Category Archives: Fair Debt Collection Practices Act

Cease-Communication Letters – Make Debt Collectors Leave you Alone

Cease-Communication Letters

Debt collectors often try to wear down the resistance of consumers by repeatedly calling and harassing them. If this is happening, you can easily make it stop with a cease communication letter. Here’s how.

They’re Trying to Harass You

Debt collectors know that the people they are calling do not have much money – their purpose in harassing you is to move themselves to the head of the line. The way they do this is by attempting to inflict more pain or annoyance on you than other bill collectors. In other words, debt collectors know you only have so much money to pay your bills – they’re competing with each other. The company that harasses you the most “wins.”

Among other things, this means you should never take what they say personally. But you don’t have to put up with it.

Sometimes individual debt collectors claim not to engage in abusive behavior, but rather to be the victims of it. I leave the reader to decide how much sympathy these debt collectors deserve. My point is that, in general, the debt collectors seek emotional engagement. That is, they want you to take what they’re saying personally and to dispute or argue about it.

In general, the best thing you can do is avoid paying any attention to them. Write them a cease communication letter.

You Can Make them Stop Bugging You

The collectors are not concerned with your priorities or well-being, but you should be. It can be hard to keep a clear head amidst all the noise and all the people trying to use you. Luckily the Fair Debt Collection Practices Act (FDCPA) offers some help. Under the FDCPA, 15 U.S. Code Section 1692(c)c,

“if a consumer notifies a debt collector in writing that the consumer wishes [it] to cease further communication with the consumer, the debt collector shall not communicate further…with respect to such debt.”

However, the collector may inform the consumer that it’s efforts are being terminated, or notify the consumer that it “may or will invoke specified remedies which are ordinarily invoked” (i.e., suing or reporting to the credit agencies). They can tell you that once, but then they have to leave you alone.

Many people fear that by invoking this rule they will cause the debt collectors to sue them. This fear is misplaced. The debt collectors have their own guidelines based on what they expect to collect. That is, they may sue you, if you fit within their guidelines, but making them leave you alone is not one of those guidelines (that I’ve ever observed).

If anything, writing a cease communication letter may reduce your chance of being sued because it keeps the debt collector from gathering more information about you. Lawyers dislike uncertainty. They want to be pretty sure they’re going to make money if they go to the trouble of suing you. Your talking to them is one way they find out what they need in order to decide to sue you. Making them leave you alone leaves them in the dark.

What to Do to Make Debt Collectors Stop Harassing You

Crucially, if the cease communication notification is made by U.S. mail, the communication is complete “upon receipt.” In other words, to make sure the debt collector is forced to leave you alone, it makes sense (although it is not required by the law) to send the letter by certified mail. That way you have proof that the debt collector received the letter and when it received it. Any further communication would be in violation of the FDCPA.

When the phones stop ringing off the hook, you will be freer to make decisions according to your own best interests and priorities.

For More Help

If you would like a product that gives you more information on whether the cease-communication letter or the debt validation letter would work for you and be a good idea, along with sample letters that really work, click here. 

Check out our Guide to Legal Research and Analysis for a guide to researching and laws and cases in the most effective way. But legal research is more about what you do with what you find, and so this is a primer on legal thinking and analysis as well.

Requiring Verification of the Debt – Secret Weapon against Debt Collectors

Verification is not difficult for debt collectors, but it can be a key right for people with debt problems.

When a debt collector first contacts you, it should notify you of your right to “dispute and request verification.” That right is provided by the Fair Debt Collection Practices Act (FDCPA). This video explains why you should dispute the debt and require the debt collector to verify it.

In other words, always seek verification  Often a debt collector will either disappear completely once you seek verification or will fail to provide verification but still harass you – a violation of the FDCPA.

But remember this does not apply if they file suit against you – if you don’t answer a lawsuit when it is filed, you will lose the case. See Bogus Right to Verification on Petition – Dirty Trick! If you have already sought verification but not received it, you might file a motion to dismiss based on their failure to verify.

Your Right to Dispute a Debt

If a debt collector contacts you in an attempt to collect a debt, you have a right to dispute the debt. To be precise, you should receive written notice of that right within five days of the first communication. And the notice should tell you that you have a right to demand verification within thirty days. That is, you must make your request to them within thirty days.

If you do, they must verify the debt before taking any further actions to collect it from you. They don’t have to do anything within thirty days – they never have to verify the debt if they don’t want to . It’s just that until they do so, it’s illegal to try to get you to pay it.

If you have disputed the debt.

What IS Verification?

What constitutes verification is a gray area in the law. The FDCPA does not specify what it is.  The courts have taken a pretty non-demanding view of verification. It is intended mostly to prevent clerical-type errors leading to suing or harassing the wrong person. So in reality it takes very little to verify the debt. Debt collectors often offer nothing more than copies of old statements. Absent some sort of more specific challenge to the debt, that seems to be enough.

What could be a more specific challenge? Suppose you wrote and disputed a debt to you, Tom Jones. You say, “my middle name is Jim, and I never sigh without including my middle name.” In that case, sending you statements with the name “Tom Jones” on them might not be enough. They probably would not be. Likewise, a challenge to address or some other specific would probably need to be addressed by the verification. Does that make sense?

What Good Does Demanding Verification Do?

There are three good reasons to demand verification. Sometimes they go away. Sometimes they give you helpful information. And sometimes they ignore the law.

Sometimes they Go Away

Surprisingly, giving how easy it is to verify a debt, demanding verification often causes debt collectors to go away.  Perhaps it is only because you have signaled a willingness to assert your rights. Possibly in some transactions the debt collector lacks even this much evidence. Or more likely the debt collector is playing a simple numbers game and any friction whatever causes it to punt. For whatever reason, though, it seems to happen often enough to justify making the demand every time.

Sometimes they Give you Helpful Information

Rarely, a debt collector will simply give you everything it has in response to a verification demand. This allows you to think carefully about whether they could prove the debt. Usually you will see that they cannot. In any event, in some cases you can get what they have without a fight, whereas when you seek discovery in a lawsuit you will have to fight for everything. So it can be easy discovery.

Sometimes they Ignore the Law

Debt collectors used to ignore verification demands quite often. It seems that they don’t do that as much anymore, but this could simply be my limited observation. In any event, if they ignore the law and continue to harass you, you have the right to sue them under the FDCPA.

If they are suing you, you have a right to counterclaim against them under the FDCPA. This is the same right you have to sue them, only it happens differently because they have sued you first.

You probably have a right to move to dismiss the case as well. The point of verification is to prevent wasteful and harmful lawsuits. If they ignore the law and bring suit without verifying, a court should be willing to dismiss the suit until they obey the law.

Conclusion

If a debt collector is bugging you, you should demand verification. It costs little effort and might gain you something.

 

What to Do if a Debt Collector is Suing You

 If a debt collector is suing you, you may be intimidated or even panicked. You may be thinking about giving up, but that usually isn’t a good idea. You have an excellent chance to win if you will just fight a little bit. Defending yourself  isn’t that hard.

If They Have Already Filed Suit

If you are already in a lawsuit, you need action now. You should be doing things to protect yourself NOW. Our debt defense system gives people what they need to defend themselves.

You can beat them. It’s mostly a question of knowing what you need to do and doing that thing throughout the lawsuit. At the same time, not doing the things you should not do is equally important. It sounds simple, and it is – if you know what you’re doing.  You can know those things with the Debt Defense System and get help doing the right things while avoiding the wrong ones.

You have probably heard of the saying, “inch by inch it’s a cinch.”

Defending a lawsuit is never actually a cinch. However, debt defense just requires a series of decisions and steps. These are steps that anybody with some determination can take. You can do them well enough to do a good job  overall of defending. And that is usually good enough to win.

I have had a great deal of experience both as a litigator and web master. Over the years, I’ve realized that almost everyone representing himself or herself in a debt case does much better with an opportunity to talk to other people facing the same issues.  People can help each other with insights and information. Seeing a variety of samples is helpful as well.  The Debt Defense System, gets you a membership which gets you the full resources of Your Legal Leg Up’s website and  our weekly teleconferences.

 

Who is a Debt Collector after Santander Case

Debt collectors are governed by the Fair Debt Collection Practices Act (FDCPA). If you are able to make a counterclaim under that Act, you will improve your defense. Thus the questions are, who is a debt collector, and how do you show that the person suing you is one.

The Supreme Court  issued rulings in 2017 that will make it more difficult for debt defendants to obtain legal representation and will cause debt collectors to engage in more deceptive, dishonest and abusive behavior. Nevertheless, most people will still be able to sue debt collectors. We discuss how after our discussion of the Santander case.

Fair Debt Collection Practices Act

When Congress passed the FDCPA, debt collectors were such a problem that they were a threat to the American way of life. The FDCPA was therefore designed to prevent fraud, deception and unfairness in general in the collection of debts. Congress named numerous specific actions as “per se” violations of the Act and also included the more general description of “unfair” debt collection practices.

It wanted to prevent debt collectors from changing the forms their actions took without changing what they were basically doing.

The Supreme Court has just reduced that Congressional intent to a farce, applying just half of the statutory definition of “debt collector” to a case and finding that, under that half of the definition, junk debt buyers were not debt collectors.

Real-Life Debt Collection

In most debt cases, creditors sell charged-off debt to debt buyers who exist to collect that money by hook or crook. They used to hire debt collectors to collect on debts and paid them from the proceeds, Creditors now get their money first and let the debt collectors take theirs from the debtors. All that has happened is that nominal ownership of the debt has changed. In other words, debt collectors have assumed a different form to pursue the very same activities.

Henson et al. v. Santander Consumer USA, Inc.

The Supreme Court has repeatedly said that it would not allow parties to elevate form over substance to evade the impact of laws . Santander does exactly that.

One could also characterize the Court’s ruling as dishonest. It only analyzed half of the definition of “debt collectors.” In looking at Section 1692a(6), the court examined the defining language as “any person… who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The court’s decision then repeatedly referred to and emphasized the words “due another,” arguing that companies were only debt collectors if they fit that traditional form of collectors.

How the FDCPA Defines “Debt Collector”

Look at the part of the definition preceding the language in question to get a truer view of the statute’s clear intention.

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Section 1692a(6) (underlined portion is the part ignored by the Supreme Court in Santander, italicized word “any” is for emphasis)

Doesn’t it seem reasonable to read “any debts” literally, so that if the principal purpose of a business is to collect debts, they’re a debt collector? Of course it does, and that would obviously include businesses that exist to purchase debts and collect on them.

Supreme Court is AGAINST Debt Defendants

The Court opinion glibly slides over that, saying that “the parties haven’t much litigated that alternative definition of debt collector and in granting certiorari we didn’t agree to consider it, either.” Santander, Slip Op. at 5. In other words, the Supreme Court agreed to hear only so much of the case as allowed them to shove a dagger into the apparent heart of the FDCPA – not enough of the case to show what the FDCPA actually intended or to do justice.

In theory, the decision in Santander leaves open the possibility that this “alternative” definition would extend the meaning of “debt collector” to junk debt buyers. On the other hand, the decision looks like a court in search of a justification for a desired outcome, and is a negative indication for the Court’s integrity. Particularly in the context of its decision in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17) (see my article, “Opening the Floodgates of Bad Claims”), it shows actual hostility to the laws that protect consumers from debt collectors and a willingness to engage in intellectually dishonest games to destroy them. As a practical matter, it will likely be several years before the Supreme Court revisits the definition of “debt collector.”

Pleading that a Junk Debt Buyer is a “Debt Collector”

The Supreme Court limited its decision to the “regularly collected” language. Why? Probably because debt defendants have normally found it easy to prove a company “regularly collected” debts. In the Eighth Circuit, law firms representing collectors in three to five cases per year are“regularly collecting” debts.

Under fact pleading rules, one must plead facts constituting a basis for your legal conclusion. So debt defendants routinely allege something like the following:

Heartless, Ruthless and Merciless, represent debt collectors in dozens of lawsuits attempting to collect debts per year. They are, therefore, debt collectors, and

Heartless Debt Collector, Inc., regularly sues persons for debts purchased after default…

Use of “Regularly Collects” Debts Language

Debt defendants have typically used “regularly collected” because it is easy to demonstrate as a matter of public record. Establishing a business’s “principal purpose” will now be much more difficult. My attempts to find an authoritative definition for “principal purpose” of a business turned up zero cases. No doubt there are some cases that address the issue, but certainly not many.

Many court decisions include the term “principal purpose.”  But they use it generically, as a synonym for “main” or “major.”

I found no cases quantifying the term in any way. So it isn’t clear how much of any other purpose would be enough.

Debt buyers who purchase billions of dollars of debt for no other purpose than to collect it. But they will argue that their “principal purpose” is to “service” that debt. In their lexicon that really means extort payment in as many ways, over as long a period, as possible. But they will claim all manner of beneficial purposes for their activities.

This will alter the nature of the proof required to establish that the company is a debt collector. Information regarding a business’s “principal purpose” will be in the possession of the debt collector. Thus parties attempting to obtain that information will encounter the usual tricks when they try to get it. Expect the same series of stone walls, delays and unethical and oppressive litigation strategies debt collectors usually use. (Fortunately, this can be a double-edged sword. We train our members at Your Legal Leg Up to use this to their advantage.)

Debt defendants must now allege and attempt to prove the debt collector’s main business is to collect debts.

What Debt Defendants Should Do

Debt defendants have all the same defenses to debt lawsuits they ever did – or almost all of them. Santander applies very little to the defense of debt suits.

To state claims under the FDCPA, you need to allege the company’s principle business is the collection of debts. You should probably allege they buy debts from others for the purposes of collection. And that they provide no significant service to the debtors.

Verification of Debt – Don’t Let the Right Turn You into a Sucker

Don’t be a Verification Sucker – Request for Verification is NOT a Substitute for an Answer

 

Debt verification (also called “validation”) of your debt is an important right. If the debt collector brings suit, though, it’s too late. Demanding validation will NOT prevent a default judgment if you try it after the debt collector brings suit. In fact, a lawsuit does NOT trigger the right to verification at all.

People in debt trouble hear a lot about debt validation, and it can be a valuable right. Even though it requires little from the debt collector, making the demand seems to cause some debt collectors to go away. It will at least send a signal to the debt collector that you will defend your rights.

If the debt collector has filed suit, you must defend the lawsuit and file an answer (or appropriate motion) in court. If you don’t answer, the debt collector usually gets a default judgment. That effectively ends your rights to fight the debt.

That’s because, under the Fair Debt Collection Practices Act (FDCPA), filing suit is not an “initial contact” for purposes of verification. Validation is designed to keep debt collectors from suing the wrong people. After they file suit, it’s too late for that. Instead, the courts will decide.

Or so goes the legal precedent. The debt collectors know – and we all know – that most people do not protect themselves in court.

Make sure you do. You have to file an answer or the appropriate motion to do this.

Conclusion

When a debt collector (or creditor) files suit against you, you will have to file an answer in court to avoid a default judgment. Many people think all they have to do is “dispute the debt and request verification.” The right to verification, however, applies only to collection efforts that are not part of a lawsuit. Don’t be a verification sucker – file an Answer and defend yourself.

Supreme Court Attacks FDCPA – Defending Pro Se in Debt Defense Cases

Defending pro se may have just become an even more important option for debt defendants.

The Supreme Court has recently damaged debt defendants’ rights with two very important decisions. These decisions attack the Fair Debt Collection Practices Act (FDCPA). One allows debt collectors to bombard the bankruptcy courts with outdated claims. The other holds that junk debt buyers are not “debt collectors” under one important definition of the FDCPA.  Together, these rulings change the landscape of defense. One thing is clear: you need to know your rights more now than ever.  Defending pro se may be the only kind of debt defense you can get anymore.

Pro Se Defense

Let’s start with what “defending pro se” is.  Pro se means representing yourself in a lawsuit. This eliminates big legal fees, but it ALSO means taking on the burdens and risks of defending yourself. Hiring the right lawyer is the “gold standard” of defense, but hiring lawyers is expensive. Additionally, recent Supreme Court rulings will make it harder to get a debt lawyer at all. Still, in most debt cases people can handle their own defense. The law is not complicated, and debt cases are document, rather than witness, intensive. Defending pro se even has some significant advantages in the debt law context.

Who is a Debt Collector

In Henson et al. v. Santander Consumer USA, Inc., No. 16349 (Slip Op. 6-12-17), the Supreme Court ruled that junk debt buyers are not“debt collectors” under one provision of the Fair Debt Collection Practices Act (FDCPA). I discuss that case, its impact, and what action people need to take regarding it, in my article and video, “Who Is a Debt Collector – Supreme Court Tries to Destroy the Fair Debt Collection Practices Act and what to Do about that.” In general, the effect of Santander is to make it more difficult to establish that a junk debt buyer is a debt collector, and it may signify that the Supreme Court would not let you sue junk debt buyers under the FDCPA at all.

Harder to Get a Lawyer

Santander is going to make it more difficult for you to get a lawyer to defend you in a debt case – and more expensive if you can get one. That’s because the FDCPA applies only to debt collectors and gives you certain counterclaims, and certain defenses, that make defending you easier. The FDCPA also includes a “fee-shifting” provision which allows a consumer to make a debt collector pay for most of the time a lawyer spends on a case. These things – ease of defense and a rich company to pay fees – make FDCPA cases attractive to lawyers. Take away the FDCPA, and the lawyers are going to have to charge more – a LOT more. And they simply won’t take as many cases because they’re harder. This means that debt law defendants, already drastically underrepresented, are going to find it much more difficult to hire lawyers. Defending pro se has become a much more important option.

Debt Collectors Will Run Wild

The decision in Santander threatens to neutralize the FDCPA and let junk debt buyers – who now make up the vast majority of debt collectors – run completely wild. They will be much freer to abuse, deceive, harass – in short, all the tricks that brought about the FDCPA in the first place because the laws regulating them will have been predominantly removed. At the same time it makes getting a lawyer much more difficult, the decision in Santander will likely result in a large number of new and wrong lawsuits. HOWEVER, Santander does not negate any (or very few, anyway) of your defenses in a debt law case, and it does not reduce the burden of proof for debt collectors. You can still win, in other words, but you very well may have to do it yourself.

Bankrupts Beware

Bankruptcy is one refuge debtors have from debt collectors. In general, you can file bankruptcy and force all your creditors to stop contacting you and, instead, file their claims in your bankruptcy action. In theory, the court will then either grant those claims or deny them according to what is right. The dirty little secret of bankruptcy, though, is that if claims are not disputed, they are generally granted. In bankruptcy cases brought by poor people (you can bet Donald Trump never had this problem), the lawyers representing the bankrupts have little incentive to dispute wrongful claims. There’s a U.S. trustee who is supposed to oversee the process and protect the bankrupt and legitimate creditors from bad claims, but guess what?

They usually don’t.

So bad claims get allowed. In most bankruptcies, allowing a bad claim means that it’s going to get paid (eventually) by the person filing for bankruptcy.

Junk Debt Buyers Make Things Worse

Enter the junk debt buyers. They buy LONG overdue debt – debt far beyond the statute of limitations – and file claims in bankruptcy cases. This bogs the bankruptcy courts and everyone involved down. As a practical matter this results in people paying billions to debt collectors who have no right to collect. This crushes people who declared bankruptcy and rips off legitimate creditors whose debts get paid at a lower rate.

Some debtors were suing debt collectors under the FDCPA for filing outdated claims in bankruptcy.  The FDCPA has a “fee-shifting provision,” that means consumer lawyers who win make the debt collectors pay their fees. That gave debtors’ bankruptcy lawyers at least some financial incentive to bring these claims and dispute unenforceable claims. They were doing so as part of the bankruptcy proceedings, and the debtors were also bringing suit outside of the bankruptcy context as well.

FDCPA Does Not Apply In Bankruptcy

The Supreme Court negated the FDCPA’s protection with its holding in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17). In that case, the Court ruled that debt collectors could file claims in bankruptcy that they know are unenforceable in an ordinary court (and would violate the FDCPA if filed there).  For a fuller discussion of that case, look at my article and video, “Bankrupts Beware, FDCPA No Longer Applies – Opening the Floodgates to Bad Claims.”

Midland Funding means, in practical effect, that even if you’re in bankruptcy you’re going to have to know and protect your own rights. Your lawyer has LITTLE (personal) incentive to challenge bad claims, and likewise the U.S. Trustee has VERY LITTLE time (or incentive) to do it. If the court allows the claims, you will probably have to pay them in all likelihood. That means that even if you file for bankruptcy you must prepare to defend yourself against the debt collectors. You will AT LEAST need to know your rights, and you will very probably have to defend them pro se despite having a bankruptcy lawyer.

Defending Pro Se

The Supreme Court’s decisions in Henson and Santander mean debt defendants will get much less help from lawyers. These cases are still possible to defend against and win – they’re as easy as any law gets, probably. Because so many fewer defendants will fight, you will probably have even better chances of winning YOURS. It’s less profitable for debt collectors to fight now because they will have so many more easy wins. But you are more likely to have to do it yourself now than ever.

Make it hard for them.

 

Henson v. Santander – Supreme Court Attacks the FDCPA

In Henson et al. v. Santander Consumer USA, Inc., (“Santander”), the Supreme Court hurt the FDCPA and attacked the rights of consumers. Its ruling means that the FDCPA will no longer apply to most debt collectors. This decision will make it far more difficult for debt defendants to obtain legal representation. And it will cause debt collectors to engage in more deceptive, dishonest and abusive behavior.

If you are facing debt collectors, you should know your rights and may need to defend yourself pro se.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) became law In 1978. Debt collectors were so corrupt and destructive  Congress they were a “threat to the American way of life.”  Congress named numerous specific actions as “per se” violations of the Act. It also included the more general descriptions of “unfair,” “unconscionable,” and “deceptive” debt collection practices as illegal actions. Congress wanted to keep debt collectors from changing the forms their actions took without changing what they were basically doing.

The Supreme Court has just reduced that Congressional intent to a farce. Its ruling in Santander guarantees more dishonest, careless and abusive debt collection techniques. It means consumers and honest businesses will support the worst scavengers in the world.

Real-Life Debt Collection

Instead of holding it for collection, creditors usually sell charged-off debt to debt buyers these days. When debt buyers buy a debt, their only purpose is to collect that money by hook or by crook. Creditors used to hire debt collectors to collect on debts and pay them out of the proceeds. Now they get their money first. The debt collectors take their money from the debtors. All that has happened is that nominal ownership of the debt has changed. In other words, debt collectors have assumed a different form to pursue the very same activities.

Henson et al. v. Santander Consumer USA, Inc.

The Supreme Court has not allowed parties to change the form of their actions to evade the impact of laws. Santander cheerfully elevates form over substance, however. The same actors will perform the same abhorrent deeds that the FDCPA was designed to prevent.

One could consider the Court’s ruling dishonest in that it only analyzed half of the definition of “debt collectors.” In looking at Section 1692a(6), the court examined the defining language as “any person… who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The decision then repeatedly referred to and emphasized the words “due another,” arguing that companies were only debt collectors if they fit that traditional form of collectors. In the Supreme Court’s view, debts which had long belonged to another but were sold for purposes of collection, change their nature when sold. Junk debt buyers are collecting on their own debts, not debts due another.

How the FDCPA Defines “Debt Collector”

We should look at the whole definition of “debt collector” to get a truer view of the statute’s intention.

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Section 1692a(6) (underlined portion is the part ignored by the Supreme Court in Santander, italicized word “any” is for emphasis).

The Court ignored the underlined portion of the definition because the debt collector at issue in the case was a bank. The parties agreed that Santander’s principal purpose was not the “collection of debts.” But the Court should not have ignored that portion of the definition, as its broadness showed congressional intention to get all “functional” debt collectors. Taking note of that intent, the Court should have read “debts owed… to another” to keep their substance despite the debt’s sale. Doing so would have prevented debt collectors from changing the NATURE of the debt merely by selling it to another party. This would have honored congressional intent and protected consumers.

Why the Court Did What it Did

Why didn’t the Supreme Court look at the whole statutory definition of “debt collector?”

The surface reason was that Santander was a bank – and the parties agreed that its business was not principally collecting debts. But that’s really only the surface fact. It would not have stopped the Court from considering the entire definition to garner congressional intention. And it wouldn’t have prevented the Court from giving a reasoned decision on the whole statute anyway. The Supreme Court grants certiorari only in a very small percentage of cases, and it has had numerous opportunities to examine the whole reality of debt collection. It chose the issue it wanted to address deliberately.

Plaintiffs in FCPA cases have usually relied on the “regularly collecting” debts language because it is easier to show than “principal purpose.”

Establishing a business’s “principal purpose” will be much more difficult. Few case use the term “principal purpose” of a business. While there must be some cases that address the issue, there are not many. Courts often use the the term “principal purpose” in judicial decisions, but its use is primarily generic.  Opinions use the words  as a synonym for “main” or “major.” I found no cases quantifying the term in any way.

“Principal Purpose” Is Hard to Prove

Junk debt buyers, who purchase billions of dollars of debt for no other purpose than to collect it in any way they can, will argue they are not debt collectors. They will claim their “principal purpose” is to “service” that debt. In their lexicon that really means extort payment in as many ways, over as long a period, as possible.

Or they will make up some other reason or claim.

This will alter the nature of the proof required to establish that the company is a debt collector. Rather than being a matter of public record, information regarding a business’s “principal purpose” will be in the possession of the debt collector. That means that parties attempting to obtain that information will have to use discovery to find it. Thus they will encounter the same stone walls, delays and unethical and oppressive litigation techniques they encounter in their other discovery attempts.

Considering the current ideology and integrity of the Supreme Court, of which debt collectors are very well aware, who knows what the courts will officially “believe?” As a debt defendant, you must now allege and prove that the debt collector’s main business is to collect debts. The judicial wind will be in your face.

Reading the Supreme Court

In theory, the decision in Santander leaves open the possibility that this “alternative” definition would extend the meaning of “debt collector” to junk debt buyers. The decision shows a court in search of a justification for a desired outcome – you should view it as a negative indication for the Court’s integrity.

Santander and another recent case, Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17) (see my article, “Opening the Floodgates of Bad Claims”), show actual hostility to the laws that protect consumers. They also show a willingness to engage in intellectually dishonest games to destroy them. As a practical matter, it will likely be several years before the Supreme Court revisits the definition of “debt collector” and applies the entire definition to the question of junk debt buyers.

What Debt Defendants Should Do

Debt defendants have almost all the same defenses to debt lawsuits they ever did. Santander applies very little to the defense of debt suits.

On the other hand, many and perhaps most lawyers are going to be scared away from taking debt cases. Many lawyers who do not understand Santander will simply regard the FDCPA as not applying to junk debt buyers. That is almost all the debt collectors in litigation these days. These lawyers won’t take debt defense cases or will charge much more for them. They will accomplish much less than they would have, too, because they will not counterclaim on your behalf. Lawyers who understand Santander will charge more and warn clients that winning is less likely than it used to be.

This means that far more debt defendants will be on their own.

Expect to see a motion to dismiss based on Santander if you currently have a counterclaim under the FDCPA. I believe you will want to amend your counterclaim to include the “principal purpose” language mentioned above. You will also need to conduct discovery designed to prove the company’s principal purpose.

Bankrupts Beware, FDCPA No Longer Applies – Opening the Floodgates to Bad Claims

Debtors often see bankruptcy as one refuge from debt collectors, but the Supreme Court has recently made things much worse. In Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17), the Court held that filing outdated claims in bankruptcy court does not violate the Fair Debt Collection Practices Act (FDCPA). If you are in bankruptcy or considering it, this is huge. It could mean having to pay more if you file for bankruptcy than if you don’t.

What Bankruptcy Does

In general, if your debts get too bad, you can file bankruptcy and force all your creditors to stop contacting you. They have to file claims in your bankruptcy action, and the court will either “allow” those claims or deny them. If the court allows a claim, you will have to pay some fraction of it (or all of it). The court then determines the amount of payments you must make, over what period of time, and you do your best to do that.

If you succeed, you will receive a “discharge” – this eliminates all the debts disallowed and the fraction of your debts that you don’t have to pay under the plan. This is this “fresh start” that lures most people into the bankruptcy process.

It isn’t an easy path, and most bankruptcies are dismissed without “discharge.”  I have often taken the position that bankruptcy is NOT an appropriate solution for most people facing debt collectors. See my  article, Is Bankruptcy the Best Option for you? and  Bankruptcy May Not Be the Best Option When Sued for Debt, for example. The Supreme Court has made that analysis even more powerful.

Courts Allow Uncontested Claims

The dirty little secret of bankruptcy is that if claims are not disputed, the courts generally allow them. In bankruptcy cases of people without much money, the lawyers representing the bankrupts have little (personal) incentive to dispute wrongful claims. They get their pay out of the scanty resources of their clients.

The U.S. trustee who oversees the process should protect the bankrupt and legitimate creditors from bad claims, but guess what?They often don’t. Likewise, the court should winnow out bad claims, but given the number of bankruptcies and their complexity, they often do not.

Under current realities, poor people pay a lot of bad claims.

Junk Debt Buyers Seek to Exploit the System

Enter the junk debt buyers to make things much worse. They buy vast amounts of LONG overdue debt – debt far beyond the statute of limitations – and file claims in bankruptcy cases. This bogs the bankruptcy courts, the trustees, and bankruptcy lawyers down. The more bad claims they file, the more get through because of carelessness. They should NEVER get through, because an unenforceable claim should ALWAYS be denied under bankruptcy rules. But they often do.

The Trap of Res Judicata

Paying some part of bad claims in bankruptcy is bad, but what happens if your bankruptcy, like most, ends without discharge. What if, for some reason you fall short and don’t get your “fresh start?” What happens then?

Res judicata is the rule that if an issue has been, or could have been decided by a court, it can’t be relitigated.  If a bankruptcy court has allowed a claim – even if it did so by mistake or simply because it was not disputed, you may not be able to dispute the claim in another court later.  And even if a claim would have been illegal to bring in a state court originally, if you file bankruptcy and the claim is allowed, you will probably have to pay full value on the claim later.

Bad claims hurt the chances of the bankrupts to get their fresh start. They hurt the chances of the legitimate creditors to get paid. And they make the whole process stink to high heaven of injustice. Allowing a bunch of hoodlums in fancy suits to steal wholesale from the poor damages the legal system at its very core.

The FDCPA used to offer some protection against that, but the Supreme Court negated that protection with its holding in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17). In that case, the Court ruled that debt collectors could file claims in bankruptcy that would be illegal if filed in other courts.

Midland Funding, LLC v. Johnson

The relevant facts in Midland Funding are very simple. Midland, a junk debt buyer, was buying extremely old debts for very small amounts of money. They were using these debts, which were far beyond the statutes of limitations, as the basis for many claims in bankruptcy. Johnson opposed and got the claim in that case disallowed, and then filed suit in district court under the FDCPA, alleging that the claim had been unfair or unconscionable. The essence of Johnson’s claim was that filing obviously time-barred claims in a bankruptcy proceeding was an unfair debt collection practice.

The Supreme Court ruled that it was not.

There is no need to review (here) the tortured logic that effectively immunizes from consequences the intentional doing of something that never, under any circumstances, should be allowed. The state of the law simply is this: debt collectors can file obviously unenforceable claims in bankruptcy without worrying about the FDCPA. That means there’s a big risk that you will pay them if you aren’t looking out for them.

Result Possibly Different if you Allege Deception

There is perhaps one glimmer of light in this very bad decision. The Supreme Court was addressing “obviously outdated” claims. What Midland was doing was buying obviously unenforceable claims and hoping they would be overlooked and erroneously allowed. While this obviousness is one main way a debt collector’s intention to file outdated claims would be known, the obviousness was also a reason the Court found that the claims were not “deceptive.” What if the claims were known to be outdated by the debt collector but were not obviously so? Facts like that, or similar facts tending to show some actual intent to deceive would present difficult evidentiary issues, but the case could arise and might tip the balance in the other direction.

Conclusion

What the Midland Funding case means is that even if you’re in bankruptcy you’re going to have to know and protect your own rights. Your lawyer has VERY LITTLE incentive to challenge bad claims. The U.S. Trustee and court probably won’t protect you either.

If the claims are allowed, you will probably have to pay them. That means that even if you file for bankruptcy you must be prepared to defend yourself against the debt collectors. You will AT LEAST need to know your rights, and you will very probably have to defend them pro se. You’re probably not going to get much help from your lawyer on this one.

Excuses in Debt Defense Will Lose Your Case

Making excuses will lose your case
Making excuses will lose your case

Sincerity vs. Integrity

Making excuses in debt law cases is a good way to lose your case.

The “iron law of cause and effect” applies to everything. What this means is that, for every action, something happens as a result. No matter why it happened, if it does happen, there are consequences. There are no free lunches. Ever.

You know that. But it’s easy to forget when things get tough.

We pretend the iron law of cause and effect does not apply to us all the time. If we’re late, we apologize, and that’s usually enough to get past the other person’s anger or hurt feelings. If we apologize sincerely enough or give enough good reasons, it seems like we get away with it. But it isn’t called the “iron law” for nothing. Even if the other person excuses us, he thinks we are less dependable. And if the other person doesn’t, we think of it ourselves. Consequences.

Sincerity means not intending to do harm. Integrity means not doing it. Know the difference.

Substantive Law of Debt

If a debt collector can prove you borrowed money and didn’t pay it back, it should get a judgment against you. And if you don’t make them prove their case, they will get their judgment. Simple as that. They call that “strict liability,” which means that WHY you didn’t pay does not matter.

On the other hand, there are events that can destroy a debt. Showing payment, that it was based on fraud, or settlement to name a few, will attack the debt. But if the debt isn’t destroyed, no amount of sincerity will get you off the hook. It doesn’t matter how much you wanted to pay. It doesn’t matter how much you tried to pay. Or whether you tried at all.

It’s surprising how often people get mad at debt collectors for trying to collect debts they (the people involved) can’t afford to pay. Just because the debt collector has a ton of money doesn’t mean they won’t or shouldn’t get a judgment against you. Don’t think that way.

Instead, fight and make them prove their case if they can. Require them to prove the debt and their right to it. Luckily, they aren’t so good at that.

Excuses in Litigation

We’ve been talking about the substantive law of debt, which is almost absolute,. It’s a little murkier when you talk about procedures such as responding to motions and the like. There, excuses CAN make a difference – sometimes. If you make a mistake in doing something, this can sometimes be excused. Likewise, if you make a mistake, you should certainly try to get it excused. The sincerity of your excuse will matter then, so make it good and say it with feeling. And you might get away with it.

But even if you do get away with it, every mistake has consequences. As a pro se defendant, you work mighty hard to get the judge to take you and your words seriously. You want the judge to apply the law fairly and consistently – that’s really all you need in most debt cases to win.

Follow the Rules – Don’t Ask for Breaks

Any time you ask the judge for something special or make some kind of excuse, you will hurt your chances of the court taking you seriously and holding the debt collector to the rules. And all too often, the court will not give you the break it probably should. Thus you should always work your hardest and do your very best to understand the law and rules of your court. As much as possible, you NEVER want to ask the judge for anything she isn’t supposed to do.

And to get your best, you must give your best. Never make excuses for yourself, and never accept them from yourself. It’s impossible to be perfect, but try not to make any mistakes you don’t have to make. That isn’t a cliche or boring old saying – it’s encouragement to you to work your @ss off. The only way to avoid making mistakes is by figuring out things ahead of time and always going the extra mile. You can get away with doing less in some parts of your life, but you often cannot in litigation.

 

 Get Help

If you would like us to take a look at your case and give you a sort of road map to what you need to do and how, take a look at our Personalized Evaluation product. If a debt collector is suing you and you already know you want to defend yourself without spending a lot of money on lawyers, then get our Debt Defense System.

Protect Your Rights

Even if you are reading this article late in the game, shortly before trial, and you are not already a member, you should consider doing so. We have materials helpful to last minute defense and trial preparation even if you are facing this rule.

If it’s a little earlier in the lawsuit, or if no has filed suit yet, you have many other options. Membership can present you many benefits and help you win your case. Or you could check out some of our e-courses.

 

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Partial Payment to Debt Collectors a Terrible Idea

partial payment can destroy your rights
Never Make a Partial Payment

Making Partial Payment Can Kill Your Right to Defend

Partial payment can seem like such a good way to make a debt collector go away, but don’t do it.

Debt collectors love getting people to make “partial payments” on debts – on any debts, but especially old ones. It isn’t just that they want some money, any money. If you give them the money you will probably be subjecting yourself to a lot of problems. And that is especially true if the debt is very old, even if it is beyond statutes of limitations.

Partial Payments Revive Dead Debts

If your debt is beyond the statute of limitations – that is, if it is too late for the debt collector to sue you – making a partial payment will revive the debt and start the life of the debt again. This is because of an odd thing about the law – it distinguishes between the life of the debt (forever unless paid) and enforceability of a debt (the right to sue to collect, controlled by statutes of limitations). To put that into plain English, the law regards a debt as continuing to exist until it is either paid or excused in some way even if it is long past the statute of limitations. And this little bit of B.S. allows for all kinds of unethical mischief by debt collectors.

It allows debt collectors in some jurisdictions to raid bankruptcy claims even though the debts would be illegal to try to collect, and it allows for the revival of debts by a debtor making a simple mistake. If you offer a gift, for example, that promise is not enforceable because there is nothing paid for it. Giving a debt collector partial payment will put you back on the hook for the entire amount.

Unless you make a signed written agreement that you are settling the claim for the amount paid, partial payments are a terrible idea. But of course what the debt collectors tell you is that you can pay a little now and then a little later if you get a chance. Wrong. Make that payment and they’ll be after you as hard as they can go.

Partial Payments Restart the Clock

Similarly, if the debt is old and you make a payment, it restarts the statute of limitations. I do not think it should do that if the payment does not, at least, take the debt out of default, but the courts haven’t listened to me on that one. Make a payment on an old debt and, voila, you have a new debt.

Don’t Pay Unless You Have a Plan

So with all that in mind, what do you do? I would suggest that there’s never a moral reason to pay a debt collector – it’s like feeding rats, and do you really want them to multiply? But there could be times when you might want to either for moral or practical reasons. If so, you must know what you’re doing. Your payment will revive the debt. Do you know how you will pay it? Do you have a reason to pay the whole thing? I would be extremely cautious in this as you are subjecting yourself to liability to a group of people more willing to destroy you than almost any other group.

I’d say don’t do it 99.99% of the time.

Protect Your Rights

Even if you are reading this article late in the game, shortly before trial, and you are not already a member, you should consider doing so. We have materials helpful to last minute defense and trial preparation even if you are facing this rule.

If it’s a little earlier in the lawsuit, or if no suit has yet been filed, you have many other options. Membership can present you many benefits and help you win your case. Or you could check out some of our e-courses.

 

Gold Debt Defense System
Gold Debt Defense System

Gold Debt Defense

 

Platinum Debt Defense System

Platinum Debt Defense System

 

Diamond Debt Defense System

Diamond Debt Defense