In a bit of synchronicity, last weekend I had dinner with a buddy whose sibling recently was dunned by a buyer of junk debt. For those not familiar with this dark underbelly of the credit markets, these vultures buy consumer debt from banks (mainly credit card receivables) that the bank has written off. That means they don’t think it’s worth pursuing. At best it’s too close to the statute of limitations expiring or the documentation is questionable or the amounts are all wrong. Most of the time. it’s worse than that: the debt was never owed (they are going after the wrong person), the debt was paid off or discharged in bankruptcy, the statute of limitations has long passed.
The buyers of this debt pay pennies on the dollar and treat it like a lottery ticket. They sue, but have NO intention of spending any money on the case beyond making that filing. Their fond hope is that the borrower fails to respond, and they win a default judgment. With that in hand, they can garnish wages or bank accounts.
The flip side is any minimal credible response will beat back these claims. And remember, the burden of proof is on the debt collector to demonstrate that the consumer agreed to the debt, to provide a full record of principal, interest, payments, and fees, and to prove a complete and unbroken chain of title (sound familiar?).
An article by law professor Peter Holland is a superb guide on how to beat these cases. While the intended audience for this article is lawyers, it is highly accessible, and gives a sense of what an utter swampland this area is. He also stresses that it takes diligence rather than experience to pursue these cases:
Revealing the defects in these documents does not require a deep background in consumer law. It just requires a cup of coffee, your undivided attention, a yellow highlighter, and a red pen.
The article warns, however, that fewer than 1% of the consumers who respond in court are represented by counsel, and that they are typically not treated equitably, since debt collectors have convinced many judges that borrowers are deadbeats and that the rules of evidence don’t hold in small claims (as the article stresses, that is not accurate). Holland does not intend his article to be a guide to pro se defendants, but it can serve as a great guide for newbie lawyers or even law students to take on these cases. And he also points out that in the wake of the robo-signing scandal, many judges are more sensitive to assaults on the integrity of the courts than they once were, and it’s not difficult to depict some of the issues presented by these actions as being similar to those in robosigning cases.
Nathalie Martin of Credit Slips recounts some of the recommendations Holland makes:
1. Read the complaint and supporting documents very carefully. Is the named plaintiff the same party named in the documents supporting the debt? Is there any chain of title tying the plaintiff to the debt? Is the debt collector licensed in your state? Is the contract for the debt even attached to the complaint? How is the debt supported by evidence? If there is some document attached to prove the debt, can you read it? Was it generated after the fact? By whom? Has the statute of limitations run?
2. Know the elements of an “account stated” cause of action. These include the establishment of a debtor-credit relationship, an agreement by the debtor and creditor as to the amount due, and an agreement by the debtor to pay the amount allegedly due.
3. Carefully scrutinize the affidavit. Here comes the fun. Google your affiant. Many people who have signed these affidavits have admitted under oath to singing thousands of these in one day, and many have signatures on Google that will not match the ones in your affidavit. Look at your state’s affidavit rules. Of course these rules will require affiants to have personal knowledge and likely yours will likely not qualify as evidence. If the affidavit says this is true “to the best of my knowledge” the affiant is admitting to not knowing the real facts and the affidavit can be stricken from the evidence.
4. Master the relevant rules of evidence. No personal knowledge, no recovery. No proof of debt, no recovery.
5. Tell the judge why this matters. Many of these debtors do not owe these debts.
And there’s lots more, like investigating whether the plaintiff had a checkered history (felons on staff? violations of the Fair Debt Collections Practices Act? FTC fines? evidence of past use of fraudulent affidavits?) and putting the judge on notice of any findings.
Allowing debt buyers to run roughshod over consumers and the courts is a denial of due process. It enriched junk-debt buyers at the expense of consumers, legitimate creditors, and our judicial system…Trying and winning these cases will have the systemic impact of helping restore a sense of justice and fairness which lies trapped beneath the heavy weight of the junk-debt buyer.