You Can Beat Credit Card Debt Collectors
You just received a certified letter in the mail from a law firm, you have a sinking feeling as you sign for this unwanted piece of mail, and when you open the envelope, your fears are confirmed. You are being sued by a credit card company that has come to collect what you left off owing them. All is lost, your world goes into a tailspin, and images of lost wages, raids on your little bank account, and possibly losing everything flash through your mind. Hopeless! You just want to find a hole and drop in it. But, guess what, you are very wrong. You don’t have to lose a thing, and my article will explain why.
Debt collection is a big business always looking for growth opportunities. In January of 1990, credit card debt was at $214 billion, but by January of 2009, during the greatest recession in history, it grew to $964 billion. As the recession began, people were rapidly losing their jobs, and thus, their ability to keep up with the payments on that debt. Good people were being forced into default on their accounts.
So, what did the credit card companies do? They kept on lending, they kept on raking in profits, and they kept engaging in a relatively unknown practice of selling those defaulted debts to companies that had no connection to your original debt. This line alone should raise your eyebrows and cause you to say, “What?” Yes, the credit card company whose card you had been using sold your debt to someone else...and they, the credit card company, promptly washed their hands of your old debt. Stunning, isn’t it?
In 2008 alone, over $123 billion in charged-off debts were sold to companies that then pursued those debts as if they owned them. But they don’t...at least not until you make a fatal mistake and give them the right.
You see, when you signed the original agreement with your credit card company, you signed a contract with your original credit card company. Think about what I just said, because this is where winning your battle begins. Yes, you signed an agreement with your credit card company, but you did not sign one with the companies that bought your debt from the credit card company. Sound crazy? If they don’t have a right to your debt, then why are they coming after you? Because you don’t know your rights, they know this, and they collect billions of dollars every year at massive profits.
Say your original credit card had a final balance of $1,000. The credit card company sells that off to a collection company for $100. Say the collection company only manages to collect $500 from that debt. Not a bad profit. Understand why, then, they pursue these collections? And if I told you that these collection companies have no right to that debt, would that shock you? I mean, they all seem to be following legal procedures when they come after you, don’t they? Yes and no. Yes, they are following legal procedures to trap you in a debt you no longer owe, and no, they do not have any right to that debt...that is, they have no right to that debt until you give them that right. And, yes, millions of Americans make serious mistakes every year and end up owing a debt all over again, a debt that was written off long ago.
What to Do
So, let’s first look at what NOT to do. Do NOT ignore the certified letter. Do NOT miss the court date. You will win if you follow what I am going to outline here; however, the clock begins ticking the minute you sign for that certified letter. Sign it, then begin acting on your rights immediately.
Answer the Summons
Read the letter that comes from the court. It will state how many days you have to file an answer: that is, an answer saying that you plan to defend yourself in court. You must do this immediately.
If it is a magisterial court, you can defend yourself. If it is a higher court, then you need to retain a lawyer. If you opt to retain a lawyer, you do not need a high-priced one. After you have read my article, you can tell any lawyer exactly how to proceed, although he or she should already know this.
Once you have answered the court summons, and you have told them that you definitely intend to defend yourself, the court will set a date for the hearing. Mark that date on your calendar as the day you will walk out of court a winner. Above all, do not miss that court date! If you do not show up in court, you will lose by default, which means that the collection company that is coming after you now owns the debt that was otherwise written off and had become worthless. Miss the court date, lose by default, and you owe money to blood-suckers who will garnish your wages and attach your bank accounts. Attend that court date!
File a Request for Production
Next, and this is very important, you need to file a “Request For Production.” Use the form I have outlined below.
Mail a copy of this request to the judge in whose court the hearing will be held, and mail a copy to the lawyer who is representing the collection company. Make sure that you send the letter to the lawyer at the collection company via certified mail, return receipt requested. By sending this to the lawyer at the collection company, you are telling him several things. You are telling him that you may just know your rights, that he is going to have a battle on his hands, and most of all, that he may just want to let this one go, because he knows that until you make a mistake, he has no right to the money he is claiming. And, in most cases, when this request for documentation is filed with the plaintiff, they go away and give up. They would rather concentrate on the easy wins, the ones where the person does not respond to the certified letter and, especially, the ones who do not show up in court. By filing the request for documentation, you have already begun to win, and they know this. If you follow through, you will win.
Why You File a Request for Production
Now, let’s look at what you just requested. You have demanded that the lawyer representing the collection company produce—and they are required by law to do so—the original agreement with your signature. You have also requested that they produce all of the receipts for every transaction that you engaged in during the entire life of the use of that credit card. You have requested that they show what you purchased in each of those transactions, and you have requested that they produce your payment record. All of this is legal, and all of it is required in order for them to properly enter the court. Guess what? They do not have this documentation.
Because the original credit card company does not keep this information, they do not sell it to the collection agency. Shocking information, isn’t it? All the collection company has is your name, last known address, the amount you “supposedly” owed when you made your last payment, and the account number. That’s it. So, without a signed agreement with your signature, how can they collect on that contract? They can’t...unless you let them, and if you do not know your rights, you will let them. When the collection company filed suit, they did not attach a copy of the original contract with your credit card company, and this is required by law. The judge knows this, but he cannot act as your attorney, so he has to sit on the bench and watch you sink yourself if you do not follow your legal rights. So, here they are.
What to Say on the Day of the Hearing
On the day of the court hearing, the first thing you want to have in front of you is this statement:
1. Defendant is without information or knowledge sufficient to form an opinion as to the truth or accuracy of Plaintiff’s claim, and based on that denies generally and specifically Plaintiff’s claim.
This statement tells the court that you cannot claim to know whether or not this is actually your debt, because no proof of that ownership has been provided by the collection company, Plaintiff. Read, or quote, this statement, and add nothing further to what it says.
Now, a trick here is used when a plaintiff does show up in court in an attempt to trip you up and win through trickery alone. They will call you to the witness stand, brandish a copy of the original contract issued by the credit card company, and ask you, under oath, if you are denying that you signed this agreement with the credit card company.
If you say that you are not denying that you signed the agreement, you lose. You simply state that you are without knowledge sufficient to form an opinion as to the accuracy of the Plaintiff’s claim, and add nothing more. You can repeat this as often as you need to until the judge loses his patience and orders the plaintiff to sit down. The plaintiff is waving a blank piece of paper in front of you. It does not contain your signature, and it is not the original signed agreement. It is worthless.
For your next step, you state the following:
2. Plaintiff has failed to state a claim upon which relief may be granted.
Either no statute was cited, or the complaint fails to state facts sufficient to constitute a cause of action against you, the defendant. Listing the facts of the case may be enough to file a claim, but the plaintiff merely says the defendant owes the money, and this is not enough.
You want to state this:
"Plaintiff’s claim demands monies for an alleged debt for which no proof of said debt, nor proof of ownership of said debt, has been verified and exhibited."
3. Defendant demands proof of Plaintiff’s ownership of alleged debt.
The law is very clear that the plaintiff has a legal duty to attach any necessary documentation to everything he has filed in court, including in the original certified letter that was sent to you. Did you see any documentation in that letter? No. Why? Because the plaintiff has none. He knows that, the court knows that, and now, you know that, too. Legally, the plaintiff lacks capacity to sue. At this point, you may read the following statement to the court:
“The plaintiff is required, by law, to trace in his statement of claim the derivation of his cause of action from his assignor so that the defendant may challenge the plaintiff’s claim that he is the present owner of the cause of action.”
What you just told the judge is that the plaintiff, in this case, the lawyer representing the collection company, has not presented proof that he, or his company, owns the debt. Why does he own it? Did you sign an agreement with him? Is he a credit card company? The answer is, no. You do not owe him, or his company, anything. He is required, by law, to show why you owe him, or his company. He will not be able to prove this...unless you have made one fatal mistake.
If you have been scared into making any payment arrangements and have already made payments to his company, then I would seek legal help in unraveling their tentacles. Cardinal rule: do not make payments, or agreements to make payments, to any company that is calling about a debt that you owed someone else. Doing so creates a contract that may be binding.
As in most credit card cases (depending on your state), when a claim is “based upon a written agreement, the pleading shall state specifically if the agreement is oral or written.” If the credit card claim is based upon a "writing," then the plaintiff must “attach a copy of the writing.” This means that, once again, the law requires that the plaintiff produce the original contract with the credit card company bearing your original signature. No blank contracts, no “supposed or forged” copies. The original, and only the original, will do.
Also, in most states, if the lawyer filing the claim for the collection company knowingly files a suit without having that original contract in hand, he is in violation of the law. He has to either have that contract, or he has to have someone with him coming to court who has personal knowledge of that signed contract, and he has neither. When he signed the suit papers, he stated that he had these proofs by his signature. A lawyer filing such a claim should be prosecuted, he deserves to be sued, and you can do so if you have a lawyer representing you.
Next, we come to:
4. Insufficient specificity in a pleading.
When the lawyer for the collection company seeks damages based on a contractual relationship, an agreement or contract, and these damages are ascertainable based on that contract or agreement, then the lawyer is required to plead those damages with specificity. What this means is that the court is going to require that lawyer to include facts concerning when you engaged in purchases that led to that debt, the amount of those purchases, and what those purchases were. You can cite the following in court:
Citing Marine Bank, 25 Pa. D. & C.3d at 267-69. A “defendant is entitled to know the dates on which individual transactions were made, the amounts therefore and the items purchased to be able to answer intelligently and determine what items he can admit and what items he can contest.”
Next on the list:
5. Defendant cites Failure of Consideration:
“Whereas no exchange of money or goods occurred between the plaintiff and the defendant, therefore, defendant cites Failure of Consideration.”
What you are saying here is that there was never any exchange of money or items of value between you and the collection company, between Plaintiff and Defendant. You tell the court that you never entered into any contractual or debtor/creditor arrangements with Plaintiff. Consideration is a necessary fact that the plaintiff is required to show in order to prove that you and the collection company had a valid, binding and enforceable agreement or contract. Consideration means that the collection company was giving you a service in exchange for your money. Were they a credit card company? Were they giving you credit? Not likely. Therefore, they were not giving you any “consideration,” and you, therefore, do not have a contract with them.
Furthermore, the collection company would be required to show the terms of that agreement in court. Where is their contract with you? There is none. Because they cannot produce any such agreement or contract, this is “failure of consideration.” They have no case, just one more reason they knew that they should not come to court, one more reason the judge is compelled to dismiss the case against you.
Next, we come to:
6. Repudiation. Plaintiff is not named in any alleged agreement that is purported to have been entered into between Defendant and Plaintiff.
Here, you state that the plaintiff has not produced any contract between Defendant and (your collection company), naming Plaintiff as a party to such contract. Defendant repudiates any claim to such a contract existing. As there was no “meeting of the minds,” a necessary element of a valid contract, no contract exists. The plaintiff is not an assignee for the purported agreement, and the plaintiff has not produced any evidence that supports any related claims or assumptions. The lawyer for the collection company has failed to produce any document that shows that your original credit card company has named him, or his collection company, as assignees, nor has he even shown that the original credit card company has any knowledge of his actions, or that the original credit card company has even given this lawyer, or collection company, all rights and control.
If a credit card company did assign the debt to a third party, the creditor would then lose his rights to collect later. This means that your credit card company probably took a tax credit, an insurance write-off, or some such action that makes the credit card company unable to collect the debt after that point. They destroyed their records, and they moved on. The collection company does not have the original agreement with your signature, and they know that they have no case against you...unless you make the mistake of making an agreement with the collection company and then making a payment on it. Since there was no “meeting of the minds” between you and the collection company, a necessary element required to create a legal and binding contract between the two of you, their claim is repudiated.
If your original credit card company had made an agreement with the collection company, you were not a party to those terms. Just because an assignment clause exists in a credit agreement does not mean that it is sufficient to create a new obligation with the collection company. The assignment clause merely takes away the rights of your original credit card company to collect if they decide to assign it to another company, in this case the collection company. The collection company would then have to offer you a new contract, you would have to agree to its terms, and you would finally have to sign this new contract. If you have not signed a contract with the collection company, you owe them nothing.
In court, if you had to argue this, you would simply state:
"Plaintiff is not an assignee for the purported agreement, and Plaintiff has not offered any evidence to the contrary. As there is no proof offered, assuming that it exists would create an unfair prejudice against the Defendant."
Now, we move to:
7. Defendant claims Lack of Privity as Defendant has never entered into any contractual or debtor/creditor arrangements with Plaintiff.
You can simply state,
“Whereas no relationship exists between Plaintiff and Defendant, and whereas Defendant never signed a contract or agreement with Plaintiff, Defendant cites Lack of Privity.”
Privity is the legal term for a close, mutual, or successive relationship to the same right of property, or the power to enforce a promise or warranty. No relationship exists between the collection agency (Plaintiff) and Defendant. Defendant never signed a contract or agreement with the collection agency. A collection company cannot collect any amount of money that is not permitted by law or by agreement.
"The Fair Debt Collection Practices Act states that the debt collector cannot collect any amount of money that is not authorized by the agreement creating the debt or permitted by law. Because there is no agreement between the collector and the alleged debtor, no collection can be sustained.”
Nearing the end of our list, we come to:
8. Plaintiff's complaint violates the Statute of Frauds.
Plaintiff claims to have a contract with you; thus, Plaintiff has to produce it, because such a contract falls within a class of contracts or agreements required to be in writing. The purported contract or agreement alleged in the complaint was not in writing and signed by Defendant or by some other person authorized by Defendant and who was to answer for the debt, default, or miscarriage of another person.
In order for the collection company to state that it had an agreement with you, it has to show how it was going to benefit you. For example, was the collection company going to issue you credit like a credit card company? Highly unlikely. Therefore, to say that it had a contract with you is fraudulent, because the collection company cannot provide the same services as the credit card company did. It would be like the credit card company selling your contract to another company that required you to sell your house to them at the end of one year. This new requirement would not be something that you agreed to in the original contract, and since there was no “meeting of the minds,” you did not come to any agreement with the collection company.
Here, then, you simply cite statute of frauds. Research your state’s case law to see how your state stands on this point. In any case, because the collection company cannot provide the same services as the original credit card company, adding this new requirement is breach of contract; thus, we invoke “statute of frauds.”
Lastly, we come to:
9. Scienti et volenti non fit injuria: “An injury is not done to one who knows and wills it.”
The laws in this country do not provide a remedy for a collection company that knowingly and voluntarily takes on a bad debt and then goes after the debtor in an attempt to collect that alleged debt. What the law says is that an entity cannot place itself in harm’s way and then sue for damages. Thus, “scienti et volenti non fit injuria.” That would be like you standing in front of a speeding car, then suing the driver for damages. You put yourself in harm’s way, you deserve no damages. The collection company bought a debt that was bad, then wanted it paid. Just cite "scienti et volenti non fit injuria," and the judge will know what you mean.
More Things You Should Know
Statute of Limitations
Most collection companies know not to go after debts that are past the statute of limitations, but, there are still those who do. But, note this very important point: once the debt has passed the statute of limitations, they cannot take you to court. They can contact you and ask you to pay the outdated debt, but they cannot take you to court. However, if you agree to make any payments to them, or acknowledge to them that you owe the debt, you may reset the clock, so to speak. This is called "re-aging the debt." Be very careful with regard to this factor. So you should know that most States will not allow claims on debts that are more than three years old, though in other states that statute of limitations is four years. There are also a few States that go out even further. You want to research this so that you know what your State allows, because the collection company pursuing you may have waited too long, and you may have a right to have the suit thrown out on this technicality alone.
Is the Debt Satisfied?
As I stated earlier, quite often, the credit card company has made an insurance claim, or taken a tax deduction, and this is known as accord and satisfaction. This renders the debt satisfied, and, legally, no one should be able to attempt any further to collect this debt. Your collection company knows this, yet they are still trying to take you to court, because they know that if you do not show up, the law then reverses everything, and you end up owing them. So, go to court. Just the fact that you file an intent to defend yourself lets them know that you are aware of your rights, that their best bet is to call off the bluff, and that they should go find some other person to try to fool into entering a contract with them for a debt that is otherwise uncollectible.
Debt Collectors Need To Validate the Debt
Remember that the Fair Debt Collection Practices Act requires all debt collectors to validate the collection upon request of the purported debtor. The collection company will not be able to, so, stand your ground with everything that I have written in this article. They deserve to lose, because they know they are acting illegally, yet they use all kinds of trickery and deceit to win. You can fight back by simply using the law and your legal rights.
Here is a very valuable article to read: https://www.nolo.com/legal-encyclopedia/debt-collection-defense-requiring-that-the-collector-document-the-debt.html
The Attachment Rule
When a junk debt buyer sues you, most State rules require, as per the Attachment Rule, that the debt collector must attach a copy of the account or written contract, and if they cannot do this, then they must state why the document is not attached. If the collector fails to do this, then you can file a motion with the court requesting that the court require them to produce the missing documents. Without these documents, you may petition the court to dismiss.
The Amount For Which You Can Be Sued In Small Claims Court
There are limits to the amount a collector can sue for in Small Claims Court. This will vary from State to State, so research your locality to see what they are.
Check Every Rule, and Good Luck
Make sure that you check every rule that I have quoted to make sure that there are not any deviations in your state. State laws will vary, and State laws vary from Federal laws, so do your homework. I am not a lawyer, but I used everything I have written herein to defend myself against a collection company, and you can already guess what happened. They did not show up in court, and the judge dismissed the case against me. It worked for me, it will work for you. And just in case you are not comfortable arguing in a court of law, if you can afford it, obtain the services of an attorney who is not too expensive.
The Federal Trade Commission explains your rights on its website: https://www.consumer.ftc.gov/articles/0149-debt-collection.
You have a right to win. Good luck to you.
Additional Materials For Your Help
This article from the Loyola Consumer Law Review describes how creditors file improper collection complaints.
In the end, this article contends that plaintiff-creditors file improper complaints as part of a pecuniary calculus in the collection industry:
1) Original and secondary creditors file objectionable complaints (and cannot amend those complaints when challenged) since original creditors do not maintain the credit card debtor’s account documents at the outset of the creditor-debtor relationship (which means that secondary creditors cannot receive account records as part of an assignment); and
2) necessary account records are not retained because it is more economically efficient to file many unsupported claims than it is to expend resources in document retention and to file fewer substantiated claims.
The article describes how Pennsylvania courts require specific pleadings, and debtors can challenge pleadings that aren't specific enough.
Unlike federal courts, which require notice pleading, Pennsylvania courts demand fact specific pleading from both plaintiffs and defendants. At the outset, a pleading must set forth the “material facts” of the cause of action in a “concise and summary form.”
As in most credit card cases, when a claim is “based upon a written agreement, the pleading shall state specifically if the agreement is oral or written.”
If the credit card claim is based upon a writing, then the plaintiff must “attach a copy of the writing.”
Finally, “[a]verments of time, place, and items of special damage,” such as credit card charges, must be “specifically stated.”
Illegal Collection Efforts in the News
Federal Government Orders Firm to Stop Unsupported Collection Lawsuits
Pressler & Pressler, a New Jersey firm, was ordered in 2016 by the Federal Consumer Protection Bureau, which called it a "lawsuit mill," to stop filing unfair collection lawsuits. NJ.com reported that FCPB's order said that "before threatening litigation, agents must have original account-level information with the consumer's name, the last four digits of the account, the claimed amount, a chronological list of all the prior owners of the debt, a copy of the bill of sale and other records, the orders say."
Fraudulent Debt Collection is Big Business
Six people in North Carolina agreed to plead guilty to a $6 million fraudulent debt collection conspiracy that operated from 2011 to 2015, according to the Charlotte Observer.
This is possibly the best one yet: https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-the-two-largest-debt-buyers-for-using-deceptive-tactics-to-collect-bad-debts/
Information From NOLO on Debt Verification
Nolo.com summarizes the principle of "debt verification" with advice similar to what I've given here that applies to many states. NOLO says:
If a debt collector sues you, most state and local procedural rules put even heavier documentation requirements on both the debt collector and creditor. In many states, a creditor or debt collector that is suing for collection of an account must:
- attach to the complaint a copy of the account or written contract or agreement, or
- state in the complaint why the account or document is not attached.
This is often referred to as the “attachment rule.”
If the creditor or debt collector doesn’t do this, you may be able to get the lawsuit dismissed. Or, you can ask the court to require the creditor or debt collector to provide the missing documentation and information. This is often called “requesting a more definite statement.” In either case, you’ll have to prepare and file a formal motion with the court.
What Documentation Must the Creditor Provide?
But what must the creditor provide by way of documentation? At a minimum, it must produce:
- A copy of the original written agreement between the parties, such as the loan note or credit card agreement, preferably signed by you.
- If the account has been sold to another creditor, then that creditor must prove that it has the right to sue to collect the debt. This usually means producing proof that the debt was assigned to it. Often such proof will be a bill of sale, an “assignment”, or a receipt between the last creditor holding the debt and the entity suing you.
What If the Collector Cannot Produce the Assignment?
If the creditor or collector suing you fails to produce proof of the assignment, then you can ask the court to dismiss the lawsuit. Again, you’ll have to prepare and file a formal motion with the court.
Counterclaims if the Collector Did Not Previously Verify the Debt
If the debt collector suing you previously did not verify the debt after you timely requested debt verification, you may file a counterclaim against that debt collector within the same lawsuit, requesting your own damages. Some states also allow you to countersue for damages against the creditor itself for failure to verify the debt.
An Important Article To Read From The New York Times
This is an eye-opening article written by Jake Halpern for the New York Times about the practice of junk debt buyers. I highly recommend reading this so that you can see what is going on behind the scenes with regard to charged off debts. This is a huge money making business, with junk debt buyers raking in billions.
Here is a quote:
"From 2006 to 2009, for example, the nation’s top nine debt buyers purchased almost 90 million consumer accounts with more than $140 billion in 'face value.' And they bought at a steep discount. On average, they paid just 4.5 cents on the dollar. These debt buyers collect what they can and then sell the remaining accounts to other buyers, and so on. Those who trade in such debt call it 'paper.'"
Another thing Halpern pointed out was that original creditors do not care what happens to the debt after they have sold it off to junk debt buyers. Here is another very enlightening quote:
"According to American Banker, in a series of transactions in 2009 and 2010, Bank of America sold millions of dollars of charged-off debt to a company in Denver called CACH. In the sales agreement, Bank of America said it would not make “any representations, warranties, promises, covenants, agreements or guarantees of any kind or character whatsoever” about the accuracy of the account information it was selling."
More from Halpern's article:
"In 2009, the F.T.C. said in a report: 'When accounts are transferred to debt collectors, the accompanying information often is so deficient that the collectors seek payment from the wrong consumer or demand the wrong amount from the correct consumer.'”
Here is one more reason from Jake Halpern's excellent about article why you should be questioning the legal right of the entity claiming to own your debt:
"The notion that a portfolio of debt could be stolen may seem improbable, but plenty of debt brokers are all too willing to sell 'bad paper.' Such brokers sometimes 'double sell' or 'triple sell' the same file to multiple unsuspecting buyers. Other times, a broker may sell paper that he does not own and obtained by nefarious means."
Letter Requesting Validation of Debt
Before you are notified that you are being sued by the plaintiff, but once the junk debt buyer notifies you that they are intending to collect the alleged debt, send them this letter requesting validation of the debt, and give them 30 days to comply. Save proof that you mailed this letter. Here is the letter:
I am sending this letter to you in response to a notice I received from you on (here, cite the date of the letter you received). Be advised that this is a notice sent pursuant to the Fair Debt Collection Practices Act, 15 USC 1692g Sec. 809 (b) that your claim is disputed and validation is requested. This is NOT a request for “validation” or proof of my mailing address, but a request for Validation made pursuant to the above named Title and Section. I am hereby requesting that your office provide me with competent evidence that I have any legal obligation to pay you. Please immediately provide me with the following:
*What the money you say I owe is for;
*Explain how you calculated what you say I owe:
*Provide me with copies of any papers that show I agreed to pay what you say I owe;
*Provide a verification or copy of any judgment if applicable;
*Identify the original creditor;
*Prove the Statute of Limitations has not expired on this account;
*Show me that you are licensed to collect in my State; and
*Provide me with your license numbers and Registered Agent.
If your offices have reported invalidated information to any of the three major Credit Bureaus (Equifax, Experian or TransUnion), said action may constitute fraud under both Federal and State laws. Due to this fact, if any negative mark is found on any of my credit reports by your company, or the company that your represent, I will pursue legal action against you for the following:
*Violation of the Fair Credit Reporting Act
*Violation of the Fair Debt Collection Practices Act
*Defamation of Character
If your offices are able to provide the proper documentation as requested, I will require at least 30 days to investigate this information, and during such time, all collection activity must cease and desist. Also, during this validation period, if any action is taken which could be considered detrimental to any of my credit reports, I will consult with my legal counsel. This includes any information to a credit reporting repository that could be inaccurate or invalidated, or verifying an account as accurate when, in fact, there is no provided proof that it is.
If your offices fail to respond to this validation request within 30 days from the date of your receipt, all references to this account must be deleted and completely removed from my credit file, and a copy of such deletion request shall be sent to me immediately.
Further, no telephone contact shall be made by your offices to my home, or to my place of employment. If your offices attempt telephone communications with me, including, but not limited to, computer generated calls or correspondence send to any third parties, it will be considered harassment, and I will pursue legal action. All future communications with me MUST be done in writing and sent to the address noted in this letter.
What Is Subrogation?
What is subrogation? Subrogation is the doctrine that allows a third party to be substituted for the creditor. The party being substituted agrees to pay the original creditor for the debts, and this allows the third party, known thereafter as the subrogee, the rights to collect the debt as were originally held by the original creditor.
Here is the legal definition: Subrogation is the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities. The one who initially discharges the obligation is called the "subrogee" and the party who is compensated is the called "subrogor." In other words, the subrogee stands in the shoes of the subrogor.
Subrogation can operate through a written contract titled a “subrogation agreement.” Since subrogation is an equitable remedy, all defenses and theories that apply to equity laws are equally applicable when dealing with subrogation issues.
There are general rules that shape and guide issues of subrogation.
Legal, or equitable, subrogation is not available to volunteers. What this means is that an entity with no connection to the debt cannot step in and claim the status of subrogee. The subrogee must satisfy the debt, because he does so to secure his own personal interests.
Legal subrogation is not available until the subrogor is fully compensated. This means just what it says, i.e., the original creditor must be fully compensated. More on this will follow.
Conventional subrogation does not require full compensation of the subrogor. “Conventional subrogation” is technically not the same as “legal subrogation.” Conventional subrogation is created by contract, while legal subrogation is implied by law and is based on equitable considerations. An entity who interjects themselves into the debt situation will not be granted rights under subrogation without a valid written agreement.
There are three entities involved in the proper interpretation of subrogation. They are: the entity that causes loss, the entity that is subjected to that loss by the loss causer, and the final one of the three is the loss insurer. The foundation of the laws that were written regarding subrogation are restitution, deterrence and fairness, and these three bases form the right and proper goals of any future legal evolution. All laws coming since this foundation should be weighed against that foundation and its original intents. The laws of subrogaton were NOT created for the purpose of self-enrichment schemes concocted by junk debt buyers. The laws of subrogation are being abused and corrupted by junk debt buyers.
For the moment, I hope these few statements will give you, the reader, some material to research and study. I will be adding more here when time permits. Basically, if you read the erudite New York Times article written by Jake Halpern which I linked and referenced, this should begin to give you even more tools with which to fight these blood suckers. They need to show more than just that you once upon a time may have had an account with some credit card company. What is their legal right of subrogation of the debt? How do they own your alleged debt? Where is their contract? Where are their proofs? Research this, study this, and hammer it home! Make them lose!
More About Subrogation
Traditionally, credit card companies attempted to collect their own debts. If this initial process was ineffective, then the credit card company assigned the accounts to collection companies. If the first collection company failed to collect, then the credit card company would re-assign the account to another collection company. Eventually, the credit card companies deemed this process too time-consuming and unproductive to be of financial value. They soon hit on a new idea—sell the debt. They got rid of their collection departments and went into a new business venture for selling off bad debt.
Around 1999, the credit card industry began to analyze the value of purchasing subrogation rights. It sounded like a great idea at first, but the credit card industry decided against it, because there would be legal problems once a case got into the courts and some smart lawyer decided to challenge the plaintiff with “First Dollar,” the term that refers to dealing with the insured’s (the credit card company) deductible. If one studies case law, various States require that the insured (the credit card company) be made whole before the insurance carrier can reap the benefit of subrogation. Under this statute, the credit card company has to get paid “first dollar” until the original creditor has been “made whole.” If the claim is purchased from the insurance company, what benefit is there for the insurance company to go to court on behalf of a junk debt buyer? Further, if the insurance company goes to court, how would it look for them to have their attorney subpoena the credit card company? So, the collection companies found an easier way around this difficulty.
They found that they could sue the debtors in court, the debtors would know that they owed the money, the debtors would run and hide, and therefore, once the case got to court, and the debtor did not show up, a default judgment would be issued, the debtor would now be indebted to the collection company, and a new and enforceable contract would now exist between the collection company and the debtor. And here is the Achilles heel of this: when a defendant answers, and a trial is scheduled, the insured and the claim representative are absolutely necessary in court in order for the plaintiff to prevail!
So, here are some things to keep in mind: Do not discuss the debt on the phone with collection companies, as they are recording your call and will use your admissions in court. Do NOT sign any promissory notes, as this is entering into a new and binding contract to pay the collection company the amount they are requesting. Answer the summons when you are sued, and tell the court that you will appear. Then, prepare your defense wisely, and go to court ready to win.
Transferring Your Account
All credit card companies can place a clause in your original credit card agreement which will read something like this: "We may transfer your Account and our rights under this Agreement to another person or company. That person or company will take our place in this Agreement. You must pay that person or company the amount you owe us on your Account (instead of paying us) if you are asked to do so." For this, I go back to one of the earlier points in my article: Defendant claims Lack of Privity as Defendant has never entered into any contractual or debtor/creditor arrangements with Plaintiff.
The collection agency does not have any signed agreement with you, and chances are that they probably do not even have a contract with the original creditor showing legal right of subrogation of the debt. The clause in the original credit card agreement is read to mean that the credit card company can transfer your account to another credit card company. While this point may be debated by some, I would argue in favor of the defendant and against the plaintiff on this one.
The Order of Transition in Credit Card Debt
Once the Account Becomes Delinquent - At 180 days from the last point of payment activity on an account, the company will usually designate that account as uncollectible. However, some companies may do this sooner, or wait a little longer, and that is their prerogative. When the company decides on this action, it will “write off” the account and list that debt against its earning for accounting purposes. This allows the company to reduce the amount it owes on taxes. The debt is now listed as “charged off.”
Charged off debts are still owing -The credit card company still owns the debt, and you still owe them the final balance. At this point, the credit card company can decide to pursue the debt themselves, or they can sell it to a junk debt buyer. If the bank sells the debt, they will adjust their accounting accordingly once the debt has been sold.
Forgiven Debt - The credit card company has the option of forgiving the debt, which means that they no longer expect you to pay. This, thus, makes the debt an income for you that must reported to the IRS, if it is over $600.00 , and you will then be issued a form 1099-C. This also means that no one should be coming to collect from you. The debt was forgiven.
Credit Report - Until the debt is paid in full, it will remain showing as unpaid on your credit report.
A Deceptive Collection Practice
Junk debt buyers often want you to think that they are the original credit card company coming after you. For them to state this, when it is not fact, is fraudulent and illegal. But that does not stop them from trying to make you think that they are representing the original credit card company by using clever wording that skirts close to the edge of illegal. Here is an example of one letter from a collection company.
"Dear (Your Name Here),
The above referenced account has been referred to our office for collection of the balance in full. Previous attempts have been made by our client to resolve this debt voluntarily. As of this date, those attempts have not been successful. (Name of the collection company here) has been authorized by our client to provide the necessary effort to collect this debt. We recommend that you take advantage of this opportunity to pay the balance in full to prevent further collection activity."
Below this paragraph was the obligatory notification that you had 30 days to dispute the validity of this debt, but what most people tend to do is this; they read this first paragraph, think their original creditor is coming after them, they panic, and their brain fogs over. What are they missing? Lots!
First of all, in this particular case, this was a letter from a junk debt buyer, not the original creditor. So who, you may ask, is "their client?" Good question! Because it most certainly was NOT the original creditor. Why? Because this account had been closed and charged off due to a bankruptcy taken by the person who held the original credit card. That account was written off in 2003, and here was this junk debt buyer posing as representing the original creditor...in 2009! This account was closed and now was time barred by statute of limitations, yet here was this junk debt buyer insinuating that they had a "client" relationship with the original creditor. A good lawyer could get this junk debt buyer in a lot of trouble.
Consider this as well, the junk debt buyer is warning the recipient that they should pay the "full balance" so as to "prevent further collection activity." First of all, this junk debt buyer bought this bad debt for about one cent per dollar, so, for their investment of $150, they were trying to collect $1500. It reads: "Please detach the upper portion of this notice and return with your payment in the enclosed envelope." Nice try, blood suckers.