Defending Junk-Debt-Buyer Lawsuits

Peter A. Holland
No. 2012 - 24
This paper can be downloaded free of charge at:
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Clearinghouse PLVlLW Journal ol Poverly Law and Policy MayJune 20!2 12
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Peter A. HoIIand
Visiting Assistant Professor
Universily ol Maryland lrancis King Carey
School ol Law
Consumer Proleclion Clinic
500 W. 8allimore Sl.
8allimore, MD 2!202
4!0.706.4256
pholland©law.umaryland.edu
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This arlicle builds on Clinlon Pooney's |e|en:e o| A::|çned Con:umer |eo|, 43 CLLAPlNCHOUSL PLVlLW 542 (MarchApril
Pooney's arlicle lor a more subslanlive lrealmenl ol slanding, causes ol aclion lor conlracl and accounl slaled, and lhe
delense ol slalule ol limilalion and lolling. Like Pooney, l locus on delense ol junk-debl-buyer lawsuils, bul many ol
lhe same slralegies can be employed in lhe delense ol original credilor lawsuils. While some examples in lhis arlicle are
drawn lrom cases in Maryland, lhe liligalion laclics ol junk-debl buyers are subslanlially similar, il nol virlually idenlical,
across lhe counlry.
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Midland lunding Limiled Liabilily Company, Midland Credil Managemenl lncorporaled, Lncore Capilal Croup
alleged illegal conducl (Press Pelease, Maryland Deparlmenl ol Labor, Licensing and Pegulalion, Maryland Commissioner
ol linancial Pegulalion, Allorney Ceneral Announce Selllemenl Agreemenl wilh Nalional Debl Colleclor (Dec. !7, 2009),
hllp.//bil.ly/zdWleO).
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As ol lhe dale ol lhis arlicle, LVNV lunding Limiled Liabilily Company is subjecl lo a cease-and-desisl order lrom lhe
misrepresenling lhe amounl ol claims and collecling impermissible compound inleresl, knowingly collecling unaulhorized
evidence lhal LVNV did nol have valid lille ol lhe consumer claims al issue" (Press Pelease, Maryland Deparlmenl ol Labor,
Licensing and Pegulalion, Maryland Commissioner ol linancial Pegulalion Suspends Colleclion Agency Licenses ol LVNV
lunding LLC and Pesurgenl Capilal Services (Ocl. 28, 20!!) hllp.//bil.ly/z3r!5l).
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similar lerm. Whalever lhe language, il suggesls lhal a judge has (in lheory) read a slalemenl submilled by lhe plainlill,
made under lhe penally ol perjury and based on personal knowledge, claiming lhal lhe plainlill owns an accounl and lhal
lhe delendanl owes money lo lhe plainlill by virlue ol an assignmenl ol lhe accounl lrom lhe original credilor lo one or
more inlermediary assignees, resulling in lhe plainlill's currenl ownership ol lhe accounl.

}uak-uebt-ßu,er Lawsults
8y Peler A. Holland
Clearinghouse PLVlLW Journal ol Poverly Law and Policy MayJune 20!2 13
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A ßrie! Overviev o! the
1unk-Debt-ßuyer Industry
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U.S. 8ankruplcy Code, !! U.S.C. § 524(a)(!).
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This seclion conlains a briel overview ol lhe junk-debl-buyer induslry. lor a more delailed overview, see lhe lollowing
sludies. Claudia Wilner & Nasoan Shellel-Comes, The Legal Aid Sociely el al., Debl Deceplion. How Debl 8uyers Abuse
lhe Legal Syslem lo Prey on Lower-lncome New Yorkers !3 (May 20!0), hllp.//bil.ly/aTlND4, Pachel Terp & Lauren 8owne,
Lasl 8ay Communily Law Cenler & Consumers Union ol Uniled Slales, Pasl Due. Why Debl Colleclion Praclices and
lhe Debl 8uying lnduslry Need Pelorm Now (Jan. 20!!), hllp.//bil.ly/CCSUX6, Pick Jurgens & Poberl J. Hobbs, Nalional
Consumer Law Cenler, The Debl Machine. How lhe Colleclion lnduslry Hounds Consumers and Overwhelms Courls, 2!,
23 (July 20!0), hllp.//bil.ly/CClhnU, and my 1he Cne |undred b||||on |o||ar |roo|em |n 5ma|| C|a|m: Cour|. |ooo-5|çn|nç
and |ac| o| |roo| |n |eo| buyer Ca:e:, 6 JOUPNAL Ol 8USlNLSS AND TLCHNOLOCY LAW 259 (20!!), hllp.//bil.ly/CH8LJX.
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See ||d|and |und|nç v. bren|, 644 l. Supp. 2d 96! (N.D. Ohio 2009), Jell Horwilz, "|ooo´ Cred|| Card 5u||: |enace
ban|:, AMLPlCAN 8ANKLP, Jan. 30, 20!2, hllp.//bil.ly/Clb9wW.
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See |n|ra noles 3032.
De!ending 1unk-Debt-ßuyer Lavsuits
Clearinghouse PLVlLW Journal ol Poverly Law and Policy MayJune 20!2 14
De!ending 1unk-Debt-ßuyer Lavsuits
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lor a descriplion ol lhe overall problem ol lack ol prool in debl-buyer lawsuils, see 1he Cne |undred b||||on |o||ar
|roo|em |n 5ma|| C|a|m: Cour|, :upra nole 6.
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Allhough beyond lhe scope ol lhis arlicle, one parl ol lhe decision by lhe original credilor is lhe polenlial lor lender's
insurance.
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See |n|ra nole 46.
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Maryland Courl ol Appeals Slanding Commillee on Pules ol Praclice and Procedure, !7!sl Pules Commillee Peporl lo
lhe Maryland Courl ol Appeals 7 (July !, 20!!), hllp.//bil.ly/CUNppk.
Clearinghouse PLVlLW Journal ol Poverly Law and Policy MayJune 20!2 15
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Leller lrom Associalion ol Credil and Colleclion Prolessionals lo Maryland Courl ol Appeals Slanding Commillee on
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While lhe scope ol lhis arlicle is limiled lo junk-debl buyers, many ol lhe same issues are in original credilor cases, as
evidenced by lhe slory ol Chase 8ank and Linda Almonle (see |n|ra nole 5!).
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lair Debl Colleclion Praclices Acl § !692e(5), !5 U.S.C. §§ !692!692p, "¦T¦his Courl inlerprels Seclion !692e(5) ol
lhe lDCPA lo include lhe laking ol 'aclion lhal cannol legally be laken'" (brad:haw v. |||co |ece|vao|e: ||m||ed ||ao||||y
Company, 765 l. Supp. 2d 7!9, 730 (D. Md. 20!!)).
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Tips !or De!ending Consumers in
1unk-Debt-ßuyer Lavsuits
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1. ßead the CompIaint
and 5upporting
Documentation Care!uIIy
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2. Knov the EIements o! an
"Account 5tated" Cause
o! Action
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8ecause lhe debl buyer claims lo have purchased an accounl already in delaull, lhe debl buyer cannol possibly be lhe
enlily lhal loaned lhe money.
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! AM. JUP. 2d Accoun|: & Accoun||nç § 26 (20!2).
Clearinghouse PLVlLW Journal ol Poverly Law and Policy MayJune 20!2 17
3. 5crutinize the
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4. Master the ßeIevant ßuIes
o! Evidence
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|d. § 29.
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lLD. P. ClV. P. 56(c)(4). The Maryland Pules ol Civil Procedure lrack lhe lederal Pules ol Civil Procedure (see MD. P. 3-306
(20!2) (The Maryland Pules ol Civil Procedure are issued by lhe Maryland Courl ol Appeals Slanding Commillee on Pules
ol Praclice and Procedure and are relerred lo as lhe "Maryland Pules")). Llleclive January !, 20!2, Maryland Pule 3-306
has been amended lo be more demanding ol debl buyers' prool.
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lLD. P. ClV. P. 56(c).
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lLD. P. LVlD. !06.
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|d. 40!.
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|d. 60!, 602, 603.
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5. Do Not faII into the "ßuIes o!
Evidence Do Not AppIy in 5maII
CIaims" Trap
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lLD. P. ClV. P. 90!, 902(!!).
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lLD. P. LVlD. 80!.
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|d. 803(b)(6).
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|d. 803.
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|d. 20!.
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Press Pelease, Assel Acceplance Capilal Corporalion, Assel Acceplance Capilal Corp. Peporls Third Quarler 20!! Pesulls
(Nov. !, 20!!), hllp.//bil.ly/HbwMmp ($38.5 million lo purchase $!.3 billion lace value).
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Press Pelease, Lncore Capilal Croup lnc., Lncore Capilal Croup Announces lourlh Quarler and lull Year 20!! linancial
Pesulls (leb. 9, 20!2), hllp.//bil.ly/CUhx8x ($!36.7 million lo purchase $3.8 billion).
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Press Pelease, Porllolio Pecovery Associales lnc., Porllolio Pecovery Associales Peporls lourlh Quarler and lull Year 20!!
Pesulls (leb. !6 20!2) (hllp.//bil.ly/CUdD9w) ($89.9 million lo purchase $!.2! billion).
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See Wilner & Shellel-Comes, :upra nole 6, al !, slaling lhal, ol a sample ol 365 courl cases, nol a single person was
represenled by counsel. Anecdolally, in my numerous experiences observing courl proceedings, l saw only one consumer
represenled by an allorney (olher lhan consumers represenled by lhe Universily ol Maryland School ol Law's Consumer
Proleclion Clinic).
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MD. P. 5-!0! (20!2).
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lLD. P. LVlD. 60!, 602, 603.
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See bren| v. ||d|and |und|nç ||m||ed ||ao||||y Company, 20!! U.S. Disl. LLXlS 98763 (N.D. Ohio Sepl. !, 20!!).
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6. Emphasize the PIainti!!'s
Lack o! 5tanding
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7. ßesearch Every Entity and
Every Person Who 5igned
Any Document
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8. DeveIop a 5trategy !or Each Case
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9. Determine at the Outset
Whether Your CIient Is
1udgment Proo!
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10. Communicate vith
Opposing CounseI
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11. Master the Most
Common De!enses
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appear in courl on lhe lrial dale prepared lor a lrial on lhe merils" (MD. P. 3-306(e)(!) (20!2)).
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As lhe saying goes, "Argue lor lhe judge. Wrile lor lhe clerk."
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8randeis briels conlain slalislics and inlormalion relevanl lo lhe issues al hand, in addilion lo general legal argumenls
lhal can be applied lo mulliple cases.
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MD. CODL ANN. CTS. & JUD. PPOC. § !!-504 (20!2).
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as "lhe acl ol a credilor lhal lreals an accounl receivable or olher debl as a loss or expense because paymenl is unlikely"
(MD. P. 3-306(a)(!) (20!2)).
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linal Nolice, 65 led. Peg. 36903 (June !2, 2000), hllp.//!.usa.gov/CTwzVz). See also lnlernal Pevenue Code, 8ad Debls,
26 U.S.C. § !66 (20!2) (providing deduclion lor worlhless debl), 26 C.l.P. § !.!66-2(d) (20!2) (evidence ol worlhlessness
ol debl as applied lo banks), Pev. Pul. 200!-59, hllp.//!.usa.gov/CU4UCw
Counsel (linancial lnslilulions and Producls), is lhe principal aulhor ol lhis revenue ruling).
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"A debl colleclor may nol use any lalse, deceplive, or misleading represenlalion or means in conneclion wilh lhe
colleclion ol any debl" (!5 U.S.C. § !692(e)), see, e.g., r|moer v. |edera| ||nanc|a| Corpora||on, 668 l. Supp. !480, !487
unconscionable means ol collecling lhe debl").
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12. 5creen Every Case !or
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lLDLPAL TPADL COMMlSSlON, CONSUMLP SLNTlNLL NLTWOPK DATA 8OOK lOP JANUAPYDLCLM8LP 20!0, al 3 (March 20!!), hllp.//!.usa.
gov/CUnWuP.
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lederal Trade Commission, lighling 8ack Againsl ldenlily Thell (n.d.), hllp.//!.usa.gov/Habech.
46
A nalional bank may exporl lhe home slale's inleresl rale, regardless ol slale usury caps, lhe U.S. Supreme Courl
held in !978 (|arque||e Na||ona| ban| o| ||nneapo||: v. ||r:| o| Cmaha 5erv|ce Corpora||on, 439 U.S. 299, 308 & n.24
(!978)). lor a lascinaling look al lhe prediclable consequences ol lhis holding, see Palrick McCeehan, 5oar|nç |n|ere:|
Compound: Cred|| Card |a|n |or |||||on:, NLW YOPK TlMLS, Nov. 2!, 2004, hllp.//nyli.ms/H8oqNJ, and 5ecre| ||:|ory o|
|he Cred|| Card, lronlline (Nov. 23, 2004), hllp.//lo.pbs.org/H887dV. There is no lederal cap on inleresl rales, nor are
lhere slale caps in lhe lollowing slales, which are home lo lhe lollowing credil card companies. Soulh Dakola (Cilibank),
Ulah (American Lxpress), Virginia (Capilal One), Delaware (Chase, M8NA, Morgan Slanley, HS8C), or New Hampshire
(Providian) (lronlline, Map. Snapshol ol lhe lnduslry (Nov. 23, 2004), hllp.//lo.pbs.org/CToyDJ).
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Nalhaniel Popper, b|ç ban|: ||ay rey |o|e |n ||nanc|nç |ayday |ender:, LOS ANCLLLS TlMLS, Sepl. !5, 20!0, hllp.//lal.ms/
CTCyag. lor a discussion ol banks' direcl involvemenl in originaling payday loans, see Pebecca 8orne el al., Cenler lor
Pesponsible Lending, 8ig 8ank Payday Loans. High-lnleresl Loans Through Checking Accounls Keep Cuslomers in Long-
Term Debl (July 20!!), hllp.//bil.ly/HeScOP.
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Press Pelease, Minnesola Deparlmenl ol Commerce, Commerce Takes Aclion Againsl Lighl Colleclion Agencies (Ocl. 6,
20!!), hllp.//bil.ly/HbpPSw.
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Press Pelease, Minnesola Deparlmenl ol Commerce, Commerce Deparlmenl Working lo Keep Convicled lelons oul
ol Your Wallel (leb. !7, 20!2), hllp.//bil.ly/Hdu8Ov. According lo NCO's websile, lhe company uses lhe "NCO Trigger
Program" lo "help companies recover accounls aller all colleclion ellorls have been exhausled and lhe accounls have
been charged oll" (NCO, Colleclion Services (20!2), hllp.//bil.ly/HeU8qy).
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lair Debl Colleclion Praclices Acl, !5 U.S.C. § !692dl.
Clearinghouse PLVlLW Journal ol Poverly Law and Policy MayJune 20!2 23
13. Consider 5ubpoenaing the
forvard fIov Agreement
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5houId IncIude Certain Terms
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15. Use ManuaIs and Listservs

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finaI Thoughts
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David Segal, |eo| Co||ec|or: |ace a |azard. Wr||er´: Cramp, NLW YOPK TlMLS, Nov. !, 20!0, al A!, hllp.//nyli.ms/HhzlnK.
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Keep in mind lhal lhe same debl may appear more lhan once on your clienl's credil reporl. ll may have been reporled
by lhe original credilor and by more lhan one junk-debl buyer. A dismissal may allow lhe junk-debl buyer lo conlinue
reporling lhe debl because lhere has been no delerminalion by lhe courl ol lhe validily ol lhe debl. ll lhe courl enlers
judgmenl lor lhe alleged deblor, lhere has been a delerminalion and any relerence on lhe credil reporl lo lhe debl and
lhe junk-debl buyer should be deleled.
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See PO8LPT J. HO88S LT AL., NATlONAL CONSUMLP LAW CLNTLP, THL PPACTlCL Ol CONSUMLP LAW !5370 (2d ed. 2006).
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JONATHAN SHLLDON LT AL., NATlONAL CONSUMLP LAW CLNTLP, COLLLCTlON ACTlONS (2d ed. 20!!), PO8LPT J. HO88S LT AL., NATlONAL
CONSUMLP LAW CLNTLP, lAlP DL8T COLLLCTlON (7lh ed. 20!!).
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Wilner & Shellel-Comes, :upra nole 6, al 3, 9. ln a sludy ol New York Cily debl colleclion cases, researchers lound
lhal credilors oblained delaull judgmenl in 8!.4 percenl ol cases in lheir sample. Less lhan ! percenl ol people sued by
credilors had legal counsel (|d. al 78). ln my experience, in Maryland less lhan ! percenl ol delendanls are represenled
in debl-buyer cases.
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Author's Acknowledgments