When I worked as a collection attorney, I would see the same erroneous defenses over and over again. Here are some of the most common:
You don’t have a signed contract
Somewhat surprisingly, creditors are not required to produce a signed contract to prevail in court. There are others case theories, such as account stated, that may allow the creditor to win without the contract. In my years as a debt collector, there were only a handful of accounts, out of thousands, that the creditor was able to produce a signed contract for.
I tried to pay, but you wouldn’t work with me
Unfortunately, courts don’t have the power to force a creditor to accept the payment arrangement you are proposing. The creditor’s unwillingness to work with you, while frustrating, is not a defense to a lawsuit. Similarly, the fact that you are on public assistance or are otherwise “judgment proof” is not a defense to a lawsuit. The creditor may never be able to collect anything from you, but that doesn’t mean they aren’t entitled to win the lawsuit.
I never had an account with you
I would often see this when the lawsuit was brought by a debt buyer. The original creditor that you had an account with may have sold it to a debt buyer that you have never heard of. If the debt has been legitimately purchased by the debt buyer, they have the same right to collect the debt from you as the original creditor.
My divorce decree says I don’t have to pay
Even if there is a court order ruling that your ex-spouse is responsible for a debt, you can still be sued by a debt collector for the debt. Divorce courts don’t have the power to modify contracts between you and a third-party creditor. You may, however, be able to sue your ex-spouse to reimburse you for any money you have to pay the creditor.
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{ 40 comments… read them below or add one }
What other defenses could there be. No contract, debr sold amount inflated. So you are saying there is no need to fight the suit?
There are very good defenses in many cases, including lack of evidence or notice of assignment, invalid assignment, incompetent witnesses and inadmissible evidence, statute of limitations, and more.
You can read more here, although those seminar materials are a bit out of date at the moment.
Sam,
Although a “signed contract” is not required, surely the debt collector must present some evidence that the purported debtor agreed to be bound by a contract. It seems to me that many commercial creditors would not have any such evidence for many transactions (i.e. for telephone sales using a credit card, unless they have an actual recording).
In your experience, are defendants often successful arguing that there is simply no proof that they entered into a contract?
Sam is absolutely right, there are numerous defenses to a collection lawsuit and all of the ones he mentions are good ones. I’m sorry if people read the post and got the impression that they shouldn’t defend themselves against a lawsuit (see my post from yesterday discussing the importance of responding to the lawsuit and engaging in the litigation process). In credit card cases, if the creditor can produce evidence showing a consumer used the card to make purchases (such as billing statements) they can often prevail without the contract. There can definitely be defenses to this argument, though. Contact a consumer lawyer if you are in this situation for advice about your case.
@Dan: Yes, there must be evidence of offer an acceptance in order for a creditor to take advantage of the terms of the cardholder agreement. Without that agreement, a creditor probably will not be able to recover things like attorney fees, which is a right they only have because of the agreement.
Debt buyers are not exempt from state usury statutes the same way that national banks are under federal law. I have been successful defeating at least one summary judgment motion with this line of reasoning and am attempting it again. Has anyone tried a class action along these lines?
I was just served tonight in a lawsuit against me from Wells Fargo. I entered into a debt settlement program, but began to realize after 6 mos of paying the settlement company fees that my balances were too big and it would take me at least a year to have enough to settle. Are you saying that when I respond (and I do have an attorney and have withdrawn from the settlement company) I cannot make an offer to them to take a sum of money from my checking account monthly and possible request that they do not charge interest for a year so I can get caught up? May sound naiive, but this is ridiculous. None of these places will work with you and then they reserve the right to charge you 20-30%.
@Leah: Since you have a lawyer, these are questions you should ask him or her. They depend on the specific facts of your case, and I would not want to encroach on your attorney-client relationship.
RE: Concetta Puglisi, Esq on National Banks & usury
Hmmmm… I hope my judge doesn’t follow that logic. I’m on the JDB’s side of the v for a writ of inquiry in one week. National Banks are not exempt from usury statutes per se, but rather, for interest exportation principles get the benefit of the “most favored lender” doctrine. If National Bank NA is located in State X, State X allows 24% interest some how or some way, then National Bank NA may charge 24% interest to its out of state customers.
Example: National Bank NA has an account with Joe Deadbeat with a 24% delinquncy/default APR governed by a contract which has a well-drafted assignment clause, and also a choice of law provision-State X governing. Joe Deadbeat is true to his name and the subject account is charged off. Along comes JDB, Inc. eager to invest and purchases a potfolio including the account of good ole’ Joe Deadbeat. Let’s say our Buddy Joe lives is State Y. State Y has an iron clad 18% interest rate cap. As the voice from the PMBR CD’s would say… Discuss.
My opinion, JDB stands in the shoes of National Bank NA and may validly sue for prejudgment interest at the rate of 24% in a State Y courthouse. Why? Because Joe Deadbeat agreed 1) to pay 24% APR in a valid and enforceable contract, and 2) that his account and National Bank NA’s contractual rights could be assigned/purchased.
If the Honorable Judge Homer Fieldadvantage in State Y refuses to award interest at State X’s 24% rate, that means National Bank NA cannot assign its contractual rights, and that devalues all of its accounts instantly. Why pay for rights you could NEVER enforce?
If National Bank’s cannot assisgn or sell the rights to collect their accounts, then section 85 and the Act isn’t doing what the Marquette court held it did –just my opinion, fwiw.
Has anyone else dealt with the interrelation of interest expotation, assignment, and usury?
I have a court date set for the 31 of this month. I can’t afford a lawyer, or the debt due to cut hours at work. I am forced to even appling for food stamp benifits today just to feed my children. If I can’t pay this debt, can the judge order sale of my personal property, or garnishment of my wages in the state of PA? Please help direct me in the right direction. Is there anything I should ask for the credit agency to supply, that may help me in this case.
Corals, please start by contacting a lawyer. If you aren’t having any luck, try the lawyer database at the National Association of Consumer Advocates or call your local bar association and ask about volunteer lawyers or self-help resources.
Just a quick question for who ever can answer, I am making monthly payments on
a defaulted loan thru wells fargo. I have tried working with the collection agency on
a settlement. I told them what I can pay to pay off in four months, they asked
for more. If I could pay more I wouldnt have to do a four month payment plan. I
live paycheck to paycheck I have no money, but I want to make good and reach
an agreement to get this off my credit. Im not getting any where with these people,
what elese can I do?
Briana, see the comment above yours. A consumer rights lawyer can help you figure out your options, some of which you may not know.
Do I have to give debt collectors my bank information when they tell me that is all they will accept? What if I did not have a bank account? I am preparing a letter to fax to them because they are very nasty to me and I can’t sleep because I am stressed out about their demands for all of this. It is 3:49 am, I should be sleeping! But, instead, I am researching and preparing this letter. I am stating that I will mail them a money order and that I will pay the debt off, because it is my debt. (Well, I got a phone for my brother, who charged it up to $1600 and then let me have to deal with the whole thing) I found their contact info online. Also, can I tell them that I will only have contact via email? They are making me very stressed out and I am trying to fix my credit, not make it worse. I have been going through and taking care to keep my credit card balances low or at $0. Now, this huge bump in the road….
Jen, it sounds like you should talk to a consumer rights lawyer in your state. They can answer your question, but they can also help you take care of the entire situation.
Can a complaint be dismissed because of the arbitration clause that is in most credit cards contracts? Example: Original creditor files case against defaulting client. Client files motion to dismiss stating that credit card agreement states any disagreements must go to binding arbitration and not court.
Would the case be dismissed?
If you want to enforce the arbitration clause, you can probably do that. Whether or not that is a good idea is something you should talk about with a lawyer in your state, who can help you understand the consequences. (For example, arbitration is often more expensive than court.)
Truth in Lending act applies to credit cards correct? what if credit card companies cannot provide the required disclosures… correct me if i am wrong but aren’t creditors required to disclose PRIOR to lending money to anyone the POSSILBE terms of the potential loan even if a revolving account?
Does anyone have a “Credit Card Agreement” from Wells Fargo for the year[s] 2005 & 2006??
In May 2009, I agreed in writing with Zakheim & Associats (collection attorneys for Target) to pay $312/month,commencing in May and agreed to an automatic deduction from my checking account. Even though they have been getting this amount, they instituted a lawsuit against me for a balance in excess of $10,000. Can they reneg on our agreement? And what did they do with the $2,500 I paid so far, pocket it for their fees? because my balance doesn’t seem to have changed.
You said they agreed to accept $312/month. Did they promise not to sue you in exchange for that?
No, there was never any mention of instituting legal actio. However, their July 22nd letter stated that the “Bank has agreed to accept an installment payment plan as complete satisfaction of money owed to it. Interest shall continue to accrue at 0% . . . .” I did not sign it, their assistant said I didn’t have to, and faxed back a copy of the letter agreement where someone had written “signature on file” where I was supposed to have signed my name. The July 30 and August 30 payments were made by automatic deduction, as well as the September 30th (Summons and Complaint were served on me September 26th!).
In reality, few, if any of the lawsuits for credit card debt or even foreclosures are supported by admissible evidence. .
Rather, the Plaintiffs have adopted and have gotten away with a systematic and routine practice of submitting hearsay affidavits and/or evidence in support of its claims rather than actual admissible evidence. Unsophisticated and/or unrepresented consumers, who are not aware of or who do not recognize the above-referenced facts, often times become victims of judgments entered without admissible supportive evidence. These are people that have reached the very bottom and the next step is homelessness. Therefore it is for the good of all people to end this useless practice of ruining human life.
[Legal advice removed. -Ed.]
Sam, about this post; RE: Concetta Puglisi, Esq on National Banks & usury
If the bank charged off and closed the account and can’t charge any further interest due to OCC regs, how is it that a debt buyer can reopen the account and charge interest at the same rate as the OC?
What happened to restatement of contracts regarding assignments?
It is well settled law that an assignee steps into the shoes of the creditor and acquires no greater right than the creditor had at the time of the assignment.
So, if a debt buyer acquired an account that was charged off due regulations by Office of the Comptroller of the Currency in OCC 2000-20, (OCC Bulletin.), the debt buyer has no right to further interest, except as allowed by statute if there was no Novation of the account.
Consumers should assert that the credit card company or its assignee be forced to prove that they did in fact comply with the applicable state law (ie. state law designated in the agreement for the choice of law). If you can defeat summary judgment motions you pretty much won the case. Raise every issue of fact that can’t be decided without a trial. Also, did your consumer have a credit protection plan that wasn’t correctly activated or if claim was submitted did the credit protection plan wrongly deny the consumer’s claim. Both of these issues have defeated summary judgment motions in NYC.
Does anyone know if you can legally use Novation terms (i.e. listed on the back of a check making a monthly payment to the cc company) to change the agreement/contract with the credit card company? The new terms through Novation would state 0% interest, penalties to the cc company for charging interest, late fees and penalties. At some point, the penalties that my new contract states would surpass the cc company’s previous charges, thus neutralizing both balances to zero. There are a few companies that offer this service. Is it legal and binding?
Perry, you should talk to a lawyer if you are going to try to modify a complex contract by writing on the back of a check.
Does anyone have a copy of a Capital One credit card agreement from 2002?
what type of attorney do I need to defend a bank’s law suite? It is business line of credit and I have sign it as president and personal guarantor.
I live in CA.
Since it is a business debt, try a business lawyer.
Sam
from my experience, under Reg Z of Truth in Lending act, creditors must provide initial disclosures prior to extending credit? no creditor that I know of actually follow this… do you know anything about this?
It depends on what you are trying to accomplish.
Let’s say hypothetically you ask a collection company to produce a written contract for the debt, now wouldn’t they only have the purchased rights from the creditor? The collection agency would have the same rights as the creditor but a creditor can produce things like billing statements and supportive evidence. After the debt is purchased or when it’s purchased are supportive evidence transferred to the collection agency? If so, can you ask the collection agency to produce such things, and if they refuse is that a sign of weakness from them? Thanks, this is interesting stuff.
To elaborate on those multiple questions, I guess what I’m saying is if you fight a collection agency on whether the debt is real because of lack of evidence, can they go back to the creditor and get supportive evidence? And would it be illegal for an original creditor to give them such things as billing statements, etc. – after the debts been sold, if the collection agency had not obtained it at time of purchase?
As mentioned above, creditors are required to provide initial disclosures prior to extending credit. Can someone make the case that since an original signed application cannot be produced, that they can also not prove that the disclosures were provided therefore the lender was in violation of the Truth in Lending Act? If you failed in making that case could you then say the lender acted in a predatory manner and deceived the person i.e. bait and switch which led to the default because the person didn’t fully understand what they were entering in to. Sorry for the numerous questions, but with everything going on in the mortgage business I would think a lot of these things would correlate.
Have there also been cases of discrimination, and predatory lending when it comes to people who entered into credit agreements at 18, 19, and 20 years old. I would think it may be relevant since every 18 year old kid is bombarded with credit offers but with a lack of credit, usually get stuck with high interest rates.
A debt collector is taking me to a small claim court next week because my creditor asking for unpaid fee. Actually my creditor is not telling the truth. In fact my creditor suppose to pay me back some money. Is it possible to take my original creditor to a small claim in order to put stop/dismissal to debt collector small claim. Please I need your help asap.
In regards to “predatory lending”. I obtained a mortgage in early 07 being 18 years old and unemployed. Luckily for me it was an inheritance with a good amount of equity, but it was amazing how the loan officer made me feel stupid that I did not cash out 300 or 400k. I told her I saw a crash coming and wanted very low monthly payments. After watching about 200k vanish over the past 3 years and so many people loose their homes. I am happy I didn’t get in over my head with high payments.
My husband had a credit card with Chase. The last payment made on this credit card was in July of 2007, at that time the balance due was $979.00, the credit limit on the card was $1200. Then all future card statements included late fees, because payments were not being made, which in turn built up enough to then start adding late fees plus over the limit fees. The final charge off amount from Chase was $1529.00 We just received a summons from a lawyer for a 3rd party debt collector claiming stating that the amount due was a total of $2271. This amount includes $1529 plus $704 interest fees and court costs. My question, isn’t there a law that limits the amount of interest a collection agency can try to collect? I will agree to pay the $979 but the interest is ridiculous. If I go to court for this and dispute the interest as unreasonable amount, will that get me anywhere?
Thanks