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Collection Actions: 2.6 Pro Se Representation

Attorneys who decide not to represent the consumer can still give the consumer information on pro se representation. The attorney can explain the importance of not missing court dates and of responding to requests for admission in a timely fashion.

A strict warning can be given about the dangers of communications with the debt collector’s attorney. The collector’s attorney is representing the interests of the collector—no matter how helpful the attorney seems. Statements by the attorney should not be seen as being in the consumer’s best interest.

Collection Actions: 2.8.1 Tactical Considerations

Consumer attorneys utilize different tactics in collection defense cases, depending on their jurisdiction, the applicable court, and the attorney’s own preferences. One approach is to litigate the case aggressively from the start, sending extensive discovery to the debt collector, filing motions, and raising counterclaims. This approach will often lead to the collector voluntarily dismissing the case, leaving the case in limbo, or at some point bringing a summary judgment motion, seeking to dispose of the case without a trial.

Collection Actions: 2.8.2 First Litigation Steps

In certain states, one preliminary issue is whether to keep the case in the small claims court where the action is filed or seek a transfer to another trial court that may have stricter procedures. If the attorney is only advising a consumer who is going to appear in court pro se, then the small claims court may be the better option. The same may be the case when the attorney files an appearance but wishes to do so with the minimum time investment.

Collection Actions: 2.8.3 The Consumer’s Discovery

Discovery in a collection case has a tactical component. Refraining from taking discovery at all may be appropriate when the collector assumes the case will result in a default judgment or a simple trial and therefore may not be prepared at trial with sufficient evidence to meet its burden of proof. Discovery may in fact force the collector to pull together its evidence and be more prepared for trial, when it otherwise would not be.

Collection Actions: 2.8.4 The Debt Collector’s Summary Judgment Motion

In an attempt to avoid a time-consuming trial, collectors may resort to a summary judgment motion. The motion may be based on statements deemed admitted by the consumer because the consumer failed to timely respond to a request for admissions, or the motion can be based on an affidavit from an employee of the collector and various “business records” attached to the motion.

Collection Actions: 2.8.5 The Trial

Sometimes it is best for only the consumer’s attorney and not the consumer to appear at trial. When a debt collector has insufficient evidence to prove its case, it is common for them to call the consumer to the stand and to try to prove its case using the consumer’s own testimony. For example, it can ask the consumer to authenticate various documents when it has not brought its own witness to trial.

Collection Actions: 2.9.1 The Court’s Order for the Consumer

Consumers who assert that they never owed the debt—for example, because of identity theft, because the wrong consumer has been sued, or because of a valid dispute on the debt—should seek more than just dismissal of the case with prejudice. Prevailing consumers ultimately will want to clean up their credit report so that it contains no evidence of the debt. It will not be enough to show that the current balance is zero. The report should delete all historical record of the debt being overdue.98

Collection Actions: 2.9.2.1 Generally

Care must be taken in any settlement to properly address the consumer’s counterclaims. If the settlement dismisses the consumer’s counterclaims with prejudice along with the collector’s claims, then the consumer has forfeited the right to raise those counterclaims in a subsequent action.

Collection Actions: 2.9.2.4 New York State Regulation of Collection Lawsuit Settlements

New York State’s Department of Financial Services rules regulate consumer debt settlements with debt collectors and debt buyers.107 The debt collector or debt buyer, within five days of a settlement, must provide a written confirmation of the debt payment schedule or other agreement to settle the debt, including all material terms and conditions relating to the payments and schedule.108

Collection Actions: 6.1 Overview

When a debtor fails to make timely payment of a debt, the common law strictly limits the damages a creditor may recover to the unpaid principal and interest provided in the contract or by statute.1 This general rule of damages law is justified by two considerations. Creditors set interest rates at levels that take into account that a certain portion of debtors necessarily default.

Collection Actions: 6.2.1 American Rule Denies Fees

The “American rule” is that attorney fees are not recoverable as damages, and attorney fees will not be awarded in the absence of a statutory or contractual authorization, except for vexatious, frivolous litigation.8 The common justification for the rule is that it discourages litigation.

Collection Actions: 6.2.3 Is There a Contract with the Consumer?

When the creditor claims a right to attorney fees based on a contract, a key initial question—assuming that such a clause is valid under state law—is whether the creditor in its collection action has proven that the consumer has entered into a specific contract with the creditor. For example, the creditor may be asserting a claim based on account stated, on account, or quantum meruit that is not based on the existence of a contract or does not require proof of a contract.

Collection Actions: 6.2.4.1 Strict Construction of Attorney Fee Clauses

Because contractual attorney fee clauses are an exception to the generally applicable American rule, and are harsh in effect, most courts construe them strictly.56 In addition, as a general rule, any ambiguity in a contract is construed against the drafter, and it is strictly construed against the drafter if a contract of adhesion is involved.57 Even courts that reject a general rule of strict construction require attorney fee clauses to be unambiguous and to clearly identify the matter in w

Collection Actions: 6.2.4.2 Interpreting the Scope of an Attorney Fee Clause

Questions may also arise as to the scope of an attorney fee clause. A clause allowing fees for “any litigation” between the parties may be given a broad scope.60 A clause allowing fees for any litigation “arising out of,” “relating to,” “in connection with,” or “under” the contract is somewhat narrower but may still apply to tort61 and other62 claims that relate to the contract.

Collection Actions: 6.2.4.4 References to “Costs” or “Expenses”

Many courts refuse to award attorney fees when the contract only allows “costs and expenses” or “costs of collection” and does not specifically mention attorney fees.84 This position is consistent with the general rule that attorney fee clauses must be entirely unambiguous and that they must be strictly construed.85

Collection Actions: 6.3.1 Construction of State Fee-Shifting Statutes

Several states permit recovery of collection attorney fees in certain circumstances, even when such fees are not authorized by the consumer credit contract. Some of these states provide that the debtor may avoid fees by paying the amount demanded in a pre-suit notice within a certain number of days. Because these statutes do not depend on the existence of a fee-shifting clause in the contract, their requirements may be inapplicable to contractual fees.88

Collection Actions: 6.3.5 Other State Fee-Shifting Statutes

Some states also have statutes or court rules allowing attorney fee awards for enforcement of liens,151 or other particular types of actions or transactions.152 State laws regarding fee-shifting when a creditor seeks a deficiency judgment after repossessing collateral are discussed in NCLC’s Repossessions.153 In some states, statutes similar to Federal Rule of Civil Procedure 68 allow fee-shifting when a party rejects a settlement of

Collection Actions: 6.4 Is the Creditor the Prevailing Party?

Whether allowed by statute or by contract, attorney fees are generally available only to the prevailing party.157 Courts hold that fees can only be awarded to a prevailing party, even if a contract clause does not include such a restriction.158 However, some courts allow the parties’ contract to define “prevailing party.”159 A decision for the plaintiff on liability may be insufficient if no damages are awarded

Collection Actions: 6.5.1 Statutory Caps on Fees

In cases in which the creditor is entitled to recover attorney fees, the next question is the amount the creditor may recover. Some states cap the amount of a fee award by statute. Hawaii, for example, forbids collection agencies from recovering any collection expenses, except for attorney fees after filing suit, and it caps those fees at 25% of the debt.183