When is a Letter from a Collection Attorney Not a Letter from an Lawyer But Is a Letter from a Debt Collector?

In a victory for consumers, the 3^rd Circuit Court of Appeals, which covers Pennsylvania, New Jersey and Delaware, ruled this week that a collection attorney’s letter offering a settlement to a delinquent borrower, violated the federal Fair Debt Collections Procedures Act (FDCPA) by failing to properly inform the consumer that it was not from an attorney, but that it was from a debt collector.

Confused?

The case, Lesher vs. Mitchell N. Kay, PC, 10-3194 (6/21/2011), held that a letter from a law firm which authorized a 75% settlement of a Washington Mutual credit card account if paid within 30 days violated the FDCPA because it mislead consumers into believing that an attorney was involved in collecting the debt, when –in fact—no attorney had reviewed the account.

Indeed, the front of the lawyer’s letter directed the recipient to four disclosures on the reverse side of the letter.  One of these disclosures stated: “[a]t this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account”.  However, the Court held that this disclaimer was contradicted by the body of the letter which indicated that the creditor had retained the law firm in connection with the debt.

The FDCPA is designed to protect the least sophisticated debtors from misleading tactics employed by creditors.  What could be more misleading than a letter from an attorney seeking to collect a debt when no lawyer was involved in reviewing the file?  The Court seemed to create a safe harbor for collection lawyers who send collection letters if they indicate that they are not acting as an attorney but as a debt collector when they are sending the debt.

This ruling is downright wrong, but for the wrong reasons.

First, it seems impossible to believe that a letter on a law firm letterhead about collecting a debt would not lead a consumer to believe that it is not from a law firm.  No disclaimer that “an attorney has not reviewed the particular circumstances of your account” can remove the impression that the debt has moved to a new and more threatening status.  In fact, when I marketed a collection law practice to creditors, I used to say that our law firm’s letters “had more clout!”

Second, no law firm should sell its letterhead.

If your name is on the letterhead, you should not make a demand for a payment without first reviewing the file.  Otherwise, you are not being honest with the recipient.  When a lawyer files a lawsuit to collect a debt, it implicitly certifies that there is good cause for the filing.  And the same should apply to sending a letter by a law firm.   My colleagues in the collection law bar will certainly disagree with this, but what is right is right.

The case is Lesher v. Law Offices Of Mitchell Kay PC. 3rd Circuit Court of Appeals, June 21, 2011

Bankruptcy Filings Surge!!

According to an AP story released today, Bankruptcy filings are increasing nationwide to levels not seen for many years.

The Associated Press analysis revealed that almost 1.2 million debtors filed for bankruptcy in the past 12 months, according to federal court records. Last month, 130,831 sought bankruptcy protection – an increase of 46 percent over March 2008 and 81 percent over the same month in 2007.

Western states showed the highest increase, notably California Nevada, Idaho and Arizona.

Nearly 2 million bankruptcy filings occurred in 2005, in anticipation of the tighter requirements of the Bankruptcy amendments approved during the Bush administration. The level of filings fell to 600,000 in 2006.

Here is a link to the story http://apnews.myway.com/article/20090413/D97HRTNG2.html

Lee M. Herman, Esquire is a Creditors Rights attorney with offices in Media, Pennsylvania and Haddonfield, New Jersey.  For thirty years, he has successfully represented consumers, lenders, borrowers, landlords and tenants in commercial and collection disputes, as well as many local businesses and professional practices in general corporate matters. He can be reached at (610) 891-6500, or by email at lherman@lmhlaw.com.  His web site is www.lmhlaw.com

Consumer Fair Debt Lawsuits Up 60% In Texas

According to a report in today’s Houston Chronicle, consumers are filing 60% more lawsuits against debt collectors compared to last year in the local federal district court.

Under the Fair Debt Collections Practices Act, consumers are awarded $1000 statutory damages, along with any actual damages suffered. In addition, attorney’s fees may be awarded by the court.

Many consumers are not aware of their rights under the federal statute. There are many prohibited actions which could give rise to a Fair Debt lawsuit. Consumers may sue if a collection agency or attorney fails to cease communication after written notice or a debt collector communicates about a debt with a third party such as a debtor’s child, spouse or neighbor. The law also prohibits make harassing or repeated telephone calls, threats of arrest or use profanity in collection calls.

Many out of state collectors violate the law when they threaten to garnish the wages of Pennsylvania residents, which is not permitted.

As noted in yesterday’s post, consumer delinquencies are on the rise. In troubled times, collection agencies have greater difficulty in collecting debts from consumers who are in trouble.  Are illegal tactics used more frequently as a result?

With more debt to chase, and less ability to pay, is it any surprise that Fair Debt lawsuits are also increasing?

Here is the article: http://www.chron.com/disp/story.mpl/front/6370628.html

Lee M. Herman, Esquire is a Creditors Rights attorney with offices in Media, Pennsylvania and Haddonfield, New Jersey.  For thirty years, he has successfully represented consumers, lenders, borrowers, landlords and tenants in commercial and collection disputes, as well as many local businesses and professional practices in general corporate matters. He can be reached at (610) 891-6500, or by email at lherman@lmhlaw.com.  His web site is www.lmhlaw.com

No Surprises: Consumer Loan Delinquencies Rising

A survey released by the American Bankers Association found consumer delinquencies rising across all types of consumer loans in the 4th Quarter of 2008. The composite ratio, which tracks eight closed-end installment loan categories, rose 32 basis points to a record 3.22 percent of accounts (seasonally adjusted).

Here are the increases in delinquencies by category:

* Home equity loan from 2.63 to 3.03 %.

* Property improvement from 1.63  to 1.75 %.

* Indirect auto loan from 3.25 to 3.53 %.

* Direct auto loan from 1.71  to 2.03 %.

* Marine loan from 1.82  to 2.35 %

* RV loan from 1.27 to 1.38 %.

* Personal loan from 2.69 to 2.88 %.

The only category which saw a decrease was Mobile home delinquencies which fell from 3.08 to 2.96 %.  Credit card delinquencies also increased from 4.20 percent to 4.52 percent but still remain near the four year average of 4.47 percent.

The full press release can be viewed here:  http://www.aba.com/Press+Room/040209DelinquencyBulletin.htm

Lee M. Herman, Esquire is a Creditors Rights attorney with offices in Pennsylvania and New Jersey.  For thirty years, he has successfully represented lenders, borrowers, landlords and tenants in commercial and collection disputes, as well as many local businesses and professional practices in general corporate matters. He can be reached at (610) 891-6500 or by Email to lherman@lmhlaw.com.  His website is lmhlaw.com

Foreclosures Rise Nationally As Moritoriums Expire – NJ Bucks Trend

According to RealtyTrac, foreclosures rose 30% in February across the US, compared to a year earlier. And when compared to January, February  filings were up 6%.

The spike in foreclosures was helped by the expiration of statewide moratoriums in Florida and New York.  The trend is expected to continue as voluntary moratoriums by nationwide lenders are set to expire.  For example,  J.P. Morgan Chase’s voluntary halt to new filings ends today, and Bank of America is extending on a week-to-week basis.  Adding fuel to the fire is the reset of approximately $60 Billion in Alt-A and option ARM loans expected in the 2nd quarter.

In New Jersey,  foreclosure filings were down 40% from January. Banks repossessed 654 homes statewide, down 34 percent from the January.  In Pennsylvania, foreclosure filings increased by more than 10% in February compared to the prior month, while sheriff sales and reposessions held steady on a month-to-month basis.

Lee M. Herman is an attorney with offices in Media, PA and Haddonfield, NJ.  For thirty years, he has prosecuted and defended collection lawsuits in state and federal courts on behalf of lenders and borrowers.  He can be reached at (610) 891-6500 or by email at lherman@lmhlaw.com.  His website is lmhlaw.com

Court Decision Raisies the Bar in Collection of Credit Card Portfolios (part 2)

In the prior post, the problems facing debt buyers seeking to collect delinquent credit card accounts were generally described. Today’s post looks at a specific case illustrating these issues.

The outcome was a disaster for the debt buyer, and is a road map for debtor’s attorneys seeking to prevent collection of a delinquent account.

The case is entitled Unifund CCR, Assignee of Palisades Collections vs. Vo and was decided February 17, 2009 by Philadelphia Court of Common Pleas Judge Idee C. Fox.    As is often typical,  bad facts form bad law, at least from the creditor’s point of view.

The debt buyer’s lawsuit initially claimed $14,237.78, plus interest, costs and attorneys fees.  On four occasions, debtor’s attorney filed objections to  the Complaint and each time the debt buyer amended its lawsuit.  Shockingly, the second and third complaints reduced the claim to $6,17.62 in damages, plus interest, costs and attorneys fees. The fourth version  reduced the amount even further to $5,702.36!!!!

The decision suggests that in July, 2001, Jenny Vo signed a written application for an AT&T Universal Card (although the actual application was never provided to the Court).   Plaintiff claimed that in May, 2006, Citibank sold delinquent accounts to  Unifund Portfolio A, which on the same day assigned accounts to “Cliffs Portfolio Acquisition I”.  The creditor further referenced a July, 2005 assignment agreement between “Cliffs Portfolio Acquisition I ” and “Palisades Collection, LLC” as assignors, and “Unifund CCR Partners” as assignees.

As they say in baseball,  “Its hard to tell the players without a scorecard”.

Pennsylvania is a fact pleading state, meaning that the Plaintiff is required to provide enough specific facts to allow Defendant to respond with specific denials to each allegation.   Fact pleading differs from notice pleading, which is the rule in Federal Courts, and which allows more general statements to form the basis of a lawsuit.

Although the creditor sought to show the chain of title of the debt from Citibank to the itself, unfortunately all of the documents produced were generic, referring to “accounts” but not specifically to Ms. Vo’s account.

At this point in the story, you might suspect that the bad ending for the creditor was that the case was dismissed, since the ownership of the account was in doubt.  And you would be right, but only half right.

The creditor’s nightmare got worse.

Judge Fox next set a standard requiring the creditor to identify each  individual transaction which form the basis of the total amount claimed.  The creditor can not merely summarize the total balance owed on the account, either when it was last billed by the original creditor or when it was purchased by the debt buyer.

Not only does the creditor have to identify all unpaid purchases, but it also must state  all changes made the basic agreement which relate to any outstanding charges which the creditor seeks to collect.   For example, each change in interest rate must be specifically noted.

Judge Fox adopted the reasoning of  Worldwide Asset Purchasing LLC vs. Stern, a widely cited Court of Common Pleas decision by Judge Wettick of Allegheny County.  Similar results are reported in Center and Lancaster counties.

What does this all mean?

Its tough enough to collect judgments in Pennsylvania, which greatly protects its citizens with the absence of wage garnishment and which shelters assets of individual debtors who are married through tenancy by the entireties.

Now, purchasers of defaulted credit card accounts have more hoops to jump through as courts require more information than is ordinary included in portfolio acquisitions.

Next: Philadelphia Municipal Court Adopts New Rules Regulating Credit Card portfolio collections.

Lee M. Herman, Esquire, is an attorney with offices in Pennsylvania and New Jersey.  For thirty years, he has prosecuted and defended creditor lawsuits in state and federal courts.  He can be reached at (610) 891-6500 or by email at lherman@lmhlaw.com .  His website is lmhlaw.com

Credit Card Collections Face New Hurdles in Pennsylvania (part 1)

Traditional legal pleading rules pose significant obsticles to creditor rights attorneys seeking to pursue debtors whose credit card accounts  have been sold to portfolio purchasers.   Recent case decisions and new rules in the Philadelphia Municipal Court illustrate these problems.

Here is the scenario:  Credit card issuers regularly sell bundles of delinquent accounts to third parties at a significant discount.  These debt buyers often resell portions of the accounts to other debt buyers.  Eventually, a lawsuit may be brought by an account owner who is the second, third or even more distant owner of the debt. 

Often the ultimate owner of the “charged-off” account has little, if any, of the original documentation concerning the debt.  Known in the industry as the “media”, the portfolio owner may obtain a final balance statement, a copy of the example of the contract used by the issuer at the time the account was created and a generic assignment which may or may not refer to a particular account which has been sold. 

There is no industry or regulatory standard regarding what “media” must accompany the sale of a charged-off account.   Sometimes, the issuer agrees to provide some or all of their data, but at an cost which is prohibitive to the portfolio owner.  Other times, the availability of “media” is limited in time or content, and may be available only to the original purchaser of a portfolio, and not to more remote purchasers.

Traditional Court rules were not designed with these transactions in mind.  For example, Pennsylvania is a “fact pleading” state, where the creditor is obliged to provide specifics as to the date, time and amounts of the items giving rise to the claim.  As such, portfolio owners can find themselves in a litigation trap, as courts and consumer attorneys become more sophistacted and require information the portfolio owner does not possess.

In February, 2009, the Philadelphia Municpal Court adopeted rigorous new procedures which require complex verification procedures to be followed in order to bring credit card cases to court.   These regulations are not available on the Court’s website, but can be obtained by contacting the writer directly.

Tomorrow:  Pennsylvania Court Cases Raise the Bar for Creditors

Lee M. Herman, Esquire, is a creditor’s rights attorney with offices in Media, PA and Haddonfield, NJ.  His email address is lherman@lmhlaw.com, and his website is www.lmhlaw.com.  He can be reached at (610) 891-6500.

Are Mortgage Rates Going To Be Higher Two Months From Now? Here is one Banker’s Opinion.

I was meeting with a banker today opening a new Estate Administration account.   He said something which has me thinking….

It’s his prediction that now is the time for people to refinance with fixed rates at their lowest, with rates about to dramatically climb in two months or so.

Why?

He suggests that when the stimulus payments begin to hit the economy, all sorts of prices will rise. For example, when lots of money is spent on infrastructure, the demand for concrete will rise, and so will the price. He thinks that the banks will have to offer higher rates on savings to compete with other banks, since there will be more money in circulation, and that these higher rates will translate into higher costs to borrow.

This certainly goes against the thinking of President Obama’s mortgage rescue plan. One of the highlights of the proposal is to try and drive mortgage rates lower, in order to keep payments lower.  See “The White House Announcement” tab above for the executive summary of the President’s plan.

This guy is not only a banker, but is an attorney and graduate of Wharton. He works at one of the largest banks in the country, one considered not to be in trouble. From what I know, he is a conservative lender, not a “go-go” type.

30 year Fixed Rates (bankrate.com)

My guess: rates will not be dramatically higher in two months.

This could change if Mrs. Clinton is unable to convince the Chinese to continue to be our biggest lender through their purchases of our Treasury Bonds.  If that happens look for pressure to raise rates to in order to make our debt more attractive.

Would that be Chinese Food for thought?

Lee M. Herman, Esquire, is a creditors rights attorney with offices in New Jersey and Pennsylvania. His website is www.lmhlaw.com. He can be reached at (610) 891-6500 or by email at lherman@lmhlaw.com

Sue the Bank Who Shouldn’t Have Loaned You the Money????

From the ABA Journal, By Martha Neil

Several buyers who say they were somehow prequalified to purchase expensive Seattle condos utilizing mortgages they couldn’t possibly afford are now suing the bank that allegedly put them in this position.

By prequalifying them, JP Morgan Chase Bank set the plaintiffs up to lose $175,000 in earnest money when, inevitably, they failed to qualify for the actual mortgage, the plaintiffs argue in a King County Superior Court suit filed Wednesday. Under a Washington state law, condo developers can retain the earnest money deposit if a buyer backs out, reports the Seattle Times.

The bank apparently declined to comment. However, a real estate agent at upscale Bellevue Towers says the developer has no interest in selling to anyone who can’t afford a unit. Among the condo units at issue in the suit, one reportedly was priced at $724,000 and another was $1.5 million.

Attorney Jim Robinson, who is representing the plaintiffs on a pro bono basis, also criticized the Washington law on earnest money. “If you take that law and combine it with a lousy real-estate market, guess what happens? You’ve got developers running around trying to grab people’s earnest money,” he tells the newspaper. “It’s going on all over the state.”

Judge Rizzo to be Interviewed by Katie Couric and Brian Williams

Judge Annette M. Rizzo

Judge Annette M. Rizzo will be interviewed by the national media in connection with the ground-breaking foreclosure diversion program she heads in the Philadelphia Common Pleas Court.

The Philadelphia court program is viewed across the country as an effective tool in resolving foreclosure cases before Sheriff Sale. She is expected to be interviewed by Katie Couric this week, and by Brian Williams next week.  The program is staffed with volunteer attorneys drawn from the Philadelphia Bar Association who assist homeowners in resolving mortgage defaults through modification agreements.

Judge Rizzo is shown here addressing the Justinian Society on October 1, 2008, when she was presented with the Judge Lisa A. Richette Outstanding Woman in the Law Award.