Today, there is a very interesting article in the USA Today. It talks about banks lowering credit to credit card holders. If/when a bank lowers a consumer's borrowing limit, it will have the unintended consequence of lowering the consumer's credit score (FICO) score. If you do not already know, your FICO score is made up of a number of factors. The thing that makes this article disturbing is that it is not something that the consumer can control. For example, a consumer's credit necessarily takes a hit when the consumer submits a late payment. In this case, the consumer's credit gets dinged by the bank just for lowering the credit limit.

In my experience a bank will most likely look at a consumer's payment history and look at the balance carried and for how long it has been carried before it makes a decision to lower a consumer's maximum credit. In my opinion, if you are carrying a significant balance on your credit card, I would recommend that you find a way to refinance that balance with another lender. While a home equity loan may be a very difficult thing to do today, you may want to consider tapping into your home to pay off your credit card balances. Just be sure not to rack up a large credit card balance again.

In this person's post, she suggests that a debt should counter sue a creditor who files a suit without the proper documentation to prove the debt. Here is the problem. The law in this area has already been decided. If you review my previous posts (May 4, 2008 entitled "Attorneys for Debt Buyers beware...they are on to us!), you will see that unless a debtor drafts a lawsuit to allege fraud against the creditor, that such a counterclaim will necessarily fail. After all, the purpose of a trial is to determine who is right. A creditor bears the burden of proving the debt. If the creditor comes to trial without the necessary documents to prove his debt, he does not violate the Fair Debt Collection Practices Act. He merely loses a trial. But....if the creditor has a history of pursuing debtors without having the necessary docs to back up his claim, well then, he may be engaging in a pattern of fraud. Its a subtle but important distinction. Again, I have laid out the 2 major lines of cases in this instance in my May 4, 2008 post.

If the debtor's counterclaim fails and the court believes that the counterclaim was baseless, the debtor may get hit with sanctions. How angry would the debtor be at having a judgment entered against him for both the balance due on the complaint plus sanctions??!!!

Bottom Line: Please be very careful when reviewing advice from non lawyers. The CreditInfocenter Blog seem to be very well intentioned. However, they should not give advice and further still, ought not to hold themselves out as giving advice to attorneys. You can almost always find a Consumer Rights Lawyer that will spend some time with you for free. Get the right advice from the right people.

FACTS: On August 31, 2003, Rex Saunders purchased an automobile from Richmond Mitsubishi, and the dealer assigned his loan for the car to Branch Banking & Trust Company of Virginia (BB&T). When Saunders did not subsequently receive a payment book for the new car, he telephoned BB&T and was told that he owed no money on any loan. Thereafter, he visited a BB&T branch and obtained a copy of his loan statement at the bank, revealing that he owed nothing, and checked with the Department of Motor Vehicles, which indicated no liens on the vehicle.

On March 8, 2004, Saunders received a letter from BB&T, informing him his payments were "seriously delinquent," that his loan was in default, and that BB&T had accelerated the payment schedule so that he owed a total balance of $20,441.19, including principal, interest, late fees, and "other applicable charges," all of which was to be paid in full within ten days.

Thereafter, Saunders met with a BB&T lending officer, and said that he would meet his obligations under the loan, but refused to pay any penalties or late fees. The bank refused to waive the late fees or penalties, however. BB&T subsequently repossessed Saunders' car and informed him that he could only redeem it by paying the full amount due, including principal, interest, late fees, and a repossession expense.

On October 24, 2005, Saunders sued BB&T in federal district court, alleging that it violated its duties as a furnisher of information under the Fair Credit Reporting Act (FCRA) by failing to report the dispute. The jury returned a verdict finding that BB&T had intentionally violated its duties under FCRA, awarding Saunders punitive damages.

BB&T appealed to the 4th Circuit, which affirmed.

LAW: FCRA requires credit reporting agencies (CRAs) to follow procedures in reporting consumer credit information that both "meet[] the needs of commerce" and are "fair and equitable to the consumer." 15 U.S.C. [section]1681(b). In addition to the duties it imposes on CRAs, FCRA also imposes duties on "furnishers of information." [section]1681s-2. Under [section]1681s-2(a), FCRA prohibits any person from furnishing information to a CRA that the person knows is inaccurate.

If a consumer notifies a CRA that he disputes the accuracy of an item in his file, FCRA requires the CRA to notify the furnisher of the dispute. [section]1681i(a)(2). FCRA requires furnishers to determine whether the information that they previously reported to a CRA is "incomplete or inaccurate." [section]1681s-2(b)(1)(D).

Here, given the evidence before it, the jury could reasonably have concluded that BB&T's decision to report the debt without any mention of a dispute was "misleading in such a way and to such an extent that it can be expected to have an adverse effect." Dalton v. Capital Associated Indus., Inc., 257 F.3d 409, 415 (4th Cir. 2001). The district court did not err in so holding.

Except as otherwise provided in this subsection, no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.

Mr. King noted that:

Any American consumer who purchases goods or services from an American based company has a right to take legal action if the receipt from a credit card transaction shows either more than the last 5 digits of the credit card number or the card expiry date. And there are quite significant fines at stake as well. According to this document, Costco, California Pizza Kitchen, FedEx Kinko's, IKEA, Wendy's, TGI Friday's, T.J. Maxx, and Radisson Hotels (among others) are all defending against FACTA class action lawsuits.

I just thought you should know.

For example, I have recently met the owners of Credit 1 in Pontiac, Michigan. Credit 1 charges one fee for consumers who want Credit 1 to fix their credit. Credit 1 charges a lesser fee to consumers who take Credit 1's free credit repair classes and learn how to fix their credit. I think this is a great idea. I recently spoke at a Credit 1 class and was very impressed with Credit 1's methods for credit repair. Credit 1 is a very reputable company whose staff is very dedicated to achieving legitimate results for its clients.

The Wall Street Journal article, unfortunately is like most other articles about credit repair companies. The author excoriates the industry. While the author makes several legitimate points, I think he paints with a rather broad brush. Not all credit repair agencies are illegitimate. I am thankful that I have been given the opportunity to see one such credit repair company that works hard for the benefit of its customers.

If you would like more information about Credit 1 USA, you call Mr. Maurice Taylor at (866) 502-7242.

In Isom v Javitch Block and Rathbone ("Javitch"), the defendant is a law firm that had sued Ms. Isom in state court for a debt that was purchased by some company called Direct Merchants. Javitch attached an affidavit to its complaint that had been prepared by Direct Merchants. When Ms. Isom demanded discovery in the state court case, Javitch simply dismissed the case. Why? Because it did not have any proof to show that its client was entitled to any money from Ms. Isom. Now, its Ms. Isom's turn.

She sued Javitch in federal court and asked for class action status. She alleged that because Javitch had sued her without having any documentation to show that she owed the debt that Javitch had violated the Fair Debt Collection Practices Act. Ms. Isom alleged in her complaint that Javitch attached a false affidavit signed by Direct Merchants that said that Direct Merchants had personal knowledge of the balance due by Ms. Isom. The court held that because Ms. Isom alleged fraud her complaint against Javitch, that she has enough of a case to go to trial. The court denied Javitch's Motion to Dismiss Ms. Isom's claim.

In analyzing Ms. Isom's case, the court noted two lines of cases that dealt with the issue of whether a debt collector violates the FDCPA by suing a debtor without having substantial supporting documentation for its case. In Delawder v Platinum Financial, the U.S. District Court denied the Defendant's Motion to Dismiss. In Delawder, the Plaintiff alleged that the debt collector had committed fraud because the affidavit in support of its case misrepresented the amount of the debt or the debt collector's legal claim upon the debt.

The second line of cases involved Harvey v Great Seneca Financial in which the Plaintiff alleged that the filing of a suit to collect a consumer debt without the means of proving that debt was a violation of the FDCPA. The court in Harvey dismissed the action stating that Plaintiffs do not need to prove their cases at the time that the lawsuit is filed. However, in Harvey, the Plaintiff did not allege that the affidavit attached was false.

In Ms. Isom's case, she alleged that the affidavit that was attached to the complaint against her in state court was false. She alleged that there was no way that the Plaintiff had "personal knowledge" of her debt to the original creditor. The court found that Ms. Isom's case should proceed to trial on the issue of whether the Defendant's affidavit was false and if so, whether it violated sections 1692e and 1692f of the FDCPA; the Act's prohibitions against false or misleading representations and against unfair collection practices, respectively.

Javitch pled to the court that it should not be held responsible for an affidavit that its client had signed in support of the complaint. Judge Barrett would have no part of that argument. Javitch's attempt to side step the FDCPA bullet was foiled when Judge Barrett correctly pointed out that it was Javitch that signed the complaint and attached the affidavit in support of its complaint. Javitch, as a third party collector, has to take responsibility for its own actions.

ATTORNEYS FOR DEBT BUYERS BEWARE. Remember that you are responsible to verify that the debt and every part of the debt that you are collecting is legitimate. The days of suing debtors without having proper documentation and hoping for a default judgment is like playing Russian Roulette. You are bound to piss off some debtor who reads my blog and knows his rights. Now, you have to doubly (if there is such a word), that the affidavit that you are attaching to your complaint is accurate. The FDCPA makes you a guarantor of sorts that the affidavit is bona fide.

Ms. Mabbitt and her sister shared a home on Leota Blvd. Consumers Energy provided gas to that space. The bill was in Ms. Mabbitt's name. When she got over $900 in arrears, Consumers threatened to shut off her gas. She and her sister moved to a new space on Lake Ridge Drive.

At this new space, the lease was in the names of both sisters but the Consumers power bill was in the sister's name alone. Consumers got wise to this move and informed its collection agency, Midwestern Audit. The collection agency sent the sister a notice stating that Consumers had observed that a prior obligation existed for Ms. Mabbitt and that that balance would be transferred as a beginning balance on the sister's account with Consumers ("Balance Transfer Letter").

Ms. Mabbitt sued for violation of the Fair Debt Collection Practices Act. She was upset that Consumers had disclosed "her business" to her sister in the Balance Transfer Letter. The legal basis for her claim was that Midwest Audit had disclosed her debt to an unauthorized third party in violation of 15 U.S.C. 1692c(b).

The court held that Midwest Audit's letter advising of the balance transfer was not a communication "in connection with the collection of a debt." The court first looked at 15 U.S.C. 1692c(b), which governs communications in connection with the collection of a debt. The court then compared Midwestern Audit's initial demand letter with the Balance Transfer Letter and noted that the former was in connection with the collection of a debt while the latter was not. The court held that the Balance Transfer Letter was not an attempt to collect a debt. Rather, it was an attempt by a business to inform customers that a previous debt has been transferred to a current account without having to follow the dictates of the FDCPA. To hold otherwise would prevent business from seeking a peaceful resolution of debts and would do nothing to achieve the stated purpose of the FDCPA which is to eliminate abusive debt collection practices by debt collector." Yeah...so was I!!!

First of all, the court conveniently overlooked the fact that the letter was not sent by Consumers Energy, the creditor. Rather it was sent by its collection agency; an entity that is governed by the FDCPA. I would think that any actions or communications taken by a collection agency would be governed by the FDCPA. Was Midwest simply trying to be nice to Ms. Mabbitt's sister by graciously informing her of the balance transfer? C'mon! Midwestern is in the business of collecting debts and this was a debt that it was trying to collect. Did Midwestern walk away from its commission fee because the balance was now transfered to the sister's account? Do cows really jump over the moon? O.K. now that we have that issue solved, lets talk about the second issue this case presents.

What the hell is the difference between a debt collector merely informing someone of her payment options vs asking her to pay her bill? Give up? So do I. The court seems to think that this is the difference between a communication that is "in connection with the collection of a debt" and one that is merely a business's attempt to offer payment options without getting mired in the FDCPA. Boy, I sure did not see this coming. I wonder if Congress saw this coming when they promulgated the FDCPA.

I am a lawyer that collects debts for a living. I confess that I am appalled by this ruling. How about you?

I learned about the Administrative Wage Garnishment for the first time today. I understand that since this law was passed in 2003, it has been a huge success in recouping defaulted student loans. Well why shouldn't it? After all, a collector simply has to locate a debtor's place of employment and whammo.....he can garnish the debtor's wages without a judgment.

In this case, my client was threatened with a garnishment by a collection agency trying to collect her student loan. The agency threatened to garnish her wages even though it had no judgment on her. Ordinarily, this is a slam dunk FDCPA violation. I filed a lawsuit against the agency under the Fair Debt Collection Practices Act ("FDCPA"). Opposing counsel enlightened me that my position was baseless. Fortunately, the collection agency also violated other provisions of the FDCPA so my case will remain in tact. But boy oh boy, you sure are never too old to learn something new.

In 2005, the Michigan legislature passed the DEFERRED PRESENTMENT SERVICE TRANSACTIONS ACT. MCL 487.2122. It governs these payday loan companies ("PLC") by requiring them to be licensed and not lending more than $600 and charging no more than 11%-15% for the privilege. In fact, these payday loan companies can't even make more than one loan at time to an individual. Furthermore, the PLC has to check to make sure that the borrower does not have another outstanding payday loan with another PLC before it can make the loan. So why does this statute have me in a dither?

First, the statute prevents the PLC from suing for treble damages on a bad check. If the consumer writes a bad check to the grocery store, then Krogers can sue for three times the amount of the check. Not so for the PLC. The PLC gets a whopping $25 fee. So not only is the lender's rate of return highly regulated, but now its damages are equally regulated (read eviscerated"). To add insult to injury, the statute prohibits pursuing criminal charges against the consumer if he bounces the check. Krogers can turn its check over to the prosecutor, but PLCs cannot. Pretty unfair huh?

Judge Laura Mack from the 29th District Court in Wayne Michigan, wrote an interesting article on the subject. In her article, she implores consumers to be aware of their rights in this regard and to turn in PLCs that still sue for treble damages. There are many of them out there. PLCs can be fined as much as $1,000 or more than $10,000 for each violation. There is also a private right of action by the consumer against the PLC for costs and attorney's fees.

Lessons learned -

1. PLCs have to very careful when setting up shop and enforcing their rights. PLCs have to be especially careful when selecting an attorney to enforce their rights under these bad checks. After all, if an attorney pursues the PLC's rights under the check and seeks treble damages, the attorney not only puts the PLC's license at risk, but the attorney may face liability to the consumer under the Fair Debt Collection Practices Act.

2. Attorney better be very careful when pursing these bad checks. As stated above, if they pursue claims that they do not have the right to pursue, they put their client's license at risk, not to mention the costs of fines, etc. This is a malpractice action just waiting to happen.

3. No conversation by me would be complete without discussing the Fair Debt Collection Practices Act implications. Remember it is a violation of the FDCPA to take action or threaten to take action that you do not presently have the right to take. Suing a debtor for violation treble damages on behalf of a PLC puts the attorney squarely in an FDCPA lawsuit. This just turns this case into a complete nightmare.

Best practice is become familiar with MCL 487.2122 and respect the bounds of the law, like it or not.

If a little zombie re-appears on your credit report, file an online dispute with the credit reporting agency such as Experian, Equifax or Transunion ("credit reporting agencies).. Its very easy to do and its far less painful than having your credit rating affected by the little creature. The credit reporting agency then has 30 days to verify the zombie with the credit furnisher (e.g. the creditor). If the debt is not verified within that time period, the CRA has to remove the zombie from your credit report. "BUT WHAT IF THE DEBT IS VERIFIED AND IS NOT REMOVED?" you might ask. Hire a law firm to file a lawsuit under the FDCPA and the FCRA as the debt is not yours. When you prevail on your claim or settle it, the zombie debt can actually make you some money and it will cause the credit reporting agencies and/or the credit furnisher to pay your attorneys fees.

Don't let Zombie debt devour your credit rating. Instead, use it to your advantage.

A co-signer is someone who agrees to be liable for a debt to the same as extent as debtor who originally applied for and obtained the credit. For example, many parents co-sign for their kid's cars. If the kid stops making the payment, the parent gets dunned for the money.

An authorized user of a credit card is simply someone who has permission to charge goods and services to the debtor's account. This person is NOT liable on the underlying debt.

If you get a car from a collection agency demanding payment for a debt on a credit card, simply asking the nice collector to provide you with proof as to your status on the debt; e.g. co-signer or authorized user. If the collector cannot produce any such proof, ask them to have no further contact with you and to have a nice day. Yes, this can all be accomplished nicely.

Ms. J contacted me complaining that her husband's identity had been stolen a few years ago. Last year, when she and her husband went to purchase a house, Detroit Edison (DTE) had posted a debt to their credit report. They paid the debt and then contacted DTE to explain the problem. DTE promptly refunded their money. However, someone else had opened an account in Ms. J's name. DTE placed this debt with a collection agency that I will call....for now....Bad Collection Agency ("BCA"). Ms. J faxed a police report to BCA and BCA promised to remove the debt. They did not do so. Ms. J called BCA for several months and received promises each time that the debt would be removed. It never was.

Finally, Ms. J called DTE to complain. DTE held a conference call with BCA and directed BCA to remove the debt. DTE also told Ms. J that BCA had not been its collection agency since 2004.

Today, I am suing BCA for violation of the Fair Debt Collection Practices Act. I am going to amend this complaint to include fraud and misrepresentation. If BCA does not settle this case soon, I intend to turn this case into a class action against BCA.

Moral of the story - I am a collection attorney and even I have no great love for collection agencies. I don't like their methods or tactics. If you are contacted by a collection agency and feel offended by that contact, chances are the agency has violated the FDCPA. You can sue them for damages. I would be happy to help you.

In this case, Federal Home Loan foreclosed on the debtor's mortgage through its counsel, Lerner, Sampson and Rothfuss (LS& R). LS&R did not send out a separate validation notice as required by the FDCPA at 15 USC 1692g. The FDCPA requires a debt collector to send the consumer a notice of the debtor's rights to dispute a debt within 30 days, amongst other things. In this case, LS&R simply put the validation notice language in the complaint for foreclosure that it filed with the court. While the validation notice language informed Lamar that she had 30 days to dispute the debt, in reality she only had 20 days to file an answer to complaint disputing the debt. Ms. Lamar contended that putting the validation language in a complaint without reconciling language to explain the difference between the 30 day right to dispute the debt and the 20 day duty to file an answer to the complaint would confuse the least sophisticated consumer. This is an excellent point. The court agreed with neither Ms. Lamar nor with me.

Notices under the FDCPA use the Least Sophisticated Consumer Standard. Under the FDCPA, "A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." Courts have interpreted this provision in light of "the least sophisticated consumer." This means that if a notice would tend to confuse "the least sophisticated consumer," then the notice is confusing and violates the FDCPA. Notice that under general negligence law, we use the standard of the "reasonably prudent person." This is a much more sophisticated and intelligent person. However, when enforcing the FDCPA, the court use a much lower standard to determine whether the FDCPA has been violated. This is not to insult us as consumers. Rather, the courts use this lower standard so make the FDCPA enforceable in more cases than it would otherwise be enforced with the higher standard.

Back to our story.....As a debt collector, this case is very welcomed news in our community. As a consumer, I would be very scared. The Act requires debt collectors to give certain notices to the debtors. The Act also requires debt collectors to communicate very clearly with consumers such that even the least sophisticated consumer would understand the communication from the debt collector. With these two simple rules, I don't understand how the court could have ruled that putting a 30 day validation notice into a complaint that only gives a consumer 20 days to respond would NOT confuse a least sophisticated consumer. The Court of Appeals would not have any part of this argument. It believes that the least sophisticated consumer must simply think a little harder. The court ruled:

The least sophisticated consumer, with a careful reading of the language in the Summons and Complaint, including the statutorily required notice, would understand that there were two different time periods within which she must act, and that the time periods run at the same time, from the day after the Summons and Complaint is received.

In my opinion, this ruling ignores the very nature of the least sophisticated consumer. If he were able to read pleadings that carefully and develop the understanding that there are two different time periods involved, then would this consumer really be "the least sophisticated"? I doubt it.

Moral of the Story? Good question! So what the court doing when it made this ruling? Was the Sixth Circuit ratcheting up the I.Q. of the least sophisticated consumer or merely going away from that standard and moving towards a reasonably prudent person standard? Or was the court merely signaling to us that it has seen enough creative FDCPA lawsuits at the trial level, the likes of which were never contemplated by Congress and simply wanted to push the pendulum in the other direction? I think it may be a little too early to tell. I do, believe, however, that this case is a harbinger of the court's direction rather than an isolated anomaly.

1. I haven’t heard anything about this debt for several years and therefore you can’t sue
me for it.

2. You can’t sue me because you don’t have a signed contract.

3. I have never heard of the company that is contacting me or suing me and I have no agreement with them, therefore I don’t have to pay them.

4. You can’t sue me because I am making payments.

None of these defenses is valid. I would like to add the following to the list of defenses that are simply not valid:

5. The credit card company has written off the debt so they cannot pursue me. People may see on their credit report that a company has written a debt that was owed by the consumer. The consumer then makes the mistake of thinking that because the credit card company wrote off the debt that this means that no one else may pursue the debt. Remember the credit card debt is transferable. Another company usually purchases the debt and hires a collection law firm to pursue it.

6. In my divorce decree, the court ordered by ex spouse to pay the debt. This is a very common mistake that is even made by some judges. Remember that when you get a credit card from a bank, you enter into a contract with the bank to repay that debt. That is your obligation. Just because your ex spouse has has ordered to pay the debt, does not relieve you of your obligation to the bank.

Bottom Line: If you get sued for a debt, DON'T SIMPLY CAVE IN AND PAY IT. Contact a collection attorney to see if the Plaintiff can sustain its burden at trial (see prior blog posts). If the debt appears to be valid, then have your attorney negotiate a settlement and payment plan. Your attorney can almost always negotiate a better payment plan than you can. She will charge you an hourly fee, but she should be very cost effective.

I represent debtors and creditors in debt collection. I enjoy working both sides of the proverbial fence because it makes me a better lawyer. After all, if you are a debtor, wouldn't you want your lawyer to know what the creditor is thinking and how it is going to proceed? Well, I do. If you have followed my blog, you will see that I have put out a lot of very good and helpful information for debtors who are battling debt collectors. Mr. Martinez-Clark, unfortunately, is not helping anyone except for himself. For example, Mr. Martinez-Clark states:

1. Credit Card Contracts are usually not transferable. This is absolutely wrong. Just about any debt, especially consumer debt, is transferable.

2. Corporations must be prepared to show that their charters authorize lawsuits. Nope. In my 20 years of suing consumers who have been defended by very astute defense attorneys, this has never been an issue. Corporate charters (Articles of Incorporation here in Michigan) usually do not address a corporation's ability to sue a party. What corporation would ever limit its own ability to sue someone or some entity that owed it money, especially a consumer lending type corporation? Common sense, anyone?

3. After judgment, there must always be an action in rem. Nope. Some debtors actually do the right thing and either make payment arrangements or pay the judgment. Moreover, while an action in rem is an action against property, a debt collector can also continue to pursue the debtor personally. I like to prepare and use creditors examination subpoenas. With this device, I have a debtor served with a subpoena wherein he is ordered to appear in court with his tax returns and other financial information. Then with this information, if I still have no cooperation, I then proceed against his property.

4. 99.99% of debt collection cases are done improperly and you can win. Nope. This is where Mr. Martinez-Clark cross the line from reality into make-believe. In Michigan, if you get sued by one of our debt collection law firms, your chances of beating the case are not 99.99%. While all hope is not lost if you get sued, and many cases are in fact defensible, that does not translate into the statistic that Mr. Martinez-Clark pulled out of his....hat. (?)

I could go on and on, but I have given enough time and attention to Mr. Martinez-Clark's shameful efforts to raise money. I, on the other hand, simply want to raise awareness that there are plenty of snake oil salesmen giving debtors bad advice over the internet on how to get out their debt. Mr. Martinez-Clark is one such author.

Moral of the story - There is no substitution for professional legal assistance when dealing with debt collectors.