There is a tendency among being drowning in debt to wish for a magic bullet or some other sudden, easy remedy. Or otherwise to take no action and hope the debt goes away. This path could lead to financial destruction.I am now not paying credit cards as I am swamped with debt, and the minimum payments are killing me. I have been told the banks only gave me debt, not money, and are guilty of conversion by selling my personal information. I have been told the banks are committing fraud, coercion, unjust enrichment and violation of FCRA section 619. Do I owe anybody any money?
Magical Thinking Does Not Solve Debt
I get variations on this type of question fairly frequently. Someone has told the person contacting me that either there is no debt because the person only applied for a credit card but did not sign a contract, or, more esoterically, that there is no longer any money in the U.S. and thus there can be no debt. That argument has its academic basis in the fact that the United States left the gold standard and has allowed the Federal Reserve to issue “currency” in the form of “Federal Reserve Notes.” But it has its true basis in wishful or magical thinking. It would be so nice to wave a wand or speak some powerful words that would make the debt collectors go away.
Fighting is the only way to make them go away.
Contractual Agreement?
To handle the more basic objection first, it is true that a contract is an “agreement” between two parties, but it is not true that the agreement must be signed by both parties. An agreement can be inferred where the parties act as if there is an agreement. For example, if I offer to pay you $100 to walk on your hands across the street, and you do so, then your action has consummated a “unilateral” contract, and I am legally bound to pay you the $100. Likewise, if you apply for a credit card and I accept your application and issue a card to you, and then you use it to make a purchase, your use of the card establishes an obligation to pay back the debt under the contractual terms stated in the application. As far as I know, no modern court has ever held otherwise. Of course, a debt collector might have a difficult time finding the application and proving the terms of the debt-in my opinion a more fruitful line of attack.
Debt collectors often do things which are legally wrong, but these are either defenses or counterclaims you can make against them. Or you can bring suit yourself. The key to remember, though, is that the law is almost never self-enforcing. The mere existence of defenses or claims does not do anything for you-you must assert and prove them in order for them to do you any good.
Gold Is Money
What about the constitutional directive that all money be gold and silver, does this get you off the hook for credit card debt? The argument goes that only “debt” (which Federal Reserve notes signify) has been transferred, rather than money. But the gold and silver provision of the constitution was “written out” of the law by the Supreme Court long ago. That decision was not, in my opinion, a great moment for the Court or the American people, but it has never been revisited. It probably won’t be revisited, either, at least until the U.S. currency is nearing or at the point of collapse. Then Federal Reserve currency won’t seem so central to American commercial life, and a far-seeing Court might, under radical conditions, take a new look at the question.
But even then I suspect that the argument that no money was paid will not fly, and that is because Federal Reserve notes do have at least some “value.” If I offer to pay you 100 clam shells in exchange for something from you, a contract is formed. If I breach it, I would owe you the “value” of the 100 clam shells, normally, or under certain circumstances the shells themselves. Although Federal Reserve notes certainly do not have the value they once had in the market, this has only been to the advantage of people who owe money rather than others. Ironically, about the time anybody would revisit the question of whether federal reserve notes can be used as “money,” they will be approaching worthlessness. Then the biggest disaster a debtor could face would be to have to pay back in something of more enduring value.
Federal Reserve Notes Have Value
A Federal Reserve note is basically an “IOU” by the Federal Reserve, a private institution. The Fed gives currency (these days mostly electronically) to the banks in return for some sort of assets or a promise to pay it back, and that is the way money is created. The banks then lend out the money and it “circulates.” In contract law, debt is normally freely transferable. So not only can federal reserve notes be used as currency, but other forms of “commercial paper” or even private IOUs can also be used to buy things. They aren’t money and won’t necessarily be honored at “face value,” but they can certainly be used to pay debts. This would establish a contract even if it left the value of the obligation uncertain.
No Silver Bullets to Debt
And that leads to the central problem with the various “silver bullet” arguments which try to kill a person’s debt based on technicalities. The judicial system is far more practical than many suppose, and it would not ultimately (after the appeals process-individual judges sometimes do almost anything) make a ruling that would destroy the American commercial system. And this is appropriate in a democracy, since the courts should interpret laws rather than make them. A commercial system which has grown up over many, many years by responding to practical needs and which every legislative action has either taken for granted or actually bolstered, should not be stricken down in an instant by a court opinion.
What to Do
Fortunately, a person being harassed by debt collectors need not hope for such a silver bullet. Most debt collectors have a lot of trouble trying to prove the debts they are trying to collect for much more practical reasons. Often the records no longer exist or cannot be legally introduced as evidence. If you fight back, you can either prove they cannot make their case, or take the fun and profit out of it for them so they drop the case and leave you alone. Tackling just the monster attacking you is probably going to be enough for most people. Watch out for people trying to sell you more.
Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act (FDCPA)
A Basic Overview
The Fair Debt Collection Practices Act (FDCPA) was one of the first comprehensive set of protections established for debtors against debt collectors. It arose out of some truly horrific stories – and the reality is that the debt collectors continue to do horrific things in violation of the law. And yet the FDCPA is pretty good legislation that was designed to give the law enough flexibility to go after whatever the unfair collection practice of the day might be.
This video is designed to give you some idea of the scope of the Fair Debt Collection Practices Act so that you can begin to think of possible counterclaims against the people suing you.
More than that, it is designed to give you an idea of some of the protections that exist for consumers in a society that is awash in debt and plagued by debt collectors.
We hope you will defend your rights. In many cases you can get a lawyer who will help you sue bad companies. But when that isn’t possible, we’re here to help.
Debt Buyers vs Debt Collectors
“Debt Collectors” and “Debt Buyers”
I often talk about debt collectors, but many, and perhaps most people being sued for debt are being sued by people (or companies, usually) that have purchased the debt from someone else and are suing to collect the money for themselves. These are sometimes called “junk debt buyers.”
So What is the difference between a “debt collector” and a “debt-buyer?”
There are some companies that collect debts for other companies, taking a percentage of the collections as their fees, and most people think of these companies when they think about “debt collectors.” But the term “debt collectors,” in its legal sense, is broader than that. There are also debt buyers, who buy the debt from the original creditors and collect on their own behalf, and these companies can also be “debt collectors” in the law.
If a company’s “principle business” is the collection of debts, it is a “debt collector” whether it is a debt buyer or (just) a collector. So the company that bugs you on behalf of the original creditor is a debt collector, and so is the company that bought the debt and began harassing you in an attempt to collect for itself. And so, usually, are the lawyers suing you and their firms. All must obey the Fair Debt Collection Practices Act.
“Debt collector” used to be more conveniently determined as a matter of when a company purchased a debt – if it buys a debt that isn’t being paid solely for the purpose of collecting it, it is obviously functioning simply as a debt collector. But our distinguished Supreme Court – distinguished mostly based on its hostility to working people and its favor to the rich – sees otherwise. It ruled against common sense in 2017. So now one must look to the status of the company – what its “principle business” may be – rather than its actions.
One problem with using the “principle business” standard is that the term has rarely, if ever, been actually quantified. That is, no one really knows what percentage of a company’s business needs to be a certain thing before that thing is its principle business. More fundamentally, all the debt buyers are doing is changing the name of the person allegedly owed. They make exactly the same amount of money they ever did (or they can if the deal is structured that way because there is no real risk of ownership), and their business is exactly what a third person debt collector’s is: they collect money owed to someone else. This should not be changed if the company incidentally happens to have some other operations that are other than collecting debts.
For example, a law firm that buys debts and sues on them (as many do) will almost certainly no longer be a debt collector, whereas Congress has been pretty clear that it wanted them to be. And the standard wrongly seems to focus on the overall business of the business rather than the nature of its operations vis a vis the debt in question.
Nevertheless, to prove a debt buyer is a debt collector under the FDCPA, you will now have to prove that is it’s principle business, and that will make bringing a counterclaim more difficult.
However, for purposes of defense this will not make any difference. The important thing about debt buyers, from our perspective, is that they are suing on a debt which they did not generate. This means they probably won’t have, and won’t be able to get, the records that would legitimately support the debt at trial. You should be able to beat any debt collector or debt buyer in court.
Our materials work on both debt collectors and original creditors.
Debt Collection is a Social Justice Issue
When banks screw up, they get bail-outs and promotions. When you do, you get subjected to an elaborate rip-off system and called bad names by strangers. Stand up for your rights.
Anybody who has ever been to a court that handles debt cases has been impressed by what a travesty of justice the scene presents. People are herded in in large groups, and then there’s a cattle call. It goes like this:
Judge: “John Smith? … John Smith?”
Lawyer for debt collector: “Ask for default.”
Judge: “Granted. Joe Blow? Joe Blow?”
Lawyer for debt collector: “Ask for default.”
Judge: “Granted. Susie Q? Susie Q?”
etc.
And this goes on for possibly an hour. A few people will stand up and respond to the judge, and these are directed to “discuss matters” with the debt collection lawyer. These almost always end up as “give-up” settlements or judgments.
When the one in a hundred persons does appear and actually fight, the court is so startled, and yet so used to the giving up, that chances are good the person will have to work five times as hard to get a fair shake as you would in any other kind of case.
A glimpse at the people will tell you why: these are the working poor – or just the poor – being cycled through the system.
Wishful Thinking – Dreaded Enemy of People in Debt
There is a tendency among being drowning in debt to wish for a magic bullet or some other sudden, easy remedy. Or otherwise to take no action and hope the debt goes away. This path could lead to financial destruction.I am now not paying credit cards as I am swamped with debt, and the minimum payments are killing me. I have been told the banks only gave me debt, not money, and are guilty of conversion by selling my personal information. I have been told the banks are committing fraud, coercion, unjust enrichment and violation of FCRA section 619. Do I owe anybody any money?
Magical Thinking Does Not Solve Debt
I get variations on this type of question fairly frequently. Someone has told the person contacting me that either there is no debt because the person only applied for a credit card but did not sign a contract, or, more esoterically, that there is no longer any money in the U.S. and thus there can be no debt. That argument has its academic basis in the fact that the United States left the gold standard and has allowed the Federal Reserve to issue “currency” in the form of “Federal Reserve Notes.” But it has its true basis in wishful or magical thinking. It would be so nice to wave a wand or speak some powerful words that would make the debt collectors go away.
Fighting is the only way to make them go away.
Contractual Agreement?
To handle the more basic objection first, it is true that a contract is an “agreement” between two parties, but it is not true that the agreement must be signed by both parties. An agreement can be inferred where the parties act as if there is an agreement. For example, if I offer to pay you $100 to walk on your hands across the street, and you do so, then your action has consummated a “unilateral” contract, and I am legally bound to pay you the $100. Likewise, if you apply for a credit card and I accept your application and issue a card to you, and then you use it to make a purchase, your use of the card establishes an obligation to pay back the debt under the contractual terms stated in the application. As far as I know, no modern court has ever held otherwise. Of course, a debt collector might have a difficult time finding the application and proving the terms of the debt-in my opinion a more fruitful line of attack.
Debt collectors often do things which are legally wrong, but these are either defenses or counterclaims you can make against them. Or you can bring suit yourself. The key to remember, though, is that the law is almost never self-enforcing. The mere existence of defenses or claims does not do anything for you-you must assert and prove them in order for them to do you any good.
Gold Is Money
What about the constitutional directive that all money be gold and silver, does this get you off the hook for credit card debt? The argument goes that only “debt” (which Federal Reserve notes signify) has been transferred, rather than money. But the gold and silver provision of the constitution was “written out” of the law by the Supreme Court long ago. That decision was not, in my opinion, a great moment for the Court or the American people, but it has never been revisited. It probably won’t be revisited, either, at least until the U.S. currency is nearing or at the point of collapse. Then Federal Reserve currency won’t seem so central to American commercial life, and a far-seeing Court might, under radical conditions, take a new look at the question.
But even then I suspect that the argument that no money was paid will not fly, and that is because Federal Reserve notes do have at least some “value.” If I offer to pay you 100 clam shells in exchange for something from you, a contract is formed. If I breach it, I would owe you the “value” of the 100 clam shells, normally, or under certain circumstances the shells themselves. Although Federal Reserve notes certainly do not have the value they once had in the market, this has only been to the advantage of people who owe money rather than others. Ironically, about the time anybody would revisit the question of whether federal reserve notes can be used as “money,” they will be approaching worthlessness. Then the biggest disaster a debtor could face would be to have to pay back in something of more enduring value.
Federal Reserve Notes Have Value
A Federal Reserve note is basically an “IOU” by the Federal Reserve, a private institution. The Fed gives currency (these days mostly electronically) to the banks in return for some sort of assets or a promise to pay it back, and that is the way money is created. The banks then lend out the money and it “circulates.” In contract law, debt is normally freely transferable. So not only can federal reserve notes be used as currency, but other forms of “commercial paper” or even private IOUs can also be used to buy things. They aren’t money and won’t necessarily be honored at “face value,” but they can certainly be used to pay debts. This would establish a contract even if it left the value of the obligation uncertain.
No Silver Bullets to Debt
And that leads to the central problem with the various “silver bullet” arguments which try to kill a person’s debt based on technicalities. The judicial system is far more practical than many suppose, and it would not ultimately (after the appeals process-individual judges sometimes do almost anything) make a ruling that would destroy the American commercial system. And this is appropriate in a democracy, since the courts should interpret laws rather than make them. A commercial system which has grown up over many, many years by responding to practical needs and which every legislative action has either taken for granted or actually bolstered, should not be stricken down in an instant by a court opinion.
What to Do
Fortunately, a person being harassed by debt collectors need not hope for such a silver bullet. Most debt collectors have a lot of trouble trying to prove the debts they are trying to collect for much more practical reasons. Often the records no longer exist or cannot be legally introduced as evidence. If you fight back, you can either prove they cannot make their case, or take the fun and profit out of it for them so they drop the case and leave you alone. Tackling just the monster attacking you is probably going to be enough for most people. Watch out for people trying to sell you more.
Why Do Debt Collectors Not Give up
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Estimating Risk and Value in Debt Litigation
Why debt collectors or original creditors will negotiate with you
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What to do if you have debt troubles part 2
This video goes through the reasons you should win if you get sued for debt and begins the discussion on how to send the right signals to the debt collectors to leave you alone.
This is the second video of this series. Here is the link to the first one: https://yourlegallegup.com/pages/RO2-1
In these videos we take a basic look at debt – the way it piles up and the problems that come along with that. And we talk about the actions you should start taking to defend yourself from possible consequences.
Negotiate for yourself or use a service?
One question we have often gotten is whether you should negotiate for yourself or hire someone else to do it. We will address that question more extensively below, but in general, debt negotiation companies do not have any secret tools or special access to get you better results than you could get for yourself. They can’t get you better results than you could get yourself, although in rare situations you might find a gifted negotiator who is simply better at it than you are, of course.
But usually, as a matter of fact, you will probably be able to get a better result than a debt negotiator because it’s your debt and you care more about it than a negotiator would. Also, you will have power to take, or to threaten to take, actions that a hired negotiator would not have the power to take — i.e., you could threaten to file suit, defend their suit, or declare bankruptcy (just to mention three examples) that a hired negotiator would probably not be able to say. Most of debt negotiation involves not backing down and the effective use of time – along with not giving away too much and building up your actual rights. You’re in a better position to do that for yourself than a debt settlement negotiator could ever be.
The main advantage of a debt negotiator would be one of convenience or, more likely, as a cost of being afraid. Consider the deal the debt negotiator offers: they’ll want a percentage of what they save you. You can figure out how much that will be. Are you willing to pay someone else $5,000 to make twenty minutes of telephone calls for you that you could make because you’re uncomfortable making those calls? It’s a high price to pay.
Requiring Verification – Your Secret Weapon against Debt Collectors
When you get the first notice that a debt collector is after you, you should get an opportunity to “dispute and request verification.” That right is provided by the Fair Debt Collection Practices Act (FDCPA). Click here to get your free copy of the FDCPA. This video here explains why you should dispute the debt and require the debt collector to verify it. In other words, always seek verification And this video shows you how to do it, and how it affects some of your other rights, because often a debt collector will either disappear completely once you seek verification or will fail to provide verification but still harass you – a violation of the FDCPA.
But remember this does not work if they file suit against you – if you don’t answer a lawsuit when it is filed, you will lose the case. See Bogus Right to Verification on Petition – Dirty Trick! If you have already sought verification but not received it, you might file a motion to dismiss based on their failure to verify.
Here’s what to do if they fail to verify the debt before suing you.
When debt collectors contact you for the first time, they are supposed to send you a written notice of your right to dispute and require them to verify the debt. They are to inform you that you have 30 days to send in this dispute, and if you do so, they are supposed to “verify” the debt prior to taking any further collection actions.
Now, to be clear, we do not think the “verification” to which you have a right under the FDCPA amounts to much, but we do, in fact, recommend making sweeping demands of the debt collector. At a minimum, you may get some materials that will be useful if they decide to sue you. And there’s a pretty good chance that disputing the debt will cause them to go away and leave you alone. I have never had a satisfactory explanation for why this might be, but it appears to be the case. Therefore it makes sense to demand verification when you first hear from a debt collector.
Take NOTE
This right to verification does not extend to law suits. If they serve you with a lawsuit, you must answer the petition or lose the case. You HAVE NO RIGHT TO VERIFICATION ONCE THEY FILE SUIT. But if they have contacted you, and you have demanded verification before they filed suit, then they should verify before filing suit. Failure to do so violates the FDCPA.
Also note two other things: your dispute should be in writing – they don’t have to verify if it isn’t. And while you have only thirty days to make the dispute, they can take any amount of time in providing that verification – it’s just that they cannot make other attempts to collect the debt until they do.