Debt Collection Lawsuits

• Legal actions filed by debt collection attorneys outnumber all other types of court filings. Thousands of new debt collection lawsuits are filed every week in the State of Georgia. Yet, despite the number of cases handled by the courts, debt collection may be one of the most ignored and least understood areas of the law.

• "Debt collection" is more accurately described as "contract enforcement." At the heart of every debt collection lawsuit there must be an enforceable contract that provides for the loan or sale of some asset in exchange for a promise to pay money. A contractual promise to pay money creates a "debt" for the borrower or buyer, and a "receivable asset" for the lender or seller. In the area of consumer finance, these agreements may take the form of credit card agreements, motor vehicle loans or finance agreements, home loans, home equity lines of credit (HELOC), personal loans, and retail purchase money financing agreements.

• On the surface, the issues presented in debt collection lawsuits appear simple. Did the parties enter a contract? Did the defendant agree to pay or repay money? Was the money paid, and if not, how much is owed? The reality of consumer finance can make the answers to these questions far more complicated. Yet, for collection attorneys with high volume caseloads and daily court appearances, there is little to no time for complications.

• The "securitization" of debt is one of the factors that can add complexity to debt collection lawsuits. As an example, credit card payments are usually collected and received by "servicers" under a "pooling agreement." The "receivable assets" supported by the credit card agreements are organized by dates, interest rates, credit risk, and other variables. These debt "portfolios" include thousands of account balances that are sold to industrial investors. The payments from cardholders are "pooled" together by "servicers," and paid to investors. In short, the credit card issuer sells you a credit card account and then sells the right to collect payments on the account to investors. If the bank sold the right to payment on your account, why was the lawsuit filed by the bank instead of the investor? Can the collection attorney answer this question?

• When consumer debtors stop making payments on unsecured loans and credit agreements, the accounts are eventually closed and "charged off." "Charging off" a consumer debt is regulated by federal law and must occur within a specified time depending on the type of debt. "Charge off" is a term used in accounting. It simply means that the lending or credit agreement is no longer considered an "asset" due to non-payment. After a "charge off," the unpaid balance is accounted for as a "bad debt" and moved to the "liability" side of the creditor's balance sheet. The "charge off" date is important in debt collection lawsuits, as it generally marks the date on which the applicable statute of limitations begins to run.

• Charged off consumer debt is treated differently by different creditors. Some creditors retain ownership of the charged off accounts and perform "in-house" collection efforts. Other creditors sell the charged off accounts to "debt brokers." Debt brokers are primarily large, publicly traded companies that profit from buying bad debt at a steep discount and then reselling the debt to smaller debt purchasing companies or engaging in collection efforts, including debt collection lawsuits, to generate a return on their investment. These Debt Brokers and debt purchasing companies make up the "secondary debt collection industry."

• Some debts may be assigned several times before a lawsuit is filed. You have a right to demand copies of the assignments, as they are evidence of the debt collector's legal standing to file the lawsuit. Obtaining proof of the assignments, their terms, and the date and amount of payments to various assignees will be met with resistance from the debt collector. These agreements often contain sensitive information related to the inner workings of the debt collection industry, and when produced, often raise more questions than they answer.

• The assignment of charged off consumer accounts involves the transfer of thousands of accounts at a time. The exchange of account related information is primarily, if not entirely, electronic, consisting of a spreadsheet containing account data, and an incomplete selection of imaged account documents. This is the information received by collection attorneys and generally the only information relied on when preparing the lawsuit. While debt collection lawsuits often involve affidavits from employees with knowledge of a creditor's or debt collector's recordkeeping practices, it is doubtful that any of these individuals have personal knowledge of any facts or events described in the documents.

• The legal pleadings filed by most collection attorneys are carefully worded templates with "fill in the blank" fields for the defendant's personal and account information. The legal templates are designed specifically to contain just enough information to obtain a judgment.

• By filing a consumer debt lawsuit, collection attorneys and debt collectors are attempting to collect a debt. Lawsuits that contain misleading, false, deceptive, or other unlawful statements or omissions may constitute a violation of the Fair Debt Collection Practices Act (FDCPA). The use of automation and standardized templates, combined with large caseloads and a lack of attention to detail, make FDCPA violations a common occurrence in debt collection lawsuits.

• Most of the defendants in debt collection lawsuits are not represented by an attorney. Many attorneys who handle debt collection lawsuits do so infrequently and are often less familiar with issues, claims, and defenses specific to consumer debt collection, and the protections and rights afforded by federal and state consumer protection statutes.

• From personal experience and observation over the years, there is no doubt that consumer debtors who hire an attorney with decades of experience in the areas of debt collection and consumer rights law will have many advantages over other defendants. The most notable benefit being that they will pay less money to resolve the lawsuit.