 Legal Best Practices
Magazine
Consumer Credit Collection:
How to Avoid Debt Elimination Schemes
By Louis M. Ursini, III,
Esq.
Published: February / March 2008
It is no secret that the
current credit crisis is significantly affecting a
consumers’ ability to pay their debt. As government
regulations have increased the minimum monthly payment
required on revolving credit accounts, along with higher
variable interest rates and stiffening bankruptcy
regulations, consumers are faced with fewer
opportunities for relief. As consumers’ financial
conditions worsen it is a given that their search for
avoiding debt will increase. These consumers are often
faced with the dilemma of seeking assistance with little
or no financial resources and, unfortunately, may be too
discouraged to contact their creditor directly for
options.
As a result, consumers scour the Internet for “free”
information and often become unintentionally entangled
in debt elimination or avoidance schemes. There are
virtually thousands of websites, message boards, and web
blogs that promote supposed “guaranteed” ways to
eliminate debt or otherwise convince consumers that they
need not pay their obligations. Once the consumer is
enticed by the prospect of eliminating debt, he can then
be convinced to pay large fees for bogus forms and legal
pleadings, or to enroll in these predatory programs.
As a creditor, it is critically important to recognize
when consumers are attempting to utilize these scams to
relieve their debt. Often when a creditor engages in the
frustrating debate over the legitimacy of these agencies
and their claims, it only fuels the consumer’s alleged
claims. This is not to say that there are not legitimate
debt counseling services that are beneficial to both the
consumer and creditor. But, the problem lies with the
debt counseling service that promises debt elimination.
As noted by the Department of Treasury, “no one can
eliminate an obligation to pay debt, simply by paying
someone a small fee, relative to the debt to be
eliminated.”
These debt elimination
schemes have endless variations, but recent trends are
focused on alleging baseless claims that creditors have
violated one or more of the Fair Debt Collection
Practices Act, Florida Consumer Collection Practices
Act, Fair Credit Billing Act, and Fair Credit Reporting
Act. Other unique, but popular approaches include claims
that: (i) a credit card agreement is a promissory note
which constitutes a deposit or asset of the consumer
under Generally Accepted
Accounting Principles and,
according to this nonsensical argument, the creditor
actually owes the consumer funds, (ii) creditors do not
have authority to “lend credit,” which somehow relieves
the consumer from repaying the debt, or (iii) the
consumers claim to have obtained an arbitration award
against the creditor from a phony arbitration
association. The consumers, or their debt agents,
attempt to use these claims to negotiate an elimination
or reduction of the consumer’s debt.
The statutory laws referenced above also generally
provide plaintiffs with the right to recover their legal
fees if they prevail in the underlying lawsuit, but
expressly provide limited circumstances in which
creditors can recover attorneys’ fees even if they
ultimately prevail. Consequently, the consumer friendly
structure of these statutes provides plaintiffs with
additional leverage in attempting to extort a debt
reduction.
As an example, the most recent trend is to utilize the
Fair Credit Billing Act (FCBA) which provides consumers
with a mechanism to dispute billing errors found in
their monthly statements and allows consumers to
withhold payment for the amount of the dispute while the
error is being investigated. This scheme, however,
claims to dispute the entire balance owed (as compared
to one or more particular charges), and claims that the
consumer is entitled to withhold payment of the entire
balance until the creditor produces an intentionally
overbroad scope of documents proving the balance, which
likely covers years and years worth of documentation.
When a creditor attempts to contest this baseless
dispute, the consumer takes the position that the
creditor has violated the FCBA and proceeds to file a
lawsuit or arbitration claim seeking damages and
attorneys’ fees, while still refusing to pay the
principal debt owed. Generally, the consumer’s FCBA
claim will seek damages in excess of the amount they owe
as a way of attempting to negotiate the elimination of
their debt. As one can imagine, this scheme can turn
into a complicated and expensive scenario in which
creditors feel forced to settle these meritless disputes
rather than waste time and money defending themselves.
The best way a creditor can arm itself against these
schemes is to identify them at the outset and contact a
legal professional for preventative advice on how to
avoid the pitfalls and increase the chances of payment
on the debt that is owed. As these schemes increase in
variation, it is important to stay apprised of emerging
trends and utilize sound defensive measures. Be assured
that there are very effective and, most importantly,
cost-efficient means to defend lawsuits based upon these
schemes and still increase the likelihood of recovering
the debt that is owed.
OCC 2007-55, Debt
Elimination Fraud Allert, Office of the Comptroller of
Currency, September 5, 2007
Louis M Ursini, III, is a Partner with the statewide law
firm of Ruden McClosky, and concentrates his practice on
the defense of consumer claims throughout the State of
Florida. Mr. Ursini is recognized for his litigation
work with the above referenced acts on behalf of
financial institutions, creditors, and collection
professionals. Mr. Ursini can be reached at 941-316-7600
or louis.ursini@ruden.com.
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