Michigan Collection Law Blog

I just read a very interesting opinion by Judge Cleland in the case of Purnell v Arrow Financial, 2007 U.S. Dist Lexis 7630 (Decided Feb 2007).

The collection agency defendant reported a debt that was disputed by the consumer to Equifax over a period of several months. The court held that each of these reportings to Equifax, without the dispute marker, constituted a discrete violation of the Fair Debt Collection Practices Act. Without boring you with the details, the statute of limitations for an FDCPA action is one year. In this case, however, that statute was renewed every time the collection agency reported the debt without the dispute marker.

Moral of the story to collection agencies - Be careful to report any debt that has a dispute with that dispute marker.

Collection agencies and collectors - BE VERY CAREFUL. An unpublished opinion from from the United States District Court from the Northern District of Ohio called Jerman v Carlisle, McNellie et al at 2006 U S Dist LEXIS 85339 held that a debtor's demand for verification of the debt does not have to be in writing in order to be effective.

As you are probably are aware, the Fair Debt Collection Practices Act requires third party debt collectors to send a validation notice to the consumer within 5 days of the collector's initial communication (15 USC 1692g). While a debt collector's notice to the consume must be in writing, the consumer's demand for verification of the debt does NOT need to be in writing.

So whats the problem, here?

There are a great number of debt collectors, including attorneys, who think that if a debtor gets a letter with a scary tone, that it will shock the debtor into paying the debt...yeah...right...wake up!!!! By drafting language in the validation notice that is different than the safe harbor language of 15 USC 1692g, all the collector is doing is opening himself up to lawsuit by the debtor. This lawsuit is not only a fund raiser for the debtor, but an especially happy time for the debtor's attorney who knows that the collection agency or attorney who dared to be creative with the validation notice, will end up paying the debtor's attorney's fees. Why should a collector then get creative with his demand letters, you ask? The short answer is, he shouldn't. It's just ego doing the drafting of a validation notice that does not track, word for word, the safe harbor provisions of 15 USC 1692g. Collectors, including attorneys, here's a message for you....this is just business, its not ego. Yeah, yeah, I know. The client expects to be dazzled by your brilliance and fine command of the English language. I have a better idea....How about protecting the client from lawsuits under the FDCPA that are completely avoidable? Draft your validation notices carefully, plainly and very very simply. After all, the standard that courts use to determine whether the FDCPA has been violated is the "least sophisticated consumer." (Translation - "drooling idiot"). If you letter can trick a drooling idiot into thinking that his rights are different than what they are, you have violated the FDCPA. Now, we all know that consumers are not drooling idiots. Some of my best friends are consumers and they don't drool. You don't want to look like a drooling idiot in front of your client when she asks you about the lawsuit that she was served with because the validation notice that you drafted does not comply with FDCPA.

Moral of the story/case - The FDPCA does not require that consumers respond in writing in order to protect their rights. Don't tell consumers that they must send their disputes in writing in order demand validation of the debt.

Note to my fellow collection attorneys - I know that this case is not a published opinion. Big deal, right? Wrong. The court went through a very interesting analysis in which it analyzed cases that held that a consumer's demand for validation must be in writing. See Graziano v Harrisoni, 950 F2d 107 (3rd Cir 1991). The court sided with the majority of district courts that held that a plain reading of the FDCPA imposes not such writing requirement upon the consumer. I think that this is the better reasoned approach.

When a debtor files for bankrutpcy, I know enough to be mildly dangerous. However, when the bankruptcy gets messy, complicated and/or ugly, I bring in other counsel like Mark Shapiro, Tracy Clark or Stuart Gold. These guys are, as far as I am concerned, absolute gurus in bankruptcy. It's kinda funny that on some cases, they work with me and on other cases, we are on opposite sides of the table. Which is why it was really cool today that I was contacted by Dean Kirby, Jr. He is a collection attorney (quite well credentialed) that has a niche market in pursuing creditors rights in the bankruptcy court.

I looked at Kirby's blog and was very impressed with it. He writes about bankruptcy law from a creditor's perspective. His blog has a lot of very good and useful information for collection attorneys around the country.

Nice blog, Kirby. I am your newest subscriber,

A friend of mine got into deep trouble with his credit cards last year...$100,000 worth of trouble on 2 credit cards (my friends, this is not at typo). He was pursued by American Express for $50,000 and another company. I settled these cases for about $5,000 each (again...this is not a typo). Here is the problem.

I sent a demand to American Express to provide me copies of his credit card statements. Looking over his statements for the past several years, it was painfully clear that he was living on this card. He took large cash withdrawals to pay his mortgage, car note and other general living expenses. He had absolutely no ability to repay this debt. Even if you never met this guy and knew nothing of his situation, you could look at these statements and see that these balances were simply climbing higher and higher. So what's my problem? I'll tell you.

1. If it was obvious to me (and things are rarely obvious to me) that this guy had no ability to repay the draws on this credit, it had to be clear as day to the folks at AE. So why did they lure this poor schmuck into a financial corner? Why didn't they simply cut him off at the point when his interest payments were over $1,000 per month? Did they take advantage of a necessitous borrower or a mentally sick man? In either case, it made me think of how many people are out there that are in this same position but are being bled to death by these credit card lenders. Even as a debt collector, this nauseates me; almost to the point of offering my services free to credit card customers that have been taken advantage of in this fashion...almost...almost....

2. When a credit card customer charges $100,000 to his card and walks away from $90,000 of the debt thanks to great counsel (please forgive that shameless self serving commercial plug), who do you think foots the bill for that difference? You and I do. In the collection business, we have a saying; there is no such thing as an unpaid bill. Again, more injustice.

I tried to find a cause of action to pursue these credit granting vampires who clearly feast at the necks of the weak and poor. However, these monsters of darkness have a very strong lobby and, as far as I can tell, there has not been any successful cause of action against these parasites. Don't get me wrong. I have credit and am very thankful for it. I just don't like lenders that target needy borrowers, put them in a hole and slowly bleed them to death.

Does anyone else feel this way? If you think about, doesn't anger you?

I am not a particular eloquent writer, but Professor Elizabeth Warren is. I would recommend that anyone interested in this article follow her blog "Credit Slips."

My colleauge, Jonathan Stein, writes a very interesting blog at www.californiadebtblog.com, albeit from a debtor's perspective.

In his blog, Mr. Stein talks about the Statute of Limitations and how to prove it. In his blog, he raises a good point. A debtor who can prove that a debt is out of statute, can escape liability for the debt. But....as a collector, I know that most debtors will default on the complaint and thus, my client has a 9 out of 10 chance of getting a default judgment anyway. Secondly, the Statute of Limitations must be pled as an affirmative defense. Hence, if the debtor does not raise it as a defense, it is waived. Finally, something that many people including other debt collectors don't know, is that the Statute of Limitations is renewed from the date that the debtor last made a payment on the debt.

I encourage everyone to visit Jonathan's blog as it is well written and gives debtors a lot to think about. In fact, he has given me a lot to write about.

My colleague, Michael Herin, writes a very good blog about debt collection. Mr. Herin, recently wrote about the ugly truths of medical debt His blog post is very interesting and I highly recommend it, although I only disagree with him on one issue.

Mr. Herin states that if a patient has insurance, that it is strictly a contract between the insurance company and the patient. I disagree with his analysis. The doctor is also a party to that insurance contract as the doctor has agreed to accept a reduced amount of fees for her services. Nevertheless, Mr. Herin makes some very good points that I think everyone really ought to know.

I used to do a great deal of medical collection. I can tell you that it sucked. Medical debt is not the kind of debt that anyone asks for. I loathed going after people who either did not have medical insurance or who simply maxed out their benefits and were on their own for this bills. The absolute worst medical debt was pursing a parent for medical bills that they had for their children. Like its not bad enough that your kid is so sick that one has to accumulate astronomical debt. I understand the need for the hospital and docs to get paid for their services. I am just glad that someone else is doing it. However, the problems of our healthcare delivery system still gnaws at me. I am a father and I wonder what the system will be like for my kids when they grow up.

I predict that in the next 10 years that there will be a major change in the way that America delivers healthcare to the population. Its kinda funny to see who blames whom for the woes in our system. My aunt Phyllis works for an HMO and she tells me that the hospitals are using more services and thus costing the insurance companies more money. She is a very bright woman and I respect her opinion immensely. I know another gentleman who worked for a very large health system in Michgan. He blames the insurance companies for cutting fees at a time when costs are going up. At some point, the finger pointing will be moot as the problem will be inescapable and we will protected by a an irretrievably broken system.

I just read a blog post on Arcamax from a William Gallas regarding collection agency intimidation. He gives advise on how to handle a collection agency or law firm that, in my opinion, is simply going to get an uninformed debtor into trouble.

For example, he states that you can stop a collection agency from contacting you by writing a "Cease and Desist" letter. WRONG. First of all, the debt in question has to be one that was incurred for personal, family or household in order for the Fair Debt Collection Practices Act to invoked. If the debt was incurred for business, then the FDCPA is simply not applicable.
Next, even if the FDCPA were applicable, a Cease and Desist letter does not stop collection efforts. A letter from the debtor demanding verification of the debt, if sent within 30 days of the collection agency's demand letter, will stop collection efforts...until...the collection agency provides verification of the debt. This can be as little as an affidavit or letter from the creditor.

Next, Mr. Gallas would have a debtor send a "SWORN DENIAL" notarized to the attorney and the court. Has he ever heard of perjury? An affidavit is almost the same as testimony. If a debtor owes a debt and then sends an affidavit to the court swearing that he does not owe it, all it does is set the stage for a trial. At trial, if the creditor shows that the debt is owed, the debtor has not only made made to look like a liar, but may be held in contempt of court for filing a false affidavit. DON'T DO THAT....If you want to protect yourself, simply file an answer to the complaint denying that you owe the debt. DO NOT SEND IN AN AFFIDAVIT unless you have an attorney who knows what he or she is doing.

Lastly, Mr. Gallas states that "INTIMIDATION is the only weapon that collection agencies and attorneys have in their armory (sic)." He is simply dead wrong. As a collection agency, I have far more than intimidation in my armor. In fact, I don't use intimidation to collect a debt because it is simply counterproductive and disrespectful to the debtor. Instead, I use the legal system including Writs of Garnishment to seize wages and Writs of Execution to seize vehicles. These, of course, are only used as a last resort.

As a collection attorney, my primary weapon is truth and respect towards the person/human being that owes the debt. There is almost always a deal that can be reached through mutual respect and cooperation. It is only when a debtor refuses to be cooperative do I have to resort to my other weapons. But I can honestly say that intimidation is not a weapon that I knowingly use.

My advise to debtors - Don't take advise from a crackpot that is angry and ignorant like Mr. Gallas. His advise will only get you deeper into trouble. If you need help against an aggressive debt collector, call a lawyer. There are lots of lawyers that will help you fight the debt for not a lot of money. As a matter of fact, if you call me for help, I will be happy to give you advise if I don't have a conflict in your case. I would venture to say that most collection attorneys would be happy to help a human being in need.

An interesting article in the National Law Journal of March 26, 2007 talks about five states that have instituted caps on stay bonds for defendants who appeal their cases. A stay bond is an amount of money that a losing party must post with the trial court so that if the defendant loses the appeal, the winning party will have a fund with which to satisfy the judgment.

From a Plaintiff's perspective, a stay bond is a great thing. Whenever I get a large verdict at a the trial court level, I am usually faced with an opposing party or its counsel threatening an appeal. They usually do this as a tacit threat to further dely my collecting the debt for which I was hired to pursue. Whenever I am threatened in this fashion, I simpy smile and respond that I would actually appreciate the defendant filing an appeal because in order for stop me from pursuing further collection action, the defendant has to post a stay bond with the trial court. By doing this, I will not have to jump through anymore hoops to collect my client's money when the defendant loses the appeal. I am actually thankful for the stay bond requirement.

I once was given a $1.8 million judgment to collect. The defendant/debtor filed an appeal to the Michigan Court of Appeals, but his attorney forgot to post a stay bond. I sent a court officer to his house to clean it out. I also filed a lawsuit against his college aged children for fraudulent transfer of funds as he was paying for their college educations. This was enough to bring him to his knees and to tender a settlement check to us for $1.6 million. The stay bond is a good thing.

Michigan, thus far, does not have a cap on stay bonds. The trial court is charged with the duty of assessing just how large a stay bond must be posted. Typically, stay bonds are assessed at 120% to 150% of the judgment. If the Michigan legislature reduces or sets limits on stay bonds, this could take away a very large tool that we collection attorneys have in collecting judgments. Fortunately, the stay bond limits in Alaska, Kentucky, Maryland, New Mexico and Wyoming are pretty substantial. In fact, Wyoming's stay bond cap is for $2,000,000 on individuals. I suppose that if Michigan were to contemplate a stay bond along these lines, it would not have a great affect on most collection law practices. Nevertheless, its an uncomfortable feeling for collection attorneys whenever a legislative body looks at the law in our specialty. After all, many of us are still reeling from the effects of the Fair Debt Collection Practices Act.