Are You Being Sued or Harassed By a Debt Buyer?

Earlier this week my partner, Robert Reese, posted an article about debt buyer lawsuits. He mentioned a case in New York where a debt buyer was fined for filing bogus debt collection lawsuits against New York residents. Mr. Reese noted that debt buyer lawsuits are not just a problem in New York and notes that he represents clients in Alabama in similar situations. Mr. Reese wisely suggests that anyone who is faced with this problem should immediately seek the advice of a competent consumer attorney. He’s absolutely right and, unfortunately, the debt buyer problem isn’t limited to New York and Alabama. Mississippi, like every other state in the United States, has its share of these lawsuits as well.

So, you may be wondering just what a “debt buyer” is exactly? And why do they file lawsuits? How do you know if you’re the target of a debt buyer? Why do you need to even worry about it? What are your chances of beating a debt buyer lawsuit?

What is a “Debt Buyer”?

A debt buyer frequently is a company or group of private investors that “purchase” consumer debt. Here’s how it works using credit card debt as an example. Suppose Mr. John T. Consumer is issued a Visa credit card. He makes purchases on his Visa card. He pays his charges timely but usually has a balance from month to month on his card. Things are going along pretty good for Mr. Consumer and he is able to make timely payments on his Visa card. Then, unexpectedly, Mr. Consumer loses his job because his company is downsizing. Mr. Consumer desperately searches for other employment but cannot find a new job. He has a balance of $1,500.00 on his Visa card and he falls behind on his payments and his account goes into collection. The bank that issued his Visa card tries to collect on Mr. Consumer’s account but they’re not successful. After six months of unsuccessful collection attempts, the $1,500.00 is “charged off” by the bank as required by the accounting rules that the bank must follow.

Now, the bank could sue Mr. Consumer for the “charged off” $1,500.00 balance due. But the bank knows that a lawsuit against Mr. Consumer will only result in a judgment against Mr. Consumer that he won’t be able to pay. Plus the bank is out the attorney’s fees and court costs it must advance to file the suit against Mr. Consumer. He has no job. He has no assets the bank can seize and sell to pay any judgment. Mr. Consumer is “judgment proof.” The bank looks for another solution. Enter the “debt buyer”.

The debt buyer pays the bank ten cents on the dollar or $150.00 to “purchase” the bank’s right to collect the full $1,500.00 from Mr. Consumer. The bank reasons that it’s better to have something rather than nothing for Mr. Consumer’s account so it “sells” Mr. Consumer’s account to the debt buyer. The debt buyer is counting on being able to squeeze the money out of Mr. Consumer with aggressive collection tactics including, but not limited to, a lawsuit against Mr. Consumer. And if the debt buyer is right, there’s a $1,350.00 profit to be made. That’s a 900% return on the debt buyer’s original investment. Even if the debt buyer ultimately collects only half of the $1,500.00 balance, that’s still a $600.00 profit or a 400% return. And if the debt buyer tries to collect for a while with no success, the debt buyer can always sell Mr. Consumer’s account to another debt buyer willing to pay maybe $250.00 for the account. A $100.00 profit and a measly 66% return for the debt buyer.

Meanwhile, nothing has changed for Mr. Consumer. He’s still unemployed and getting more desperate, depressed, and guilt ridden by the day. He feels strongly the moral obligation to pay his Visa debt; but, it’s impossible. He’s got to feed himself and his family. There’s simply no money to pay the Visa debt. He feels worthless. He feels like a deadbeat. And he has no idea what is transpiring between the bank and the debt buyer. But it’s just a matter of time for him now. There’s a debt buyer lurking in his future.

You may be thinking, “No way!” Who would be stupid enough to give the bank any money for Mr. Consumer’s account when the bank couldn’t even collect it and gave up? This doesn’t happen in the real world! Well, dear reader, think again. Debt buying is not BIG business, its HUGE business. The above illustration uses a single credit card account to illustrate the concept of buying debt. In the real world, portfolios of thousands of accounts with “face values” of hundreds of thousands to hundreds of millions of dollars of debt is bought, collected upon, and sold over and over again.

Debt buyers often go after debts other than credit card debts. Often, the debt buyer pays nothing like ten cents on the dollar in our example. Debt buyers sometimes buy “debt” from each other. A particular debt may go through several debt buyers before any collection attempts are made. And the price paid for the debt might be more like a fraction of a penny on the dollar instead of ten cents on the dollar in our above example. Some debt buyers focus on medical debt, gym memberships, book club dues, past due cell phone accounts and/or any other form of obligation that they think they can make a quick buck on.

When debt buyers “buy” their debt, what they get for their money is usually just a list of names, addresses, phone numbers, social security numbers, and a balance alleged to be due. They don’t bother with acquiring the supporting documentation underlying the alleged debt. And in many instances, the debt buyer doesn’t want this information because it just might demonstrate that any right to collect has been eliminated. Plus, such documentation is not needed to put the squeeze on to collect on the debt. Debt buyers don’t check to see if the debt they buy has already been paid, discharged in a past bankruptcy proceeding, or is the debt of someone other than the person they’re trying to collect from. All they need is some contact information so they can start their aggressive collection efforts.

Some of the larger debt buyers include companies named Sherman Financial Group, Unifund, Asset Acceptance Corp., Firstcity Financial, Encore Capital Group, and Portfolio Recovery Associates. Some of these companies operate under various different names such as LVNV Funding, LLC, Resurgent Capital Services, LP, Sherman Acquisitions, LP, Alegis Corporation Group, LP, Ventus Capital Services, and Performance Recovery Group. According to a U.S. Government report, Portfolio Recovery Associates and Asset Acceptance Corp. purchased a combined total of $50 billion dollars ($50,000,000,000.00) of credit card debt as of 2008. And these companies are just some of the larger debt buyers. There’s no way to really know how many smaller entities are out there operating as debt buyers.

The debt buyer industry is largely unregulated. Only the largest debt buyers tend to get any regulatory scrutiny. There is a federal law know as the Fair Debt Collection Practices Act (FDCPA). The FDCPA was passed to regulate the collection activities and tactics of debt collectors. All debt buyers are covered by the FDCPA. However, many debt buyers simply ignore the FDCPA because they know that few of those they attempt to collect from even know about the FDCPA or will consult with a competent consumer protection attorney to learn about their rights under FDCPA. For example, the FDCPA prohibits collection attempts on any debt that has been barred by the statute of limitations. Yet, there are some debt buyers who focus on making money on such “out-of-stat” debt. These debt buyers simply ignore the FDCPA because they can usually make gigantic profits relatively quickly and their risk of being called to the carpet is minimal.

Why Do Debt Buyers File Lawsuits?

It’s simple. They sue to collect a profit. And they’re counting on the person that they’re suing to roll over and play dead. That makes it easy on them and, as discussed above, they usually don’t have the proof they need to prove the debt in court anyway. In the example above, the debt buyer will sue Mr. Consumer for the full $1,500.00 on the account. It doesn’t matter that the debt buyer has paid only $150.00 for the account. It’s all about profit for the debt buyer. Whatever they get out of Mr. Consumer, they keep. They don’t share any of it with the bank where they originally purchased the account.

How Do You Know If You’re the Target of a Debt Buyer?

A lawsuit is just one tactic in the debt buyer collection toolbox. So, if you get a notice or letter that you are being sued, such notice or letter should state the name of the person or entity suing you. You may have papers hand delivered to your home or work with a court summons attached. These documents must state who is suing you. In such instances, immediately seek the advice of a competent consumer protection attorney. Don’t wait. If you wait too long, your situation will become more complicated to resolve.

Another clue that you’ve been sued by a debt buyer occurs when, out of the blue, you get notice from your employer or bank that your wages or bank accounts are being garnished. With very limited exceptions which don’t apply to debt buyers, your wages or bank accounts cannot be garnished without you first being sued and a judgment being entered against you. When you are sued, you have a right to be notified of the suit and the right to defend yourself in court. Sometimes debt buyers will sue you, not make sure you get proper notice, and then tell the court that they couldn’t find you to give you proper notice. While this is very wrong, and contrary to law, it might enable the debt buyer to get a “default” judgment against you. Once the “default” judgment is entered against you, the debt buyer can now garnish your wages and accounts.

Even if you haven’t been sued yet, another potential clue that you’re being victimized by a debt buyer is aggressive phone calls and letters.  A caller might identify himself as an “investigator” calling to help get the debt resolved before getting “law enforcement” involved or to help you avoid being arrested. This caller will try to give you as little information as possible and get you to make a payment as quickly as possible. Or, the caller might simply try to play on your honesty and fairness by telling you they know you want to pay your debts and are probably having problems so they’re going to help you by reducing the amount of the debt if you will pay now. So, in our above example, let’s assume that it’s three years later and that Mr. Consumer has finally been able to go back to work but he’s not earning as much money as he once did at his prior job. He stills feels very badly about not being able to pay his Visa debt. The collector for the debt buyer, sensing this, is finally able to harass Mr. Consumer into paying on the debt. And, of course, the debt buyer keeps all the money. None of it will find its way back to the original creditor.

Some debt buyers target only certain groups of people like the elderly or those of a particular religious persuasion. A caller might threaten a lawsuit if the debt is not paid. If you are getting these calls, make the caller give you information about who they are and exactly what they’re collecting. If the caller cannot provide you with proper information about the debt they’re collecting or you don’t recognize the business to which you allegedly owe a balance, you might be a victim of a debt buyer.

Always remember that anytime a debt collection company or law firm is trying to collect a debt from you, they must comply with the federal FDCPA requirements. And, unless you are knowledgeable of the FDCPA, you really need to seek the advice of a competent consumer protection attorney to learn about your rights under that law. Whatever you do, don’t make ANY payment, however small, on the “debt” without first seeking the advice of a competent consumer protection attorney. If you make a payment, even a small one, you may be destroying an important legal defense you have if the debt buyer decides to file suit against you later.

Why Worry About All of This?

Ignoring a lawsuit is NEVER a good idea. Anytime a lawsuit is filed, certain deadlines come into play. Letting those deadlines pass without a proper response usually turns a fairly simple and straightforward matter into a complex and expensive problem. If you haven’t been sued, but you are being aggressively harassed for payment, you may have a right to turn the tables on the debt buyer and force the debt buyer to pay you monetary damages if their collection tactics violate the FDCPA or a related state law. A competent consumer protection attorney can fully advise you on this option.

What are Your Chances of Beating a Debt Buyer Lawsuit?

It depends, of course, on the specifics of your case. However, generally speaking, you probably have an excellent chance of successfully defending against such a lawsuit. As discussed above, debt buyers rarely, if ever, have the necessary documentation to support the debt they sue for. This makes it virtually impossible for the debt buyer to prevail in court. Many times a debt buyer will drop the suit if you hire a competent lawyer and contest the suit. However, in such situations, it is best for you and your attorney to take additional steps to minimize the chances that this debt will come back, yet again, to be asserted against you. That can, and does, happen. The key is to properly and timely respond to the lawsuit so that a “default” judgment is not entered against you. If you ignore the lawsuit, you’re playing right into the debt buyer’s hands. And you create a much bigger problem for yourself in the process.

So, I would echo Mr. Reese’s advice to seek immediate and competent legal advice if you are being sued by a debt buyer or anyone else for that matter. And to Mr. Reese’s advice, I would add that even when you are not being sued and you are merely suffering collections harassment, you should seek competent legal advice in your situation. You may very well have a potentially substantial claim under the federal FDCPA for illegal collection harassment.

Our lawyers are caring and compassionate legal professionals who care about you and about protecting you and your family from collection harassment and meritless debt buyer lawsuits. You can schedule a completely free initial consultation in one of our offices most convenient to you. You will meet with an experienced consumer attorney who can answer your questions and review any documents you have to help you resolve your financial problems in the best way for you.