Michigan Collection Law Blog

The Fair Debt Collection Practices Act is a federal statute that governs every debt collector involved in collecting debts related to personal, home or consumer items. In 1995, the United States Supreme Court in Heinz v Jenkins, made clear that the FDCPA applies to attorneys as well.

The FDCPA contains a defense to debt collectors who get sued for violation of this statute. The "Bona Fide Error" Defense ("BFE Defense") as it is commonly called, states:

A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."

There is a major issue with the Bona Fide Error Defense upon which the circuit courts disagree. The major question with the BFE Defense is whether it applies to mistakes of law as well as mistakes of fact (clerical mistakes). Not only are the circuits in disagreement on this issue, but we have competing and contrary decisions from within our circuit (6th Circuit) alone. The United States Supreme Court in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA is going to take up the issue. This is going to be a real nail biter for every debt collector (and the defendant law firm.).

In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA, ("Carlisle"), the defendant law firm was hired by Countrywide Bank to foreclose on Ms. Jerman's mortgage. In connection with its lawsuit to foreclose on Jerman's mortgage, Carlisle attached a Notice Under the Fair Debt Collection Practices Act which provided, among other things, that:

the debt described herein will be assumed to be valid by the creditor’s law firm [Carlisle] unless the debtor(s) . . . within thirty (30) days after receipt of this notice, dispute, in writing, the validity of the debt or some portion thereof.

The FDCPA does NOT require a consumer to dispute a debt in writing. The statute does require a consumer who wants validation of the debt, to make that demand in writing, but there is no like requirement for disputing the debt. Sounds a lot like splitting hairs, huh? Nevertheless, this fearsome fight has a lot at stake as the BFE Defense is substantial. Frequently, it is the only defense that a debt collector has to a FDCPA lawsuit. Hence, the scope of this defense will have a major impact on the outcomes of future cases.

Ms. Jerman (and her attorneys') have asked the District Court for class action certification of this lawsuit. Carlisle has argued, persuasively, that it is entitled to the BFE Defense because such defense applies not only to mistakes of fact, but mistakes of law. Again, whether this is true or not is currently up for grabs. There are cases around the country that hold that the BFE Defense only applies to clerical mistakes. In fact, this view was starting to gain momentum amongst the circuits and is well on its way to becoming the majority view.

There are, however, other cases, that state that the BFE Defense applies only to clerical mistakes. These cases typically rely upon the BFE Defense cited in the Truth in Lending Law, a companion Consumer Protection Statute to the FDCPA. The BFE Defense in TILA, indisputably applies only to clerical sorts of mistakes.

The Supreme Court has docketed a hearing on Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich, LPA for January 13, 2010. I will keep you, my good reader, posted as to what happens next!

Some states have a bad check diversion program that is designed to facilitate the payment of bad checks to merchant victims. These programs usually involve a district attorney and sometimes even, a private collection agency. The idea behind these programs is to give the bad check writers a chance to make their bounced checks good without further escalation of the issue to the DA’s office. Pennsylvania has one such program and it was abused by a collection agency.

American Corrective Counseling Services is a collection agency based in California. It was involved in helping Pennsylvania merchants recoup funds on bad checks. Unfortunately, it got a little carried away. It, allegedly, sent letters to debtors on letterhead that was purportedly from district attorneys. These letters threatened the debtors with criminal action if they failed to not only pay the bad check, but if they failed to pay a $170 fee for an “accountability class.” Indeed, according to a report by the Associated Press, one elderly woman who wrote a check for $27 to Kmart, which bounced, was told she would have to pay fees of $72 to clear the matter up, "plus another $170 for the accountability class." The case is entitled Del Campo v American Corrective Counseling, in the 9th Circuit. The violations of the Fair Debt Collection Practices Act, in this case, are enoromous.

A class action lawsuit was filed against American Corrective Counseling Services. It settled the case for $2.55 million.

Last week I received a call from an "attorney" calling himself David Cook, from Ontario. He asked if I was interested in collecting a $500,000 case against a local steel company. Of course I am interested! But, I don't like pursuing a debtor without knowing my client or the forwarding attorney involved. So I decided to check Mr. Cook out on line at http://www.criminalbusinesslawyers.com/. I reviewed his website in which he held himself out to be an expert in "most areas" of the law. I also noted the numerous grammatical and spelling errors that could not be excused as aberrations of Canadian usage. Now I am on notice that something is amiss here. I asked my secretary to call the Canadian Bar Association to see if there was a David Cook. She called and learned that they would not disclose the identity of other solicitors and barristers to those who were neither.

This morning, I received the following email from Mr. Cook:

Dear Gary, I recieved (sic) an email this morning from Mr. Liguo regarding an email that was sent to him stateing (sic) that the payment has been sent to your office in the full amount that was requested. According to the agreement please deduct your precentage (sic) , my client will be sending me the account information for the transfer of the balance. I will then be sending you the account information for the balance transfer.

Sincerely,

David Cook
481 University Avenue, Suite 510
Toronto, Ontario M5G 2E9
Phone: (647) 831 6954
Fax: (416) 800 9908
Email: attorneydavidcook@aol.es
www.criminalbusinesslawyers.com

Magically, I also received a check from the alleged debtor, Ideal Fabricators, for $550,700 this morning, drawn on a bank called California Bank & Trust. The package arrives from an expediter named "Purolator." The check contains no address for Ideal Fabricators. The package has a return address of Ideal Fabricators, Inc. 481 University Ave, Mississauga, Ontario, M5G2K1. The package contains a cove letter from Ideal Fabricators (no address or telephone number on the letterhead), apologizing for the late payment, informing me that they had a bad year but are now on the road to prosperity. They wish me a good year, too. Am I going to deposit this check?? NOOOOOOOOO!!!!!!!!!

Why not?

This is a scam. I called Ideal Fabricators. The have never head of me, Mr. Cook or the alleged creditor in this case. They never wrote such a check. OK, I think, its time to do my civic duty and get the authorities involved.

I called the F.B.I. this morning and explained that I was the target of this scam, but did not get taken. I was 1 minute into my story when the young lady told me that this is a Secret Service type of case. She gave me the phone number of that agency and I called.

The Secret Service told me that they could not do anything about this case because the alleged bad guy was in Canada. They referred me on to the Federal Trade Commission. The FTC has no more authority to after these bad guys than our heavy hitters such as the F.B.I. or the Secret Service.

Nevertheless, I tried to call the FTC, but could not get through. OK, I tried to do my duty, but no one was interested in helping me. So here I am now, telling you about this scam so I can help you.

I know that in the next few days, I am going to get a call or email from David Cook asking telling me that his client has an immediate financial need and if I would not mind wire transferring the proceeds to a certain bank for him. This is how the scam works. In ordinary circumstances, I go on line and verify whether this check has cleared or not. I will notice that it has cleared and then wire transfer this guy several hundreds of thousands of dollars. When the check comes back as no good, the bank is going to ask me to reimburse it. By not depositing this check, I am going to save a lot of nice people, some large head aches.

LAWYERS - Moral of the Story -

1. Be very careful with whom you do business, especially over the internet. Everyone has a website today. Look your client or referring attorney's website to see if it makes sense. Mr. Cook claims to be an expert in most areas of the law. Pretty impressive, huh? That alone was enough to put me on guard regarding this guy. The bad guy may have gone to great lengths to prove that he is who he purports to be, except for getting an education. "David Cook" had a website to show that he was an attorney, albeit fraught with spelling and grammatical errors.

2. Verify that the debtor actually owes money. Pick up a telephone and call the debtor that you are pursuing. In this case, the "debtor" made a $550,000 check payable to me, without even knowing who I am. I know that the holidays bring about good cheer, but even that has its limits.

3. Stay alert to little things that just don't make sense. For instance, in this case, the client (whom I had never met), purportedly had a its debtor make a check out to me for $500,000 and told me to take my fee of 1/3 from it? Why? I have not even written a demand letter. I believe in the kindness of strangers but, again, this too, has its limits.

4. The scariest thought of this process, besides potentially getting stuck for money that you paid out to con artists, is that you do not have law enforcement agencies to help you. You are on your own. Use your wits, your intelligence and ask as many questions as you need to satisfy yourself that everyone is who they purport to be.

I receive a funky email at least three times a week stating:

a. We, of the Xio Shung (or some other Chinese sounding name) corporation have decided that we need your legal services to represent us in North America..... or

b. After a careful review of your credentials, we have decided to retain your legal services..... or
c. Please respond immediately if you are not in a position to help us. We have an immediate need for legal representation....

Anyways, these are all cons. Do you know how I know? I will tell you:

First, the email is not addressed to me personally. Its addressed to "Dear Attorney." If the prospective client really took the time to review my credentials, you would think that they would at least know my name.

Second, the email is sent from a source that protects the anonymity of the sender such as Yahoo, AOL or gmail. You would think that a big corporation would have its own email url, right?

Third, they rarely provide a website to check out the legitimacy of the company. Today, if you do not have a website, you might as well be Fred Flintsone.

I just read an article where several law firms got sucked into these scams. I always wondered how they worked until now. Once a law firm agrees to work for these crooks, the crooks will send a retainer agreement to the law firm and a few debtor claims. The law firm sends out the demand letters to the debtors and voila, the law firm will get what appears to be a certified check from one of the debtors. The check is actually bogus, but it looks official enough for the attorney to deposit. When funds are made available, usually on the next banking day, the client then says that it has an immediate need for its portion of these proceeds and asks the attorney to wire transfer them. After the attorney does so, he learns that the checks are bogus and he gets stuck holding the bag.

Moral of the Story - Doing business over the internet can be tricky and scary. There are rewards to be had for the wise attorney and pitfalls for that very same attorney as well. As attorneys, we are a pretty smart lot. However, there are always thieves, crooks and other scan artists that can out think us. To protect ourselves, we need to pause before we accept new engagements. We certainly need to set up procedures and protocols before transferring money or property to anyone with whose identity we have not verified. Be careful.

A Long Island couple who were in foreclosure, recently had their debt canceled by an angry judge. They now own their home free and clear. The New York Post reported that Judge Jeffrey Spinner wiped out the $525,000 debt that the couple owed to OneWest Bank. Kieran Crowley, from the New York Post reported Mr. Greg Horoski had attemped, on numerous occasions, to restructure his loan, but OneWest was recalcitrant and refused. Judge Spinner characterized OneWest's actions as "repulsive" and held that the only way to deter the bank from inflicting further mortifying abuse against the couple.

In Michigan, I would not count on anyone getting such a windfall. While I have not seen the lawsuit, I can tell you that Michigan does not recognize torts for wrongful foreclosure. While there are many such lawsuits filed in the federal courts to stop a state court from foreclosing on property, these federal cases are almost routinely dismissed.

The bank will most likely appeal this ruling. The appellate court in New York will most likely reverse the state court ruling because Judge Spinner's cancellation of OneWest's debt of $525,000 of debt is no less shocking to the conscience than OneWests' refusals to renegotiate its debt with Mr. and Mrs. Horoski. While its a nice see the court stand up for the little guy once in a while, the fact remains that we will in the real world. In the real world, banks have a right to foreclose when the homeowner does not make his payments.