases “knowingly contained false, deceptive, or deficient complaints and supporting affidavits.”

In September, Catonsville-based Sunshine Financial agreed to repay or forfeit $665,000 in debts it was trying to collect and pay a $20,000 fine. The company had to drop more than 300 pending collections lawsuits and reapply for its state license, which had been denied in part because the company’s owner and lawyer, J. Scott Morse, was tacking his legal fees onto the debts he was trying to collect on behalf of his own company.

“Attorneys that represent for themselves are prohibited from collecting attorney’s fees under Maryland law,” says W. Thomas Lawrie, an assistant attorney general at the Department of Labor, Licensing, and Regulation who has policed debt collectors since shortly after his arrival in 2008.

“At that time the enforcement actions were related to traditional collection activity—late-night phone calls, harassment,” Lawrie says. “In mid-July 2009, we received a complaint from various consumers through their attorney, and started investigation of Midland Funding.” That resulted in a nearly $1 million settlement by the end of 2009, Lawrie says.

In January 2010, Rockville-based Mann Bracken, one of the nation’s largest collections law firms, abruptly went out of business following the bankruptcy of Axiant, a related debt-collections firm. All of the Maryland cases the firm was handling were immediately dismissed.

While the Commissioner of Financial Regulation was cracking down on debt collectors, a working group empaneled by the judiciary was forging new rules designed to tighten collections practices. Beginning in January, for instance, collectors will have to show that they actually own the debt they are trying to collect. They also have to file paperwork indicating the debt’s origins. “The problem, which has been well documented by judges . . . is that the plaintiff often has insufficient reliable documentation regarding the debt or the debtor and, had the debtor challenged the action, he or she would have prevailed,” reads the committee’s Notice of Proposed Rule Changes, published in July.

Representatives of the debt collection industry did their best to weaken the rules during negotiations, according to DBA International, a membership organization of debt buyers. “Thanks to the work of DBA’s legislative team, the Committee made substantial changes to drafts using language suggested by DBA International and other industry groups,” a Sept. 12 news release from DBA International says.

> Email Edward Ericson Jr.