Credit Card Specialists

Credit card lawsuits outnumber all other types of consumer collection lawsuits. Lawyers who defend credit card lawsuits benefit from specialized knowledge of the factors and variables that affect their evaluation and defense of a debt collector's lawsuit. Carlisle Law Firm has highly specialized knowledge and experience defending credit card lawsuits. We understand how open ended consumer credit is financed, the impact of consumer rights statutes and regulations on consumer finance agreements and debt collection communications, the significance of the account "charge-off" and notice of "acceleration," and laws pertaining to the sale or "assignment" of credit card accounts.

Understanding Securitization and "ABS" Transactions

The financing of consumer credit involves a process known as "securitization." The revenue generated by credit card issuing banks comes from the sale of financial products referred to as "Asset-Backed Securities," or "ABS." The "asset" in an ABS is a cardholder's promise to repay borrowed funds according to the terms of a credit card agreement. In accounting terms, this type of asset is known as a "receivable." The business of a credit card issuing bank is focused on the creation, maintenance and servicing of these "asset receivables."

Pooling, Servicing and Selling "Asset Receivables"

The term "securities" refers to financial instruments used to package or "pool" large numbers of "asset receivables" sharing similar characteristics, that are then sold to industrial investors. Investors purchasing the ABS products pay a discounted price in recognition of the default risks and anticipated return on investment associated with the securities. ABS sales are the primary means by which credit card issuing banks generate revenue and finance their operations.

Who Owns Your Debt?

The complexity of the securitization process is shown by the fact that a single account may generate multiple "asset receivables," that may be sold to multiple investors. Over time, the risks and interest rates associated with an account may fluctuate. These fluctuations, in turn, cause the value of the asset receivables to rise or fall. The pooling of assets often consists of "strips," based on account characteristics, organized according to time periods, interest rates, or other features shared between the assets. The sale of asset receivables as a component of ABS transactions raises material questions regarding the bank's legal standing and its status as the "real party in interest" in a civil action to recover damages on an unpaid credit card account.

Debt Purchasing & The Secondary Debt Market

Another common feature in credit card lawsuits is the existence of a plaintiff alleging its status as a purchaser or "assignee" of the right to recover amounts owed on the credit card account. Under Georgia law, at OCGA 44-12-24, "a right of action is assignable if it involves, directly or indirectly, a right of property." The right to enforce a contract is considered intangible personal property described as a "chose in action." Pursuant to OCGA 44-12-21, "(f)or every violation of an express or implied contract and for every injury done by another to one's person or property, the law gives a right to recover and a remedy to enforce it. The right is a chose in action, and the remedy is an action at law." As the alleged purchaser or assignee, the plaintiff has the burden of proving an assignment of rights associated with the account. It is not uncommon to see cases involving multiple assignments of the underlying account.

The Hidden Chain of Title

In almost all credit card lawsuits, proof of the assignment consists of a "bill of sale" and account data allegedly received from the assignor of the account. The conveyance of rights to the account is referenced in the bill of sale, but those rights are not defined in the "bill of sale." The terms and conditions of the assignment are found in a separate agreement, sometimes called a "forward flow" agreement, that is jealously guarded by debt collectors and their attorneys for multiple reasons. Unless the sufficiency of the "bill of sale" document is properly challenged, most courts will accept it as proof of a valid assignment of rights to the account.

Computers Don't Have "Personal Knowledge"

Due to the securitization of asset backed securities, the automation of financial agreements and transactions, and the automated creation and electronic transmission of account information and communications, there is no individual that can honestly attest to the accuracy or completeness of account information. For this reason, the "forward flow" agreements include disclaimers, hold harmless provisions, and other qualifying language transferring collection risks to the purchaser of the accounts. As a stranger to the underlying transactions, an assignee of credit card accounts cannot rely on the assignor's representations regarding the truth, accuracy, and completeness of information associated with the assigned accounts, the investigation and verification of account information, including the calculation of damages, becomes the responsibility of the assignee.

The Truth About Debt Collection is Confusing

In addition to the "as is" nature of the assignment agreements, many forward flow agreements involve assignments that are either "with recourse" or allow for the assignor to retain some interest in the accounts. When the assignments are conditional or otherwise incomplete, questions arise concerning the plaintiff's standing and right to file suit as the "real party in interest." For the reasons stated herein above, full disclosure of the assignment terms could be like opening "Pandora's box," jeopardizing the purchasing plaintiff's ability to obtain a return on its investment.

Debt Collection isn't as Easy as it Looks

For unrepresented debtors facing a collection lawsuit, the chances of a favorable outcome can look pretty bleak. To avoid a financial crisis, many debtors throw in the towel and file a Chapter 7 bankruptcy, if they qualify under the financial means test. Defenses to debt collection aren't always obvious, but they do exist. However, the only person that will help you find is your lawyer.

Defending Credit Card Lawsuits