Fair Debt Collection: 1.4.7.2 Representations and Warranties
Many sellers do not guarantee the accuracy of the data that they transfer to the first debt buyer.
Many sellers do not guarantee the accuracy of the data that they transfer to the first debt buyer.
Debt buyers may obtain very little information about the consumer debts that they buy.
In addition to original creditors selling debts, debt buyers may also choose to sell debts to other debt buyers. Debt that is sold multiple times may result in ambiguities as to which debt buyer owns the debt, making it difficult to establish an unbroken chain of ownership stretching from the original creditor. There can even be disputes as to who has proper title to a portfolio of debt.419
When an account is placed with a law firm for collection, the law firm may be provided with limited information about the debt that may not include account-level documentation such as the operative contract, payment history, or collection history.421
In the CFPB’s survey of consumer experiences with debt collection, fifteen percent of survey respondents who reported being contacted about a debt said that they had been sued by a creditor or debt collector in the previous year.440 Since the CFPB estimated that more than seventy million Americans were contacted by a creditor or debt collector about a debt in collection in the prior year,441 this would mean that more than ten million Americans were sued on a debt during that one-year period.
While top filers vary depending on the jurisdiction, reports have highlighted types of plaintiffs as top filers of collection lawsuits against consumers in specific jurisdictions:
According to the Consumer Financial Protection Bureau’s survey of third-party debt collectors, it cost between $35 and $499 to file a collection lawsuit, court service fees cost $10 to $50, the additional cost if the case went to trial was between $500 and $2000, and a garnishment cost the collector $30 per transaction.459 In a study of Utah attorneys using a methodology developed by the National Center for State Courts, “the median cost per side to litigate a debt collection case through trial was $2698.”
When consumers do not appear in court for their collection lawsuits, the creditors that filed the lawsuits may be able to obtain default judgments—often without presenting any evidence and despite the fact that consumers may have legitimate defenses.
Studies show that the overwhelming majority of consumers are unrepresented by an attorney when they are sued on a debt.475 However, being represented by counsel in debt collection lawsuits dramatically improves outcomes for consumers,476 including increasing the likelihood that the case will simply be dismissed.477 Having access to legal advice can also play a critical role in alerting clients to their rights prior to the filing of debt collection
When consumers do appear in court for their collection lawsuit, collection attorneys typically try to convince them to settle rather than appearing before the judge or magistrate.
In the early 2000s, hundreds of thousands of debt collection suits were initiated in perfunctory arbitration proceedings before the National Arbitration Forum (NAF) where the NAF would receive a bare-bones complaint and issue default rulings without any hearing or additional evidence being submitted.492 A state enforcement action493 put a stop to National Arbitration Forum (NAF)’s use of arbitration proceedings in collection suits.
Once a court judgment issues against the consumer, the judgment creditor is able to use a variety of powerful postjudgment remedies to collect from the judgment debtor.
Issues of privilege arise in many collection tort suits.
Another privilege, the common interest privilege, shields statements made to someone who has a legitimate interest in the information,55 such as a credit reporting agency56 or a spouse.57 A creditor’s provision of information about the debt to a collector may be protected by this privilege.58 The Restatement applies this privilege only to defamation and invasion of privacy.
A closely related problem is “anti-SLAPP” statutes.67 These are intended to curb Strategic Lawsuits Against Public Participation (SLAPP suits), such as a meritless, but vigorously pursued lawsuit filed by a big developer to cripple a neighborhood group’s environmental or zoning challenge. Anti-SLAPP statutes typically apply to “petitioning activity” or to communication on matters of public interest, and require plaintiffs to make a strong showing of a prima facie case at an early stage.68
The Fair Credit Reporting Act (FCRA) provides limited immunity from claims “in the nature of defamation, invasion of privacy, or negligence” for furnishing and reporting credit information.74 If the defendant furnished false information with malice or willful intent to injure the consumer, however, this immunity does not apply.75 Moreover, this immunity applies only if the consumer’s case is based on information that was disclosed to the consumer pursuant to one of three FCRA disclosure requirements
Victims of identity theft, an increasingly common crime, are often vigorously dunned for debts they do not owe, despite their efforts to clear their records.78 Their credit is often ruined by false reports to credit reporting agencies, and they may even be subject to criminal prosecution. These consumers may have several tort causes of action available to them.
The tort of intentional infliction of emotional distress is particularly applicable to cases involving harassing collection practices.83 The tort recognizes a right to tranquility and protects against invasions of that right. To be actionable, the creditor’s conduct generally must be:
The novelty of the tort of intentional infliction of emotional distress is its allowance, in most jurisdictions, of recovery for emotional distress unaccompanied by physical impact or injury.104 Fearing trivial or feigned claims, however, courts in a minority of jurisdictions have refused to grant relief for the intentional infliction of purely emotional injury.
In nearly all jurisdictions, outrageousness and emotional distress are required elements of a claim of intentional infliction of emotional distress,110 although some courts describe the standard for proscribed conduct as “unreasonable.”111 Some courts hold that as the outrageousness of the conduct increases, the need for additional evidence of severe distress decreases; if the conduct is highly outrageous, this may suffice to prove severe distress.112
Many states recognize negligent infliction of emotional distress as an independent cause of action,146 although some decline to recognize this tort.147 In the alternative, some states allow such a claim to be pursued as a type of negligence, with the usual elements of duty, foreseeability, and causation.148 Some courts allow recovery for negligent infliction of emotional distress only if the plaintiff suffered a physical impact
This section discusses the scope, limitations, and validity of criminal dishonored check laws as well as defenses to prosecution under those laws. This summary should aid the civil practitioner in counseling clients who have written or endorsed checks not covered by sufficient funds. Familiarity with the limitations of criminal dishonored check laws should ease the fear of prosecution in many instances and may provide a basis for a civil claim against the collector who threatens prosecution.
An essential part of any representation is meeting the client in person. There can be real problems representing a client the attorney has never met. When talking to a prospective client on the phone, before almost anything else is discussed, request that the consumer not write on any documents relating to the case. Too often consumers will have the original documents in front of them when calling the attorney and will take notes of their conversation on these originals.
Attorneys should advise consumers as to certain scams to avoid. The marketplace is rife with companies preying on those in debt, and consumers compound their difficulties by signing up for one of these pitches.
This chapter analyzes the rules governing electronic benefit transfer (EBT) systems.