Alabama Consumer Law Blog

This is the final part of our seminar paper presented to collection and consumer lawyers at the University of Alabama Law School. Please contact us if you have any questions.

V. CONCLUSION

Using the credit reporting tool can be very useful for debt collectors. It can assist debt collectors in collecting the right debts from the right people. In our practice one of the reasons clients come to see us about suing debt collectors is because the debt collector’s account on the consumer’s credit report is preventing the consumer from obtaining a car or home loan. Credit reporting results in people paying attention.

But, if the credit reporting is misused, this tool can be very dangerous to debt collectors. Lawsuits can result under the strict liability statute of the FDCPA and also under FCRA which allows punitive damages. State law may also be brought against abusive debt collectors.
Debt collectors should be very deliberate about using credit reports and reporting debts to the CRAs. It should not be undertaken lightly – instead serious thought and planning should occur before reporting occurs and before pulling credit reports occurs.

Consumers should be vigilant whenever a debt collector appears in any manner on their credit reports. If there is an inquiry – a credit pull – then this should be investigated. Was there a right to pull the credit report? If not, this may be an excellent lawsuit. If a debt collector is reporting a debt, is it accurate? If not, then it should be disputed with both the CRAs and the debt collector. If it is not resolved, then a lawsuit may be in order pulling from the FDCPA, FCRA, and/or state law.

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In this fourth part of our seminar paper, we look at the impact of consumer disputes either directly to a debt collector or to the credit reporting agencies concerning false information put on the consumer's credit report by the collection agency.

IV. DANGERS TO DEBT COLLECTORS FROM CONSUMER DISPUTES

There are two areas in which a debt collector needs to be able to properly handle “disputes” from consumers. One arises out of the Fair Debt Collection Practices Act (FDCPA) and the other is from the reinvestigation part of the FCRA.

A. FDCPA – 1692e(8)

This section of the FDCPA states that it is a violation of the FDCPA to “Communicat[e] or threaten[] to communicate . . . credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.” [Emphasis added].

If a consumer disputes a debt with a debt collector, and then the debt collector reports or updates the reporting of information, it must tell the CRAs that the account is disputed. This will result in a notation under the “Remarks” section of the trade line that the account “is disputed by consumer” which normally has the effect of it not being considered when the various scoring models (FICO, etc) are used to compute a credit score.

This is often overlooked by debt collectors either intentionally or unintentionally. There is an incentive to not mark the account as disputed in order to “encourage” the consumer to pay. The danger, of course, is that this is an absolute violation of FDCPA and so suit can be brought against the debt collector.

In the suit, statutory damages can be awarded and attorney’s fees. The other problem for debt collectors is the consumer may bring an invasion of privacy claim which could expose the debt collector to punitive damages. If the violation of the law is not intentional, then the debt collector will be spared the punitive damages but can still be liable under the FDCPA and state law (invasion of privacy primarily) which means compensatory damages or statutory damages, and attorney fees.

A recent case on this subject explains the law, at least in the Eighth Circuit. In Wilheim v. Credico, Inc., 2008 WL 553207 (8th Cir. March 3, 2008), the Court noted that if the debt collector reports the account and then learns of the fact that it is disputed, the debt collector does not have to update the report. But, if the debt collector does update the report, it must note the “disputed” status. 2008 WL 553207 at *2. This opinion ignores the requirements imposed upon debt collectors (furnishers) by 15 U.S.C. Section 1681s-2(a). It does not appear the plaintiff in Credico argued this and it will be interesting to see if this argument changes the outcome of future cases in the Eighth Circuit. But what we do know is that if a debt collector knows about a dispute and then chooses to update or report, it must include the “disputed” status or it faces liability.

B. Disputes Under The FCRA

Section 1681s-2(b) imposes an affirmative duty upon a debt collector (as a furnisher) to investigate a consumer dispute if the debt collector receives notice of the dispute from a CRA. That is the critical requirement which many consumers overlook. It makes “common sense” that you could dispute directly with a debt collector for false credit reporting information but that does not trigger any private right of action under the FCRA if the investigation is either not performed or not performed in a reasonable manner.

Assuming the dispute is made to the CRA and the CRA notifies the debt collector, what must the debt collector do? Basically, the debt collector must perform a reasonable investigation and then report back its findings to the CRA.

The debt collector must “conduct an investigation with respect to the disputed information.” 15 U.S.C. Section 1681s-2(b)(1)(A). This includes reviewing all information the debt collector has on the account. The seminal case on what “investigation” means is Johnson v. MBNA American Bank, N.A., 357 F.3d 426 (4th Cir. 2004), which stated in relevant part as follows:

The key term at issue here, “investigation,” is defined as “[a] detailed inquiry or systematic examination.” Am. Heritage Dictionary 920 (4th ed.2000); see Webster's Third New Int'l Dictionary 1189 (1981) (defining “investigation” as “a searching inquiry”). Thus, the plain meaning of “investigation” clearly requires some degree of careful inquiry by creditors. Further, § 1681s-2(b)(1)(A) uses the term “investigation” in the context of articulating a creditor's duties in the consumer dispute process outlined by the FCRA. It would make little sense to conclude that, in *431 creating a system intended to give consumers a means to dispute-and, ultimately, correct-inaccurate information on their credit reports, Congress used the term “investigation” to include superficial, unreasonable inquiries by creditors. Cf. Cahlin v. Gen. Motors Acceptance Corp., 936 F.2d 1151, 1160 (11th Cir.1991) (interpreting analogous statute governing reinvestigations of consumer disputes by credit reporting agencies to require reasonable investigations); Pinner v. Schmidt, 805 F.2d 1258, 1262 (5th Cir.1986) (same). We therefore hold that § 1681s-2(b)(1) requires creditors, after receiving notice of a consumer dispute from a credit reporting agency, to conduct a reasonable investigation of their records to determine whether the disputed information can be verified.

Johnson, 357 F.3d at 430-431 (emphasis added).

This is an area where it becomes very dangerous for debt collectors (particularly debt buyers) to report information when the debt collector does not keep careful track of the information it has. Being off on the date of the delinquency (“re-aging”) or whether the account is disputed or the amount owed can lead to a lawsuit against the debt collector. In our experience debt collectors do not seem experienced dealing with laws outside of the FDCPA and seem surprised when a case that they view as a “technical” or “statutory” case can result in punitive damages because of the FCRA and state law.

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This is the third part of our paper we handed out at a seminar we recently gave at the University of Alabama Law School to collection and consumer lawyers. We hope this is helpful to you as debt collectors very often pull credit reports. Sometimes that is allowable but other times it is illegal so you should always check your credit reports to see if debt collectors are pulling your reports. If they are, demand that they tell you the basis for doing so.

III. PULLING CREDIT REPORTS – HELPFUL OR HARMFUL?

What are the reasons a debt collector would want to pull credit reports? There are several legitimate reasons and several illegitimate ones. There is also recent case law that warns debt collectors to be careful when deciding whether to pull credit reports.

A. Why Pull Credit Reports?

Debt collectors pull reports to help in collection activities. This is the ultimate reason to pull a credit report of a consumer/debtor. Pulling a report can help a debt collector find a debtor. It can also give guidance to a debt collector as to whether it is worthwhile to try to collect from a consumer. A credit report is similar to a report card – it shows how the consumer is doing financially. Is the consumer paying her bills on time? Maxed out on credit cards? Applying for more credit – perhaps a mortgage? Finally it lets the consumer know that the debt collector is coming after her and may prompt her to contact the debt collector.

Debt collectors, however, have been known to pull reports in order to intimidate or hurt consumers. For example, some debt collectors have told consumers they will pull the consumer’s report every day to trash their credit score. Each debt collector pull is a “hard inquiry” and does damage the credit score. It is unclear if the scoring models used by FICO and the CRAs would still allow multiple pulls by a single debt collector to destroy a consumer’s credit score. But the threat is still valid enough to intimidate consumers who want to protect their credit score.

B. When Can A Debt Collector Pull A Credit Report?

It used to be assumed that as long as the debt collector was pulling the report for collection purposes, then it was permissible. Now it is not so clear.

The significance of this is pulling a credit report without permission exposes the debt collector to an FCRA lawsuit. Statutory damages can be awarded as well as attorney fees and punitive damages. Pulling credit reports without permission is a perfect example of an invasion of privacy which could quite naturally lead to a large compensatory damage award for emotional distress.

C. Pintos Decision Is A Warning To Debt Collectors

The recent case of Pintos v. Pacific Creditors Assoc., 504 F. 3d 792 (9th Cir. 2007), has created some concern among debt collectors as to when it is proper to pull credit reports to assist in collecting debts.

Pintos sued Pacific Creditors Association (“Pacific) for violations of the FCRA alleging Pacific obtained her credit report “without any FCRA-sanctioned purpose.” 504 F.3d at 796.

The district court granted defendant’s summary judgment motion citing to the Ninth Circuit’s previous decision under Hasbun v. County of Los Angeles, 323 f. 3d 801 (9th Cir. 2003), which had held that debt collection was a permissible purpose for obtaining a credit report. 504 F.3d at 796.

The issue was whether the FCRA and FACTA (recent amendments to the FCRA) permit a debt collector to pull a credit report for the purposes of collecting any debt or does the debt have to arise out of a voluntary “credit transaction”?

The facts are fairly simple - Pintos’ car was found by police officers with an invalid registration and was therefore towed by P&S towing. P&S later obtained a lien for the cost of towing and storage. Pintos failed to claim the vehicle and it was sold by P&S. The sales price of the vehicle was not enough to cover the lien, so P&S asserted a claim against Pintos for the difference. P&S transferred the claim to the debt collector Pacific to collect the deficiency. 504 F.3d at 796-797.

On December 5, 2002, Pacific pulled a copy of Pintos’ credit report through Experian. It asserted that this was done in connection with its efforts to collect on Pintos’ debt to P&S. 504 F.3d at 797.

The Court began its analysis by noting that “Congress enacted the FCRA in 1970 to promote efficiency in the Nation’s banking system and to protect consumer privacy.” 504 F.3d at 798 [citation omitted]. It has frequently noted that those two goals are in tension and the FCRA attempts to balance the two competing interests. 504 F.3d at 798.

Section 1681b(a) authorizes the furnishing of credit reports for a limited number of purposes. Section 1681b(a)(3)(A) limits the furnishing of reports “in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.” [Emphasis added]. The Court noted that this section does not provide that all “account collection” is a permissible purpose for obtaining credit reports. Instead, this section is limited to collections on an account “in connection with a credit transaction involving the consumer.” 15 U.S.C. Section 1681b(a)(3)(A). 504 F.3d at 798.

In order to determine whether Pacific had a permissible purpose, the Court undertook a detailed analysis of the terms used in § 1681b(a)(3)(A). The Court focused first on the definition of the term “credit transaction,” noting that the original Act did not define the term “credit.” Congress, however, amended the FCRA in the FACTA defining credit as “the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefore.” 504 F. 3d at 798.

The Court held that a “credit transaction” requires “voluntary consumer participation,” noting “[a] consumer who chooses to initiate a credit transaction implicitly consents to the release of his or her credit report for related purposes.” 504 F.3d at 799. Thus, the act “forges a direct link” between the consumer’s search for credit and the furnishing of the report. This requirement offers the consumer that degree of privacy protection sought by the Act. The two critical elements are “voluntary” and “direct participation.” 504 F.3d at 799.

In this case, Pintos did not voluntarily seek credit. Obviously, Pintos did not intend for her vehicle to be towed and stored and thus incur the resulting debt to P&S. Thus, the Court held the debt arose involuntarily. Additionally, she did not seek and no one offered her “credit.” Therefore, since Pintos’ credit report was not pulled in the underlying debt as a result of a voluntary credit transaction, Pacific did not have a permissible purpose in pulling the credit report to collect. Pacific did not have any more right to pull the credit report than did the underlying creditor P&S. Though the Court did not articulate this, it implicitly found that P&S would not have had the right to pull the credit report.

The district court’s granting of summary judgment was based on a pre-FACTA case. FACTA specifically defined “credit transaction” where the FCRA had not. Interestingly, the Court specifically noted that it was not addressing whether Hasbun, a case in which the government pulled a credit report to assist in collecting on a child support judgment, would have been decided differently today in this post FACTA world.

Thus, the Court reversed the summary judgment because Pacific did not pull Pintos’ credit report related a “proper” credit transaction.

D. Bottom Line For Debt Collectors

Debt collectors must make sure the underlying transaction was a voluntary credit transaction in which the consumer directly participated. There does not seem to be much case law on this issue but several types of debt come to mind that probably are not credit transactions. Emergency room visits – the patient may have been unconscious. But would the doctrine of implied consent apply? Fines or penalties? Child support? Debt collectors must think carefully on these matters as a mistake (particularly an “across the board” mistake on thousands of consumers) could be devastating financially for the debt collector. Consumers must examine every time a debt collector pulls their reports to see why it was pulled and whether the debt collector had a legitimate basis to do so. If not, then a suit against the debt collector may be in order.

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As we mentioned yesterday, we are putting up parts of our seminar paper that we recently presented at the University of Alabama Law School. This deals with credit reports and debt collectors and we presented this to collection lawyers and consumer lawyers.

As always, please feel free to contact us if you have any questions.

II. OVERVIEW OF THE FCRA

A. Players

Furnishers are those individuals or companies (including debt collectors) that furnish or provide information to the CRAs about consumers. This is normally done on a monthly or quarterly basis.

The consumer reporting agencies (“CRAs”), which include Equifax, Experian, and TransUnion , are the companies that compile the credit reports on consumers. The furnishers send the information about consumers to the CRAs who then store that data. When someone requests a “credit report” then the CRA from whom it is requested will “pull” the data together for that consumer and create or compile the report.

A credit report is defined as “any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness . . . .” 15 U.S.C. Section 1681a(d)(1).

A “user” of information is anyone who pulls or requests a credit report from a CRA. There are specific rules about who is allowed to pull a report and under what circumstances it is allowable to pull a report.

B. How Credit Reports Are Obtained

It is now much easier for consumers to pull their credit reports. They are allowed to pull them for free every twelve months by going to www.annualcreditreport.com. With advertising on TV and other places, there is more awareness of the need to pull credit reports. Consequently, more consumers know what is on their credit reports. This fact enhances the effectiveness and dangerousness of the credit reporting tool for debt collectors.

C. How Inaccurate Information Is Disputed

If a consumer feels information is inaccurate, there are two ways to dispute it. One way, which invokes the FCRA, is to send a dispute to the CRAs. This can be done in a variety of ways, but the two main ways are by letter and by using the web based system at each CRA’s website. The other way is to dispute directly with the furnisher. Unfortunately for consumers, while this imposes duties upon the furnisher, there appears to be no private right of action (under the FCRA) unless the CRA notifies the furnisher of the dispute.

Basically the dispute needs to identify the consumer and the account or “trade line” that is alleged to be in error. It also needs to identify what the problem is unless the furnisher has the information in its file to show that the account is inaccurate. For example, if the debt collector knows that the account has been included in bankruptcy and discharged, the dispute letter could simply state the account is “inaccurate” as the debt collector knows it is inaccurate. But, for example, if the debt collector has the wrong “Sara D. Williams” then the consumer should send a letter pointing this out and possibly including an affidavit. The more information given to the CRA, the more responsibility this puts on the CRA to do an adequate job of investigating the dispute.

The CRA is supposed to forward all relevant information to the furnisher so, once again, the more information that is provided then the more responsibility the furnisher has to investigate.

The CRA has thirty days from receipt of the dispute to investigate. 15 U.S.C. Section 1681i(a)(1)(A). In our experience, the extent of the investigation by the CRA is simply to forward the dispute on to the furnisher with an electronic code which describes the dispute. That might be “bankruptcy” or “disputes account balance” or “not his/her account” etc. This means as a practical matter whether the account/trade line will stay on the consumer’s report or will be deleted or will be modified is up to the furnisher. Therefore, the debt collector must ensure that it has performed a reasonable investigation as it cannot count on the CRA to independently investigate and catch the debt collector’s errors.

D. Statute of Limitations For FCRA Claims

The statute of limitations is now two years from the date the consumer discovers the violation and within five years of the actual violation. 15 U.S.C. Section 1681p. This is a change in the law as TRW Inc. v. Andrews, 122 S.Ct. 441 (2001) had held there was no discovery rule in the FCRA. But Congress changed the statute to, in essence, overrule Andrews in the 2003 amendments to the FCRA.

With respect to a consumer who has disputed with a CRA information provided by a furnisher, it is two years from when the furnisher received the notification from the CRA of the dispute as there is no private cause of action against a furnisher (under FCRA) until the CRA notifies the furnisher of the dispute. We’ll address this in the final section.

E. Damages Under FCRA

The basic rule is that if a furnisher negligently violates the FCRA then the furnisher is liable for actual damages (compensatory damages – including emotional distress), court costs, and reasonable attorney fees. 15 U.S.C. Section 1681o(a). If the violation is willful then the consumer can receive statutory damages (up to $1,000) or actual damages and punitive damages. 15 U.S.C. Section 1681n(a).

If someone obtains a credit report without a permissible purpose then the damages are statutory or actual damages, punitive damages, court costs, and attorney fees. 15 U.S.C. Section 1681n(b).

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We recently were asked to present a seminar at the University of Alabama that was attended by consumer lawyers and collection lawyers. We prepared a written paper to go with the presentation and we will attach the entire paper as a pdf but for now we will put it up in sections over the next several days.

We hope this will be helpful. If you have any questions about debt collectors and how credit reports relate to them, please let us know.

I. INTRODUCTION

Debt collectors can use the reporting of a debt to a consumer reporting agency (CRA) as a “powerful tool designed, in part, to wrench compliance with payment terms . . . .” Rivera v. Bank One, 145 F.R.D. 614 (D.P.R. 1993).

The fact that reporting debts owed by consumers is a powerful tool cannot be questioned. Nevertheless, is it a dangerous tool? If the area of credit reports is mishandled in one of several ways then this powerful tool can become extraordinarily dangerous for the debt collector.
We will look at three main areas. First, an overview of the FCRA. Second, when can debt collectors pull the credit reports of consumers who owe money? Finally, what are the dangers for debt collectors reporting information to the CRAs when the consumer disputes the accuracy of the information reported?

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The Consumerist has a nice post on a wonderful verdict in Florida that has resulted in over $500,000 in attorney's fees along with the multimillion dollar verdict. Often companies such as Equifax, Experian, or Trans Union act like these cases have no value so this is a nice reminder that juries do take seriously the destruction of someone's credit report by a consumer reporting agency.

Remember to pull your credit reports and examine them for errors. If you have errors, dispute them with Equifax, Experian and Trans Union. If these agencies won't correct the errors, feel free to contact us for a free consultation to advise you of your options.

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Posted In: Credit Report Errors , Recent News About Cases

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We recently filed suit for an Alabama consumer who has been attempting to clear his credit report of a false Verizon Wireless account for many years now. As many consumers have discovered to their horror, sometimes accounts appear on their credit reports which do not belong to them, and when that is explained to the credit reporting agencies (such as Equifax, Experian and TransUnion) and to the creditor/furnisher of information (such as Verizon, Bank of America, Capital One, etc.) the information is often not removed. This can be very frustrating as it can impact your credit worthiness as well as being an extraordinarily frustrating event knowing that false information is being communicated about you.

As we have discussed elsewhere, it is a good idea to check your credit reports for free and if there is false information on there, that information should be disputed directly with the credit reporting agencies and oftentimes with a copy of the dispute letter going to the creditor/furnisher.

If you are facing this situation, please feel free to contact us for a free consultation if you live in Alabama.

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Many collection letters sent to Alabama consumers by debt collectors, collection agencies, and debt buyers are illegal as they violate the Fair Debt Collection Practices Act. They may have false information, false threats to sue, false statements about credit reports, they may be confusing or contradictory. If you have received any collection or dunning letters within the last 12 months, please feel free to contact us and we will be glad to evaluate your collection letters to see if there appears to be a violation of the FDCPA.

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When Alabama consumers are sued, one of the first questions people ask is "What is the statute of limitations" on collection suits brought by debt buyers. Let's take a moment and examine this question.

First, a suit begins when a lawfirm such as Zarzaur & Schwartz, PC or Nathan & Nathan or Nadler & Associates files suit on behalf of debt buyers such as Palisades, Unifund, Asset Acceptance, LVNV, Midland Credit, etc. Normally the suit is brought under one or more of the following: Breach of Contract, Open Account, or Stated Account (Account Stated).

Second, the statute of limitations (SOL) means the time period in which the plaintiff (here the collector or junk debt buyer) has to sue before it is too late.

Third, the reason this is such a critical question is because a suit brought after the statute of limitations has expired is due to be dismissed and the debt buyer (and often the lawyer who brought the suit) can be sued under the Fair Debt Collection Practices Act (FDCPA) as it violates the FDCPA to file suit after the SOL has expired.

With this said, let’s now look at what the SOL is in Alabama for collection suits.
[W e do point out some contracts state that another state’s SOL will be used so you have to examine all the documents to know for certain which state’s laws apply].

Normally in Alabama a breach of contract action is a six year statute of limitations. We see some original creditors (Capital One, Citibank, etc) sue under this but it is not common to see debt buyers sue under this because they rarely have the documents to support making such a claim.

In Alabama, normally an open account is a three year statute of limitations and most credit cards fall under this type of agreement. Most collection agencies or debt buyers do not like this as it is a shorter time period and there is law that suggests (or requires, depending on how it is read) that every charge must be proven by the creditor or debt buyer.

The most common type of suit is an account stated suit for which the statute of limitations is six years. The problem the debt buyers have in this type of theory is that they normally do not meet the requirements. First, the debt buyers normally only send a one sheet piece of paper to the consumer which does not "render and balance" the account. Second, the debt buyers will normally struggle with showing that there has been a "meeting of the minds" as to the amount that the consumer owes the debt buyer. Considering the debt buyer normally can't show anyone that it owns the alleged debt, it is difficult to see how the consumer could agree with the debt buyer on some amount. Finally, the last element is the consumer must "admit liability". The debt buyers try to prove this by arguing the consumer did not "object" to the letter described above - but we have not yet seen a case where the consumer admits liability.

Remember that if you are dealing with an abusive debt collector (including one that sues beyond the statute of limitations) we can help you with this - we sue abusive collectors. Sometimes it is not always the easiest thing to figure out which statute of limitations applies, so feel free to contact us.

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As our readers know, the explosion in collection lawsuits against Alabama consumers is staggering. There is a lot of confusion about how lawsuits end when a debt buyer or collector dismisses the case. What is the difference between a dismissal with prejudice and a dismissal without prejudice? The short answer is a dismissal with prejudice is a complete victory and a dismissal without prejudice is a partial victory.

What is a dismissal?
A dismissal is when the lawsuit, which is when a complaint if filed by a debt buyer such as Palisades, Unifund, LVNV Funding, Midland Credit, etc., is put to an end by the court (normally small claims or district court). The plaintiff, in this case the junk debt buyer, can request the court to end the lawsuit by dismissing the allegations or dismissing the complaint. The case is over and there will be no further activity. No trial. No chance of a judgment being entered against you the consumer.

What is a dismissal without prejudice?
A dismissal without prejudice is still a dismissal so the case is over. This is a good thing as the case is finished. The reason we say it is not a complete victory is that the "without prejudice" means that the debt buyer can sue you again. The case is over but it doesn't mean that the money is not owed - it just means the plaintiff was able to convince the court to drop the suit but it does not prevent or impact a second suit against you. Please note this can only be done once by a plaintiff - the second suit has to be dismissed with prejudice.

What is a dismissal with prejudice?
This is the complete victory that we are looking for in these cases. This means that whatever you were accused of - i.e. owing Palisades $3000, etc. - is NOT true. You do not owe the money. Suit can never be brought against you again. The case is over and can not be restarted (some minor exceptions apply but this is true enough for our purposes). Another critical effect of a dismissal with prejudice is that it allows you to give this information to the credit reporting agencies and request that the account be taken off your credit reports. If they won't, then you can often sue the debt buyer and the credit reporting agencies for money damages.

Please note that if you settle the case with the debt buyer, it will often be dismissed with prejudice but that is different if it is the context of a settlement. Here, we are talking about when the debt buyer just dismisses the case with prejudice and there is no settlement.

Why would a debt scavenger dismiss a case with prejudice?
The primary reason is that normally debt buyers and collectors do not have any proof - much less sufficient proof - that you owe the debt to them. They normally don't bring witnesses. They don't bring legitimate documentary evidence. To be blunt what they do is file suits with no intention of proving the case. So if the lawyer from Zarzaur & Schwartz or Nathan and Nathan or Nadler & Associates knows the case is doomed, the lawyer may decide to just end it quickly rather than going through the trial with no chance of winning.

Some lawyers have waited until the morning of trial and when they realize they can't win the case then they ask for a dismissal without prejudice so they can sue you again. We normally oppose this as it does not provide you with certainty. The downside is you could try the case and lose it so you have to know ahead of time the good and bad of whether to take the dismissal without prejudice.

If you have been sued in Alabama by a debt collector or debt buyer, please feel free to contact us for a free consultation.

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In our first part we gave an overview of why you need to pull your credit report when you are sued in Alabama by a debt buyer and in our second part we discussed looking at your credit reports to see what the junk debt buyer is saying about the age of the account. In this part, we will discuss the critical importance of checking your credit reports to see if the debt buyer is reporting the account on your credit report with a "dispute" comment.

Debt collectors, which include debt buyers, can report accounts on your credit report but they must do so accurately. Part of this means that if you have disputed the correctness of the debt (preferably in writing but probably also just over the phone) and then the debt buyer "updates" your credit report, it must show the account as being "disputed". If it does not, it has most likely violated federal law - Fair Debt Collection Practices Act (FDCPA) and state law.

Let's look at this in a little more detail.

How do you dispute a debt? One way is to send in a letter simply stating, "I dispute the accuracy or validity of this debt." Normally debt buyers or collectors will not show the basis of the amount they are claiming or will otherwise fail to give you enough information for you to determine that the amount claimed is correct. If that is the case, you have the right to dispute it. Whenever you send in a letter to a collector or debt buyer, make sure you do it by certified mail and keep a signed copy so you can show what you have done.

Another way to dispute a debt, in particular when you are sued, is to file an Answer to the suit denying that you are liable to the debt buyer. Remember that the debt scavenger must show at trial that it owns the debt and that you owe the debt. When you file an Answer with the court denying liability, this certainly seems that it would put the debt buyer on notice that you are disputing the debt. You may also want to dispute the debt by sending the debt buyer a letter as described above.

OK – so you’ve disputed the debt – what is the next step? You need to pull your credit reports to see if the debt buyer has updated your account or your “trade-line”. The safest approach is to wait until the debt buyer has sent new information to the credit reporting agencies. When that happens, you can see if the debt buyer has said the account is “disputed by consumer”. If the debt buyer does not, then that is a violation of the FDCPA and state law. You probably will want to wait about 3 months to pull your credit report to give the collector or debt buyer the opportunity to update your account. Some update monthly and others do so on a quarterly basis.

The significance of the account being marked as “disputed” is that certain lenders give a different weight or importance to collection accounts that say “disputed” because they understand a debt buyer or collector can simply slap an account on your credit report and it often is false. So, if you dispute it, this shows that you do not agree you owe the money claimed by the collection agency or the junk debt buyer. Congress decided in the passing the FDCPA that this was so important that it required collection agencies or debt buyers to put this dispute comment on accounts.

If you have disputed the debt but the debt buyer or collection agency is updating your report without showing it as being disputed, you should consider contacting a consumer lawyer to help you. We will be glad to have a free consultation with you if you live in Alabama and, if appropriate, we will file suit on your behalf against the debt collectors or debt buyers who are violating the law.

Our final post in this series will be on what should happen to your credit report when you win your trial against the collector or junk debt buyer. As always, if you have any questions, please let us know.

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Posted In: Collectors/Debt Buyers , Credit Report Errors

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Those who read our blog know that we enjoy the posts by Gary Nitzkin and that is true of his recent post on junk debt which is also known as zombie debt. We suggest you read the article in its entirety.

Here is the conclusion of this post:

If the debt is not verified within that time period, the CRA has to remove the zombie from your credit report. "BUT WHAT IF THE DEBT IS VERIFIED AND IS NOT REMOVED?" you might ask. Hire a law firm to file a lawsuit under the FDCPA and the FCRA as the debt is not yours. When you prevail on your claim or settle it, the zombie debt can actually make you some money and it will cause the credit reporting agencies and/or the credit furnisher to pay your attorneys fees.

Don't let Zombie debt devour your credit rating. Instead, use it to your advantage.

We do want to clarify that from our perspective you will need to show that the debt is not yours if you want to sue after a credit reporting agency verifies the debt. Or you will need to show some inaccuracy, which may be as simple as the zombie debt buyer not marking the account as being disputed if you have previously disputed it directly with the debt buyer. We will post some articles on this in the very near future so stay tuned...

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Posted In: Collectors/Debt Buyers , Credit Report Errors

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In our first part in this series we gave you an overview of why as an Alabama consumer you need to pull your credit reports when you have been sued by a junk debt buyer such as Palisades, Unifund, Asset Acceptance, and the like. We pointed out three reasons:

1. You need to know what the junk debt buyer is saying about you and the date of last activity;
2. Is the junk debt buyer reporting the account as being "in dispute"; and
3. If you win your case will the zombie debt buyer remove the account from your credit reports?

This post will address the first of the these areas - what is the debt buyer saying about you and the age of the account.

Sometimes we see when people have been sued in small claims or district court in Jefferson County or Shelby County or wherever the suit may be filed - we see the amount claimed is significantly higher than the amount listed on the credit report. Most debt scavengers who sue Alabama consumers do NOT claim attorney's fees as they know they cannot obtain attorney's fees when they don't have a valid contract. As we have pointed out, debt buyers normally either do NOT own the account or are unwilling to prove they own the account. So the amount they claim in a lawsuit should be similar to what is on the credit report but often it is not. This can cast doubt on the credibility of the claim - particularly when the amount claimed is (as it almost always is) significantly higher than what they are telling the credit reporting agencies.

The other reason knowing what's on the credit report is so important that we will address in this post is the age of the account. The basic rule is that negative accounts can stay on your credit reports for seven years (sometimes it is seven and a half years). This is measured from the date you first become delinquent - that is normally when you stop making payments. What some junk debt buyers have a nasty habit of doing is to list the starting date as the date they bought the account. This is not an accident. This is to hurt Alabama consumers by forcing the account to stay on your credit reports longer than it is supposed to - here is an example. You default in May 2001. It will come off in May 2008. But Palisades buys the debt in February 2006 and reports the trigger date as February 2006. Now it will stay on until February 2013. When you find this, contact a lawyer immediately so you can file suit if that is appropriate. We have previously posted about this dirty trick of debt buyers. We suggest you respond to this type of malicious conduct with a vigorous and punishing suit.

Part Three of this series will focus on whether the debt buyer is listing your account on your credit report as being in "dispute" as required by law assuming that you have disputed the account.