Tag Archives: debt collection

Assignment Contract – Holy Grail of Debt Defense

An assignment contract provides the “terms and conditions” of mass debt sales. If you can force the debt collector to give it to you, you improve your chance of defending yourself in a debt lawsuit. We discuss why in the video and text below.

The Actual Assignment Contract is BIG

The bill of sale is not an assignment contract. It is essentially a note (that could be many pages long) that refers to the sale of property. The terms of sale are important, but they are in the assignment contract rather than the bill of sale. They will help you decide what the debt collector has or could get for trial. They could also affect who the “real” owner of the debt is. Also, the debt collectors hate for you to get this document. Fighting for it may cause them to drop your case.

No Magic Bullets

We say there are “no magic bullets” in debt defense. Every so often, though, we find a few things that seem almost like they would or should be. However, the sort of “magic bullets” we refer to, and that don’t work, are simple, formulaic things. Think writing the word “refused” on the summons or claiming it is illegal to use your name.

If you think these might work, you are not using common sense. And if you think using all capital letters matters in some way, you are just wrong. But some people claim these things will bring you easy victory. However, spending energy on them is more likely to hurt your case than help it.

Certain things, however, can make a dramatic impact on your case. They won’t magically end the fight or reliably make the debt collectors go away all by themselves. But they can make a big difference if you know what to do with them. One of these things is the Assignment Contract. That’s the agreement assigning the debt in question from the original creditor to the debt collector. In many cases debt collectors would rather lose the case than give you the contract.

What is an Assignment Contract?

An assignment contract is the contract between the original creditor and the debt collector. The original creditor sells (large numbers of) debts to the debt collector according to certain terms. Selling debts is perfectly legal and is a widespread and commercially reasonable thing to do. Unless your contract with the original creditor prohibits transfer or assignment(very rare in consumer debt), there’s nothing wrong with doing it.

You don’t expect these things to be done on an individual basis, though, do you? No. Consumer debts are bought and sold by the hundreds of thousands at a time. The original creditors – often banks, utilities like phone companies, or gyms – create “portfolios” of debt which they sell to junk debt buyers according to certain terms. These terms are found in the assignment contracts, and assignment contacts are not little things. They are lengthy contracts of 20-30 pages that apply to all of the debts bought and sold in a given transaction.

The assignment contracts set the rules for what the debt collector can get from the original creditor if it needs to sue to collect the debts. I provides for how long the original creditor has to provide the material, and how much getting that information will cost. The contracts have many interesting features, and the debt collectors will assuredly NOT want you to see them. In fact, in many cases, the debt collectors would rather dismiss their case against you than let you see the contract.

Not Bills of Sale

Assignment contracts are not bills of sale. The bill of sale is a one-page document that says something “All the debts identified in Exhibit A, attached, are hereby sold and assigned to Company X.” It could also be a bit longer than that, but the main thing is that it does not outline the rules of the deal in detail. As we have often pointed out, debt collectors often hate to provide the bill of sale or, more often, the accounts subject to a bill of sale.

But they REALLY don’t want to give you the assignment contract.

What the Assignment Contracts Contain (that Debt Collectors Don’t Want you to See)

There are two main things the assignment contracts contain that debt collectors do not want you to know about. They don’t want you to know what they think of their own records, and they don’t want you to know how much time, and how much money, it takes for them to obtain records from the original creditors.

Debts are Sold “As Is”

As you will notice if you take the time to read through the assignment contracts, original creditors sell debts to debt collectors “as is” and without any warranty. Specifically, that means that the original creditor specifically disclaims any guarantee that the debts or supporting information they’re selling to the debt collectors are legitimate, accurate, or trustworthy.

The natural and intuitive conclusion is that the records are NOT reliably accurate. Nevertheless, some courts have ruled that they are sufficiently trustworthy to justify admission of the documents in question. The argument needed to use lack of warranty is therefore sophisticated.

Documents will Take Time and Cost the Debt Collector Money

Another important fact about the Assignment Contracts is that they usually establish that the debt collector can obtain certain specific documents from a certain, very small percentage of debts. And the original creditors give themselves a minimum of sixty (60) days to provide requested information upon receiving the request. Both of these facts are hugely important to people representing themselves pro se – and for the pro se movement at large.

Sixty days is longer than the amount of time permitted in any state’s rules of discovery of which we are aware. That means, in plain English, that if you request documents, the debt collector will never be able to provide you documents within the time permitted by law. They can get extensions – the courts are generous with time, normally – but even with extensions they may not be able to provide the documents within the required time. Therefore, you should push hard to get the information.

It may even be that in California this arrangement violates the California Rules of Civil Procedure – and you have an even more powerful weapon at your disposal to attack their case.

It is important that the original creditors charge for documents and only require themselves to provide documents in a small percentage of the debts. If EVERYONE asked for documents, the costs might bury the debt collectors. And the delays would likely make it impossible for them to answer discovery at all. They would have to change their whole way of doing business.

Another Way to Attack the Debt Collectors

You don’t have to have the Assignment Contracts to make life harder for debt collectors and better for you.  If the debt collectors after you use credit damage as a collection tool, this gives you an advantage. You can start the ball rolling even faster than through formal discovery.

Get your credit report. If you find them on there and dispute the debt under the FCRA, they get thirty (30) days to “conduct a reasonable investigation” into the dispute. They can’t get the information in most cases in less than 60 days. They will either have to withdraw the negative information or you can sue them for that. The FCRA gives you attorney fees if you win that suit, so you may get a lawyer for free.

If they do withdraw the reference, you might use that against them in defending their suit against you.

Press – Hard – for the Assignment Contract

Under all the circumstances, you should use the discovery process to get the assignment contracts.  Debt collectors do not want to provide this to you. They will lie about its existence, deceive you if they can, and stonewall you to the limits of their ability. We are developing tools for our members to use to make this fight a little easier.

[1] There are groups of people who energetically claim that things like this make a difference. They can’t point to a strong case opinion that backs them up, but this doesn’t stop 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.