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Collection Actions: 12.3.1 Introduction

This section discusses debts incurred by an abusive partner through coercion and fraud. An abusive partner can use credit and debt to control, harm, or limit their partner financially. This type of behavior is a form of financial abuse and can have a severe impact on victims of domestic violence.

Collection Actions: 12.3.2 A Safety Plan As an Immediate Priority

Because financial abuse is often linked to domestic violence, the first step in advising a client who is a victim of financial abuse is to ensure the safety of the client and other family members. Evaluate whether any of the advice given to the client will put them at risk of retaliation by their abusive partner. For example, will the abuser retaliate when the client submits an identity theft report to the police that names the abusive partner as the thief and where this report results in a criminal investigation of the abuser?

Collection Actions: 12.3.3 Documenting Coerced Debt

Documentation of financial abuse is critical when trying to resolve coerced debt with card issuers, banks, credit bureaus, mortgage servicers, and the like. The simplest step for a client is to file an identity theft report with the Federal Trade Commission (FTC) at www.identitytheft.gov. It is also advisable (if it is safe to do so) to make an identity theft report with the local police department or the law enforcement agency where the identity theft took place.

Collection Actions: 12.3.4 Email Addresses and Account Passwords

The client should immediately change passwords on any email accounts and other online accounts. The client should create a new password that the abuser will not be able to guess. It is often a good idea to create a new email address and to update all accounts with the new email address. Otherwise the abuser may keep trying to guess the password and lock the client out of the account, requiring a reset. The abuser may also have access to—and delete—emails sent to the client.

Collection Actions: 12.3.5 Protecting Bank Accounts

Abusive partners can take over exclusive use of a joint bank account—or even one exclusively in the victim’s name—where the victim’s wages and other income is deposited. The abuser can even coerce a victim into overdrawing a bank account for the abuser’s benefit.

Collection Actions: 12.3.6 Dealing with Credit Card Abuse

Checking a credit report is a good way to identify all outstanding credit cards in the client’s name. Contact each card’s issuer and request a new card with a new number. At the same time, report any charges that are not the client’s or those of an authorized user. Have the new card sent to a P.O. Box or address to which the abuser does not have access. Make sure the client changes the password, email address, and even the username of the card’s online account. Any authorized user cards should be sent to the new address or cancelled.

Collection Actions: 12.3.7 Preventing an Abuser from Opening New Credit Accounts in the Victim’s Name

Even after the client leaves an abusive relationship, the abuser may continue to commit fraud by opening new credit in the victim’s name and incurring large, unpaid debt on those new accounts. Although the client should not be liable on this debt, it will reflect negatively on the client’s credit report and may lead to debt collection and even collection lawsuits. The best tool to prevent unauthorized accounts being opened in the client’s name is by placing a security freeze on the client’s file with each of the three national credit bureaus—Experian, Equifax, and TransUnion.

Collection Actions: 12.3.8 Addressing Coerced Debt on a Credit Report

Financial abuse can negatively impact the client’s credit rating in a number of ways. If an abuser opened credit accounts under the client’s name without their permission or coerced them into taking out credit and did not pay it back, there will likely be an outstanding balance for these accounts on the client’s credit report.

Collection Actions: 12.3.9.1 When the Client Needs a Mortgage Loan Modification and the Abuser Is a Co-Borrower

Clients living in a home where the abuser is a co-borrower on the mortgage loan may need a mortgage loan modification to postpone or lower monthly payments. For in-depth information on loan modifications, see NCLC’s Mortgage Servicing and Loan Modifications.62 A practical problem arises where the mortgage servicer requires the abuser’s signature and participation in the loan modification.

Collection Actions: 12.3.9.2 When the Client Is Not Living in the Home and the Abuser Is Not Paying the Mortgage

If a client owns the home with an abusive partner, the client has moved out, and no one is paying the mortgage, the home may be foreclosed, resulting in potential liability for any deficiency after the sale and a serious negative mark on the client’s credit rating. If the abusive partner is still living in the home, the client can consider a personal bankruptcy to discharge the mortgage debt, making it so they are not personally responsible for paying the loan or any deficiency.

Collection Actions: 12.3.11 Defending a Debt Collection Lawsuit

Attorney representation for a client is often enough for a creditor to voluntarily dismiss a collection lawsuit, particularly where the attorney presents valid defenses involving an abusive partner. Evidence for these defenses includes the documentation already gathered and described at § 12.3.3, supra. Clients are not liable on accounts they did not open or use.

Collection Actions: 12.4.1 Introduction

This section examines special considerations when defending a collection lawsuit regarding a private student loan. For an in-depth discussion of private student loans, see NCLC’s Student Loan Law.79

Collection Actions: 12.4.2 Raising School-Related Claims and Defenses

The first step is to examine the promissory note or related documents to determine if the FTC Holder Notice is included. The FTC Holder Notice provides that the lender (or its assignee) is subject to the borrower’s claims and defenses against the seller—that is, against the school. As a matter of contract law, the borrower can raise as defenses and counterclaims in a collection lawsuit anything the borrower could raise against the school.

Collection Actions: 12.4.4 Defenses Based on Borrower or Co-Signer’s Death or Disability

Unlike federal student loans, the borrower’s estate—and any co-signer—typically remain obligated on a private student loan upon the borrower’s death, unless the loan agreement allows for such cancellation or the lender voluntarily waives that obligation. Likewise, both the borrower and co-signer remain liable when either the borrower or co-signer becomes permanently disabled.

Collection Actions: 12.4.5 Limits on Grounds for Default

One defense to a collection lawsuit is that the loan is not in default or that the stated grounds for default are invalid. The federal Truth in Lending Act (TILA) includes provisions limiting grounds for default as to “private education loans.” Most private student loan creditors will claim that their loans are “private education loans” so that, by operation of federal law, the loan is nondischargeable in bankruptcy except for substantial hardship.

Collection Actions: 12.4.6 The Defense of Infancy

Incapacity based on a borrower’s infancy can be a defense in any collection action, but it has special relevance for private student loans. A federal statute removes infancy as a defense to collection of federal student loans,110 but that statute does not apply to private student loans.

Collection Actions: 12.4.7 Statute of Limitations

The Higher Education Technical Amendments of 1991 eliminated all statutes of limitation for any collection action by a school, guaranty agency, or the United States under a federal loan program.114 The elimination of the statute of limitations does not apply to collection of private student loans.115 Collection actions for private student loans must meet the applicable limitations period under state law for a written contract or a negotiable instrument.

Collection Actions: 12.4.8 Defenses for Servicemembers

The Servicemembers Civil Relief Act (SCRA) limits collection tactics and enforcement of claims against active-duty military personnel.119 In general, everyone on active duty is entitled to the benefit of the SCRA whether or not they are stationed in a war zone and regardless of whether they enlisted or were called up. Active duty includes full-time training duty, annual training duty, and attendance at a military school while in active military service.120

Collection Actions: 12.4.9 Defenses Against Loan Transferees

The plaintiffs in private student loan collection actions are not typically the original lenders, such as financial institutions or for-profit schools. The private student loans at issue have often been transferred, sometimes multiple times, to one or more other entities before they get to the plaintiffs.

Fair Credit Reporting: 7.1.9.2 Discovering an Impermissible Use

It is not always easy to discover if a consumer report has been used for an impermissible purpose. But discovering not only the use, but adequate facts to show that the use was impermissible, is critical to making out an FCRA claim. Conclusory accusations that a user obtained a consumer report without a permissible purpose may not suffice,76 especially under the Supreme Court’s pleading standards in Bell Atlantic Corp. v. Twombly77 and Ashcroft v.

Fair Credit Reporting: 7.2.1 In Response to a Court Order

A report may be furnished “[i]n response to the order of a court having jurisdiction to issue such an order, or a subpoena issued in connection with proceedings before a Federal grand jury.”90 A consumer report furnished pursuant to a court order may still be permissible even if the purpose may be otherwise prohibited under the Act.91