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1.2.2 Chapters 2–6: General Consumer Defenses

Chapter 2, infra, is a practical chapter focusing on the reasons why attorneys should represent consumers in collection actions, tips on setting up a practice in this area, and pointers on conducting the client interview and other preliminary investigative steps. The chapter lists case selection considerations, litigation tactics, and alternatives to representing the consumer in the collection action—including advice to consumers about dealing with debt collection harassment if they have not yet been sued. Of note is a client intake checklist that can be accessed in Microsoft Word format under “Practice Tools” in the digital version of the treatise.

Chapter 3, infra, examines defenses to a collection lawsuit that are not based on the merits of the plaintiff’s claims. These defenses can be used to support a motion to dismiss and can also be used later in the proceeding. The most important of such defenses is the statute of limitations, which has taken on increasing importance as debt buyers bring collection actions years after a consumer defaults on the credit account. The adequacy of the complaint and supporting documentation is an important set of defenses because a number of states require the complaint to be verified or to include certain documents. In addition, there may be issues as to whether the plaintiff is qualified to bring an action in the state’s courts, whether the action is brought in the correct venue, whether there is jurisdiction to hear the case, and whether the consumer can force the action into arbitration.

Chapter 4, infra, covers the creditor’s proof of the merits of its allegations—both the elements of its causes of action and the evidentiary requirements as to the proof of those elements. Creditors often seek to prove their case not with their own evidence but by sending lengthy requests for admissions to the consumer, which are deemed admitted if the consumer fails to timely respond. Chapter 4, infra, also provides advice on how to respond to such requests for admissions and how to withdraw an admission that is based solely upon the consumer’s failure to answer.

Creditors also seek to prove their case at summary judgment with documentary evidence. The chapter examines the admissibility and weight to be given to two types of documentary evidence commonly submitted with such motions—i.e., affidavits and business records.

A key issue in many collection actions is whether the plaintiff in fact owns the debt and has the right to collect on it. With the advent of debt buyers that aggressively buy and sell portfolios, the consumer’s account may have passed through two, three, or even more hands before it is ultimately sold to the entity bringing the collection action. Chapter 4, infra, examines the plaintiff’s burden to prove that a continuous chain of ownership has properly transferred the debt to that entity.

The chapter then turns to the elements of the creditor’s cause of action. Creditors often bring claims for breach of contract or for the balance owed on a credit card or other open-end account. Another common collection cause of action is “account stated,” which is not based on the contract but on a consumer’s implicit promise to pay an amount delineated in a statement of account. Other possible causes of action treated in the chapter are actions “on account,” for quantum meruit, for money lent, for goods and services, and on a sworn account.

Chapter 5, infra, focuses on basic consumer defenses and counterclaims to the creditor’s action. These defenses include that the debt has already been paid, settled, or discharged in bankruptcy. Other defenses relate to when someone else owes the debt (such as when the creditor mistakenly sues the wrong consumer), when the consumer is the victim of identity theft or unauthorized charges, when the consumer is only an authorized user, or when the consumer’s spouse rather than the consumer owes the money.

Another issue is whether the creditor is entitled to claimed prejudgment interest and whether it has correctly computed that interest. The chapter also examines defenses related to the consumer’s incapacity based on minority, mental incompetence, or intoxication. The chapter considers an important consumer defense when the creditor seeks a deficiency action after a car’s repossession and sale—that the creditor has offered insufficient proof of a commercially reasonable sale of the repossessed vehicle.

A consumer may have numerous counterclaims to a collection action. Chapter 5, infra, focuses on what types of counterclaims are available and tactical considerations as to whether they should be raised in the collection action or brought as affirmative claims in a separate lawsuit brought by the consumer. In particular, the chapter looks at such considerations when the counterclaim relates to the plaintiff’s litigation misconduct. The chapter concludes with a discussion of some of the advantages in bringing a classwide counterclaim to the collection action.

Chapter 6, infra, reviews whether the plaintiff in a collection action can recover attorney fees, other collection expenses, and postjudgment interest. The chapter analyzes whether the plaintiff has a contractual or statutory right to those fees and interest, and the interplay between contract terms and state law. The chapter also examines state law that limits the size of an attorney fee award and sets the amount of postjudgment interest.