Why you should always contest a credit-card lawsuit

By Felix Salmon
April 3, 2012
Joe Nocera for giving some well-deserved publicity to Jeff Horwitz's fantastic (and still ongoing) investigation into the way that banks encouraged debt collectors to sue Americans for credit-card debt they didn't owe.

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Well done to Joe Nocera for giving some well-deserved publicity to Jeff Horwitz’s fantastic (and still ongoing) investigation into the way that banks encouraged debt collectors to sue Americans for credit-card debt they didn’t owe.

Nocera also raises the possibility that people might start, quite rationally, simply walking away from their credit-card debts in much the same way that they have been walking away from their mortgages.

Lawyers on the front lines say that credit card debt collection remains a horrific problem. “Most of the time, the borrower has no lawyer,” says Carolyn Coffey, of MFY Legal Services, who defends consumers being sued by debt collectors. “There are terrible problems with people not being served properly, so they don’t even know they have been sued. But if you do get to court and ask for documentation, the debt buyers drop the case. It is not worth it for them if they have to provide actual proof.”

There are very serious questions about the reliability with which debtors are actually served by the collection agencies who buy credit-card debts from the big banks for as little as $0.018 on the dollar. All too often, the debtor doesn’t even know that they’ve been “served”, and therefore default judgments get filed against them even when the underlying documentation is weak or nonexistent.

But if you do find out that a collections agency is suing you for unpaid credit-card debt, then you should absolutely turn up in court and ask for documentation. By that point, of course, any hit to your credit will already have happened, so you can’t damage your credit score by fighting the suit and refusing to pay.And the simple act of asking the plaintiff to prove that you owe what they say you owe will very often make the whole suit disappear.

So get the word out: if you, or anybody you know, gets sued for unpaid credit-card debt, the first thing you should do is simply ask the person suing you to prove that you owe what they say that you owe. The onus is not on you to provide documentation that you paid off the debt, or anything like that. The onus is on them to prove that the debt exists. Borrowers should not shy away from asking for this proof out the moralistic feeling that they should pay back what they owe. And it turns out that much of the time, the debt will have been sold to them by a bank refusing to make “any representations, warranties, promises, covenants, agreements, or guaranties of any kind or character whatsoever” about the accuracy or completeness of the debts’ records. If that kind of language is in the transfer documents, it’s very unlikely that the collections agency will be able to win a contested lawsuit.

If people start contesting these suits en masse, then that will surely reduce the attractiveness, to the banks, of selling written-off debt to sleazy collections agencies en masse. If banks want to sue borrowers for money those borrowers owe, let the banks do so themselves. At least it’s more honest that way.


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“Borrowers should not shy away from asking for this proof out the moralistic feeling that they should pay back what they owe.”

Ignoring your conscience is a bad idea. You will end up sad and friendless.

Posted by Mr.Do | Report as abusive

Thanks for this excellent advice. I have been shaken down in the past by collection agencies asking me about $25 to $50 payments owed to phone or cable companies from years back (when I know for a fact that I did pay — but who keeps phone bills and check stubs from 5 years back?).

If you could also suggest how to avoid the credit hit, that would be perfect.

Posted by SoniaHashimoto | Report as abusive

If you can prove you weren’t served properly, the lawsuit goes away. End of story. If you’re in the right, you’ll have many opportunities to get yourself out of collection hell. But reality is rarely that tidy. Instead of constant victimization, how about about opening your mail or answering collection calls, which tend to be pretty hard to ignore? Then say “I don’t owe this,” if that’s really the case, which halts the process. As for the “moralistic feeling that [people] should pay back what they owe,” I think we need more of that, not less these days.

Posted by amateurediteur | Report as abusive

Another great article Felix… as an MBNA veteran who moved over a million dollars in balances to MBNA I can guarentee that there is little to be gained by using collections agencies. The card company is usually out a fairly small balance… 10k would be a high number to use for an average. That will get charged the maximum legal interest rate for as long as possible to pump up the balance. Maximum allowable late fees will be charged for a few months…. then the bank makes 3 efforts to collect the debt at 30, 60, and 90 days… maybe some ambitious bank makes another pass at 180 days but after that it’s sold for 10c on the dollar.

Only after the collection agency fails to collect for a year or so would the debt ever fall to single digit pennies.

The math is simple… if you look at the cost to society via the legal system and the burden it places on the poor people looking to get their lives back on track all for the 10% of original face value… it’s just not worth it.

Lets pass a law that says non-performing debts under $5,000 can’t be sold. That would be simple and it would solve 90% of the problem.

Posted by y2kurtus | Report as abusive

This article is really gratifying to hear as it proves the point I’ve been making for a long time on my website (http://www.ihavebeenserved.com).   The junk debt buyers that buy up this debt have no proof…the system is just as bad as the robo-signing that’s going on with the housing debacle.

Make them prove the debt and they drop the case. Luckily for the lawyers and the collectors, the average American is not going to do the research to navigate the court system and demand the proof.

The interest, fees and penalites that the debtor faces are often disgustingly higher than their original credit limit and are often ten times more than the original amount owed. The debtor fails to show up in court because they can’t afford a lawyer and boom…default judgement, the creditor wins ALL the fees and now can garnish wages, etc. It’s a cash cow for them, all the while tying up our legal system.

I want people to know that they CAN fight back. Sure, it’s intimidating at first, but taking the time to type out a few documents to contest the case can save you thousands.

Posted by jayj2012 | Report as abusive

Dr. Mo–the main difficulty with any “moral feeling” in this situation is that the party on the other side does not reciprocate. A debt collector or a credit card company has all the moral feeling of a Cthulu-worshiping shark. They likely don’t even feel bound by the legal terms of a contract, so moral feeling is right out.

Posted by Moopheus | Report as abusive

amateurediteur, you forget the mantra these days. People who borrowed too much and can’t pay back and try to use a technicality to get out of their contractual obligations are salt of the earth. Of course anyone who pays back their loans back along with the interest are scum of the earth.

jayj2012, and I am sure for a reasonable fee you will help them fight that suit, right?

Mr.Do, Mr Salmon works for a company that pays money to uncritically regurgitate a mass-murdering regime’s propaganda. What makes you think he would even know what a conscience is?

Posted by Danny_Black | Report as abusive

Oh, spare us the sanctimony, Dan. Some company I’ve never heard of and certainly never borrowed money from starts mailing and calling me, demanding thus and such sum or else–they’re going to have to prove it. These companies are shakedown artists. They don’t know and don’t especially care whether their claims are legitimate. All they care about is whether they can browbeat you into giving them money. An outfit like that deserves nothing but contempt.

Posted by ckbryant | Report as abusive

It ought to be illegal to use a debt collector to try to pursue a debt that is known to be out of time under state law. There was nothing to stop the bank or creditor from pursuing collection when the debt was in time, and that’s why the statute of limitations exists. While the creditor can make some kind of moral reciprocity claim to payment, the debt collector never had any kind of privity with the debtor and should be held to the exact letter of the law, no more no less. Which is to say, the outcome of trying to collect on a debt that is clearly not owed should have the potential for negative, and not just neutral consequences.

Posted by rb6 | Report as abusive

ckbryant, and the percentage of cases where the debt is not owed is what exactly? Care to show it is a significant percentage of cases?

Posted by Danny_Black | Report as abusive

Moopheus, if you really dislike credit card companies that much you have the option not to own a card.

Posted by Danny_Black | Report as abusive

Many, maybe most, of these debts are invented by the banks. I had two different banks charge me overdraft fees, then late fees, etc., on accounts I had closed. And I closed them both according to the banks’ own instructions. In each case, my empty checking account triggered a “minimum balance” fee which, the account being closed and empty, went unpaid and thus compounded.

The bogus “debts” each got to about $300 by the time I learned of them, years later, when shady debt buyers contacted me. Of course by then they had libeled me via the credit reporting agencies–which are apparently libel proof despite their reliance on First Amendment protections.

I demanded the debts be verified and proved, and the companies promptly sold the debts to other shady collection agencies. Took years to resolve and never even hit the courts. Total racket requiring a class action solution, followed by legislation.

Posted by Eericsonjr | Report as abusive

Just google this name: Linda Almonte.

Then, all you righteous collectors posing on here as morally correct, can kiss my rosy rear!

Seriously – the banks sell this debt for 2-3 cents on the dollar, and the ARM (Accounts Receivable Management) industry speaks of how they keep the economy afloat. Is this additional 2 or 3% on their credit card divisions really going to make a difference to these mega-banks?
Debt Buyers (AKA – Bottom Feeders) should be banned.

Also – Check out budhibbs.com or fmdconsumer.com

Posted by Prove-it | Report as abusive

Danny–that is exactly what I advocate. Actually, I do have a card, but most of the time the balance is zero. Other than our mortgage, we’re debt-free.

Posted by Moopheus | Report as abusive

Since unpaid credit are lawsuits are getting rather common these days, it pays to know the secret to getting out of one. Before hiring an expensive lawyer to defend you in such a case, always remember to ask for the debt collection company for proof. Most of the times, they are unable to proof anything, and so we can avoid any more lawsuits.
Simon – http://www.starrausten.com

Posted by Simonstar12 | Report as abusive

Great and informative article, Felix.

The good news is that credit card lawsuit defense is available. This article talks about how to fight a credit card lawsuit and win
- C. Richmond

Posted by richmond2006 | Report as abusive

I just got served this morning for credit card debt. What I got is a piece of paper with late fees, over limit fees, transactions made, 150 dollar annual fee, etc. This look like it was typed up from a attorney office and these dates are in 2008. They created this and they state I owe them almost 1000 dollars. There is no document showing that I actually owe this money. I will respond and ask them to show proof that I owe this them. They supposedly bought this card out. A salute visa card. They will not get the opportunity to garnish my wages. Its unbelievable for them to think they will get away with this and I want to see the documentation showing I owe this money.

Posted by willie5968 | Report as abusive

Glad I found this site, I am very upset as I received a letter in the mail from a law group that states they are a debt collector and this is an attempt to collect a debt, it states unless I within 30 days dispute this debt we will assume the debt valid, if it is disputed they will obtain verification of debt or a copy of judgment against me and mail a copy of verification or judgment to me. Should I send them a letter stating to prove I owe the debt at this time, I lost my job in the recession and was forced to get my SS early and have been unable to pay off certain medical and credit card debts, I am not able to pay anything at this time, any help will be appreciated.

Thanks in advance

Posted by Sherryd | Report as abusive

My pretrial court experience

I have a trial date set for early next month in New Jersey, and I believe I have a fairly good chance of wining the case based on the fact that the Plaintiff (a junk debt buyer), doesn’t have “legal standing”, and actually admitted that fact in pretrial. However after experiencing the overall environment in that pretrial hearing, my sense is that there’s a built in bias within the court system against the consumer and in favor of debt collectors.

My experience within the “settlement negotiations processes” convinced me that a predisposed alliance exists between debt collectors and the court system, irregardless of what the actual facts may be…of course I hope I’m wrong.

In my particular situation, the law clerk or volunteer assigned to mediate started out cordial enough and friendly, however his tone soon changed when I began to present the facts and refused to negotiate and when I referenced my defense of “standing”, he attempted to coheres me into accepting a settlement, and the lawyer for the Plaintiff chimed in and admitted that the documentation provided during the discovery phase was faulty, but then sited some ambiguous case law, in New Jersey…the mediator certainly didn’t approach is task as a mediator, but rather as an advocate for the Plaintiff.

I’ve done my homework and I’m defending myself, and I’m confident that if the process is fair and based on the actual facts of the case, I should prevail…however my personal and recent experience with the court system suggests otherwise.

Ironically I just received today by certified mail a “NOTICE OF MOTION FOR A SUMMARY JUDGEMENT” by the plaintiff’s attorney, I have 10-days to respond, and object to this motion…obviously they don’t want to go to trial to prove their case.

Posted by Amo1109 | Report as abusive

Ik ben onder de indruk van de kwaliteit van de informatie op deze website. Er zijn veel goede middelen hier. Ik weet zeker dat ik zal deze plek opnieuw te bezoeken binnenkort.

Se questo dovesse anche evidenziare il fatto che ci sono due tipi di pubblico diversi leggendo i blog?

I am new on this Blog and I just wanted to say “Hi” to everyone!

I am a retired senior citizen, and hope to be of some help here

Bien redigé, cet artcile me permet de comprendre ce sujet complexe.

As you can see, there is an app for every personality, every lifestyle that can be conceived of. Gone are those days when mobile gaming meant a few games installed in the handset. It was effortless to link up the tablet to my Wi – Fi.