Foreclosure and the Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act was designed to control debt collectors in the process of debt collection. Foreclosures exist in order to force the debtor, one way or another, to pay a debt, and in recent years it would be hard to find a more abused area of collection law. The FDCPA should, therefore, apply. Not all courts agree. The essay below is, perhaps unfortunately, designed to address this issue in depth and detail. Thus it will require some effort to read. There are videos at the bottom of the page about Foreclosure as a procedure for debt collection and about what jurisdiction is and how it applies in this situation.
Applying the FDCPA to Foreclosure Actions
The Fair Debt Collection Practices Act (FDCPA) is a law that, primarily, applies to “debt collectors” who are “collecting debts” (as those terms are defined by the statute. Foreclosure and all the actions leading to it are clearly attempts to collect a debt. Whether the FDCPA will be applied to them, on the other hand, is not so clear.
Currently, it appears that a majority of the district courts that have ruled on the question have found that the FDCPA does not apply. Most of the circuit courts of appeal addressing the question, on the other hand, have held that it does. Eventually the law will probably catch up with common sense and the broad remedial purpose of the FDCPA, but for now whether the Act will apply to foreclosure may depend on where you live – and what court you file your suit in.
In this essay we will first discuss the arguments in favor of applying the FDCPA to foreclosure, then the arguments against it, and finally will compare the relative merits of the arguments. The good news for anyone seeking to apply the FDCPA to foreclosure is that even the jurisdictions that have held it does not apply have exceptions that open the door to a considerable extent. In whatever jurisdiction you use, you will need to know all the arguments.
The arguments in support of applying the FDCPA to foreclosure are both numerous and intuitive. The legal purpose of foreclosure is to collect a debt, whether the process requires the filing of a lawsuit and judgment (judicial) or is simply a formal process that does not require a judgment (non-judicial). Foreclosure is designed to allow for the original owner to take the property, sell it, and use the money to pay off a debt. The foreclosure process has often been abused and in ways similar to other debt collection techniques; nothing in the Act itself exempts foreclosure; and several parts of the Act strongly suggest that foreclosure was intended to be included.
The arguments against including foreclosure, by contrast, are superficial and counterintuitive, relying on hornbook rules of statutory construction like “the expression of one concept implies the exclusion of the unexpressed” or reading a statute in a way which avoids “surplussage.” On the other hand, some courts rely on the fiction that the holder of the security interest is somehow the “true” owner of the property in question and that it is somehow unjust to allow the debtor to continue to possess the property. Thus the foreclosing entity is merely “taking back” what is truly its property and need not obtain a judgment in order to do so, a notion based on the mistaken assumption that all foreclosable liens are purchase money mortgages.
In Glazer v. Chase Home Finance, LLC, __ F.3d __, 2013 WL 141699 (6th Cir. Jan. 14, 2013), the court stated as follows:
Unfortunately, the FDCPA does not define “debt collection,” and its definition of “debt collector” adds little, as it speaks in terms of debt collection.
But the statute does offer “guideposts.” It defines the word “debt” as “any obligation of a consumer to pay money arising out of a transaction in which the … [money or credit is spent]… primarily for personal, family, or household purposes.” 15 U.S.C. Sec. 1692a(5). This language suggests that coverage depends on the purpose of the debt, rather than whether the debt is secured, citing, Haddad v. Alexander, Zelanski, Danner & Fioritto, PLLC, 698 F.3d 290, 293 (6th Cir. 2012) (applying FDCPA to condo assessments). Accordingly, home loans are debts even if secured, Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216-17 (11th Cir. 2012); Maynard v. Cannon, 401 F.App’x 389, 394 (10th Cir. 2010).
This case draws significant support from important cases in two other circuits of the federal appeals courts, Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Cir. 2006) and Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3d Cir. 2005).
The Act’s substantive provisions indicate that debt collection is performed through either a “communication” (Sec. 1692c), “conduct,” (1692d) or “means,” (1692e, 1692f). These broad words suggest a broad view of what the Act considers collection. Nothing in these provisions limits applicability to collection actions not legal in nature. Foreclosure’s legal nature, therefore, does not prevent it from being debt collection.
Glazer referred to Black’s Law Dictionary, which the Supreme Court relied on in Heintz, 514 U.S. at 294: “In ordinary English, a lawyer who regularly tries to obtain payment of consumer debts through legal proceedings is a lawyer who regularly ‘attempts’ to ‘collect’ those consumer debts.”
Thus, if a purpose of an activity taken in relation to a debt is to “obtain payment” of the debt, the activity is properly considered debt collection. See Shapiro & Meinhold v. Zartman, 823 P.2d 120, 124 (Colo. 1992)(foreclosure is a method of collecting a debt by acquiring and selling secured property to satisfy a debt).
In fact, every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt, either by persuasion (i.e., forcing a settlement) or compulsion (i.e., obtaining a judgment of foreclosure, selling the home at auction and applying the proceeds to pay for the outstanding debt). Glazer v. Chase, at p. 11. The existence of redemption rights and the potential for deficiency judgments demonstrate that the underlying purpose of foreclosure is to obtain payment of a debt, Glazer, id., citing Eric M. Marshall, Note, The Protective Scope of the Fair Debt Collection Practices Act: Providing Mortgagors the Protection They Deserve from Abusive Foreclosure Practices, 94 Minn.L.Rev. 1269, 1297-98 (2010) and not, more esoterically, to repossess (or become possessed of) the security.
No provision of the Act excludes forclosure or the enforcement of security interests from its reach, generally, and some affirmatively suggest that such activity is debt collection. Section 1692f prohibits debt collectors from using unfair or unconscionable means “to collect any debt,” and the non-exhaustive list of specific activities applied to that includes “taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if there is no present right to possession of the property claimed as collateral through an enforceable security interest.” 15 U.S.C. Sec. 1692f(6)(A). As Glazer points out, the example’s presence within a provision that prohibits unfair means to “collect or attempt to collect any debt” suggests that mortgage foreclosure is a “means” to collect a debt. Glazer, p. 11.
And Section 1692i requires a debt collector bringing a legal action “to enforce an interest in real property securing the consumer’s obligation” to file in the judicial district where the property is located. 15 U.S.C. Sec. 1692i(a)(1). This provision applies only to “debt collectors” as defined in the first sentence of the definition 1692a(6). This suggests that filing any type of mortgage foreclosure action is debt collection.
Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3rd Cir. 2005)
Piper v. Portnoff was a case involving utility bills. The defendant lawyers made numerous demands on outstanding utility bills without adhering to the FDCPA. When the plaintiff did not pay the bills, the firm obtained a lien on the plaintiff’s home. Then the lawyers sought to foreclose on the lien. The defendants attempted to argue that the FDCPA did not apply because they had only sought to foreclose on a security, and the Third Circuit rejected this argument.
The Piper case did involve numerous pre-foreclosure notices and threatening letters involving a simple bill before the bill was converted to a lien, so the court was probably influenced by the fact that the lien’s purpose in this case was simply a step in the collection process which foreshadowed – in very short order – the foreclosure of the lien to collect the debt. The sequence of events highlighted the absence of what might be considered a “normal” part of mortgages which the courts applying an “unjust enrichment” theory accept as given, i.e., that the lien was part of the means by which the plaintiffs had purchased the house.[1] The sequence of events in Piper demonstrates that not all property liens arise in a way which suggests that the lender truly “owns” the property rather than the debtor, and negated the unjust enrichment aspect of the argument in favor of permitting foreclosure as not the “collection of a debt.”
In reality, as Glazer points out, nothing is clearer than that mortgage foreclosure is all about collecting a debt. Its purpose is very simply to obtain money to pay a debt, and any overage is due back to the debtor. The holding of Piper was that a debt’s conversion to a lien did not alter its character as a debt. Nothing in the FDCPA suggests a different rule for cases involving purchase-money security vs. security interests that arise in other ways as it did in Piper. An even more powerful case relating to this is Romea v. Heiberger & Assocs., 163 F.3d 111 (2d Cir. 1998).
Romea v. Heiberger & Associates, 163 F.3d 111 (2d Cir. 1998)
Romea was a case involving eviction for failure to pay rent. In this case, the plaintiffs had fallen behind in rent due, and the defendant sent them a “three-day notice” as required byNew Yorklaw as a prerequisite of eviction. The notice did not contain the required FDCPA mini-miranda warning or right to demand verification, and the plaintiffs filed suit under the FDCPA.
The defendant argued that since the three-day notice was a statutory prerequisite for repossession of the property for nonpayment of rent, it was not a “communication” in an attempt to collect a debt. Noting that the defendant “made no attempt to deny that its aim in sending the letter was at least in part to induce Romea to pay the back rent she allegedly owed,” the court held that the fact that the letter was a statutory prerequisite to eviction was “wholly irrelevant to the requirements and applicability of the FDCPA.” The notice was an attempt to collect a debt that had to comply with the FDCPA’s requirements.
The Romea court also rejected the argument that because the 3-day notice was a statutory prerequisite to eviction it was a pleading. In the first place, the required notice was not a pleading at all under New York law, but merely a notice to the tenant of what must be done to forestall a summary proceeding. More significantly, however, the 2nd Circuit construed the 15 U.S.C. Sec. 1692a(6)(D) exemption to apply “only to process servers, and not to those who prepared the communication that was served on the consumer.”
Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2006)
In Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2006), a bank hired a law firm to foreclose on a house because the home loan was in default. The firm commenced foreclosure proceedings and contacted the plaintiff to say her home would soon be sold at auction. The plaintiff filed suit under the FDCPA.
The defendant argued that the plaintiff’s debt ceased to be a debt for purposes of the Act once foreclosure proceedings began, and that foreclosure was distinct from the enforcement of an obligation to pay money. The Fourth Circuit rejected the argument, holding that the debt remained a “debt” and that the firm’s actions surrounding the foreclosure proceeding were attempts to collect that debt. Id., 443 at 376. The court noted specifically that “the firm’s argument, if accepted, would create an enormous loophole in the Act immunizing any debt from coverage if that debt happened to be secured by a real property interest and foreclosure proceedings were used to collect the debt.” Id. Seeing “no reason to make an exception to the Act when the debt collector uses foreclosure instead of other methods,” the court held that the firm’s “foreclosure action was an attempt to collect a debt.” Id. at 376, 378.
Cases Against Applying the FDCPA to Foreclosures
The cases opposing application of the FDCPA to foreclosure are much more cursory in their analysis. Some hold that foreclosure is distinct from the debt collection process because “payment of funds is not the object of the foreclosure action.” Hulse v. Ocwen Fed Bank, 195 F.Supp. 2d 1188, 1204 (D. Or. 2002). The court in Glazer flatly rejects this argument for the reasons stated above, holding that “there can be no serious doubt that the ultimate purpose of foreclosure is the payment of money.”
Gray v. Four Oak Court Ass’n, Inc. 580 F.Supp.2d 883 (D.Minn. 2008)
In Gray v. Four Oak Court Ass’n, Inc., 580 F.Supp.2d 883 (D.Minn. 2008) the court rejects application of the FDCPA to foreclosure based on the supposed definition of “debt collector.” According to the Gray court, “the statute’s definition of a ‘debt collector’ clearly reflects Congress’s intent to distinguish between the ‘collection of any debts’ and ‘the enforcement of security interests.’”
This is so, according to Gray, because the first sentence of the definition in Sec. 1692a(6) defines a debt collector as “an person who uses any instrumentality of interstate commerce or the mails [for] the collection of any debts… The third sentence of Sec. 1692a(6) provides that for purposes of Sec. 1692f(6) a debt collector is also “any person who uses any instrumentality of interstate commerce…[for] the enforcement of security interests.” Therefore, if a party satisfies the first sentence, it is a debt collector for all purposes, but if the party only satisfies the third sentence it is only a debt collector for purposes of 1692f(6). “If the enforcement of a security interest was synonymous with debt collection, the third sentence would be surplussage because any business with a principal purpose of enforcing security interests would also have the principal purpose of collecting debts.” Id., 580 F.Supp.2d 883, 888. (emphasis added). Thus the court held that the enforcement of a security interest, including a lien foreclosure, does not constitute the “collection of any debt.”
Although there is a superficial appeal to the Gray court’s reasoning, it is untenable. It simply ignores the fact that foreclosure is inevitably intended as a means to collect a debt and builds a huge loophole into the Act which would frustrate the legislative intent. There is no basis in Gray for distinguishing the situations that arose in Piper, where the debt was converted to a security interest – a process which happens, incidentally, under Missouri law where a judgment in civil court becomes a lien on real property.
Again, the Glazer court flatly rejects the argument, citing Piper. The third sentence of the definition does not except from the definition of debt collection the enforcement of security interests; it simply “makes clear that some persons who would be without the scope of the general definition are to be included where Sec. 1692f(6) is concerned:”
[e]ven though a person whose business does not primarily involve the collection of debts would not be a debt collector for purposes of the Act generally, if his principal business is the enforcement of security interests he must comply with the provisions of the Act dealing with non-judicial repossession abuses. Section 1692a(6) thus recognizes that there are people who engage in the business of repossessing property whose business does not primarily involve communicating with debtors in an effort to secure payment of debts.
Piper, 396 F.3d at 236. And, in the words of the Fourth Circuit, “[t]his provision applies to those whose only role in the debt collection process is the enforcement of a security interest.” Wilson, 443 F.3d at 378.
This reasoning may seem a little strained, but a contrary reading excludes a large category of debt collectors for no principled reason at all in a way which inevitably would, and widely has, led to abuses that frustrate the purposes of the Act. And there is a group that satisfies this definition: repossession agencies and their agents, “who typically ‘enforce’ a security interest – i.e., repossess or disable property – when the debtor is not present, in order to keep the peace. See, Glazer v. Chase Home Fin. Slip. Op. at 15, citing cases applying the definition’s third sentence to repossession agencies: Montgomery v. Huntington Bank, 346 F.3d 693, 700 (6th Cir. 2003), Nadalin v. Auto Recovery Bureau, Inc., 169 F.3d 1084, 1085 (7th Cir. 1999), James v. Ford Motor Credit Co., 47 F.3d 961, 962 (8th Cir.1995)(noting that “a few provisions of the Act subject repossession companies to potential liability when they act in the enforcement of others’ security interests”).
Seventh and Eleventh Circuit Interpretations
The Seventh Circuit has not ruled whether foreclosure is per se debt collection, but in a non-foreclosure case took a “pragmatic” approach. In Gburek v. Litton Loan Servicing, LP, 614 F.3d 380, 386 (7th Cir. 2010, the court looked at a number of communications sent by the debt collector to the consumer. The letters threatened foreclosure and also offered to discuss “foreclosure alternatives,” and the court held that this was a communication related to debt collection.
Since most communications related to foreclosure contain information about foreclosure alternatives, whether by statutory requirement or not, it seems likely that most of them will be communications relating to debt collection. A truly pragmatic view of them would go the further step of recognizing that foreclosure is itself a form of debt collection.
The Eleventh Circuit has officially held that non-judicial foreclosure was not debt collection under the Act. In Warren v. Countrywide Home Loans, Inc., No. 08-16171 (11th Cir. 2009)(unpublished), the court perfunctorily recited the majority of district courts finding foreclosure not a debt collection and held the same way. The court did not intend for the opinion to be published, however, so it has little controlling force, if any, and was not even cited by Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211 (11th Cir. 2012), which cited Wilson, Piper, Romea and Gburek with approval and holding that “A communication related to debt collection does not become unrelated to debt collection simply because it also relates to the enforcement of a security interest. A debt is still a “debt” even if it is secured.”
Reese involved a foreclosure notice required by Georgia law as part of its non-judicial foreclosure process which also contained various statements demanding money and advising that attorney’s fees would be added to the “amount sought.” The Reese court regarded these statements as attempts to collect which converted the foreclosure into a debt collection effort. Or to put it as the Reese court did, the fact that the documents also constituted a foreclosure did not immunize their communications, clearly within the FDCPA, from the Act.
Conclusion
The majority of circuit courts have held that foreclosure is an attempt to collect a debt, and those that have not have adopted an approach that will, in the majority of cases, lead to a similar result. It is very likely that eventually all the courts will reach this common sense application of the FDCPA.
[1] A frequent justification for the special treatment of security interests is that, unlike the payment of general debts where a debtor is unable to pay, where there is a security interest made as part of the payment, it could be said that the debtor does not really own the house and would be unjustly enriched by being permitted to keep it without paying. As Piper shows, however, this is an extremely slippery slope.
Scam Report – Free Credit Report Dot Com
Like a lot of scams, this one may not be illegal, but I would argue that FreeCreditReport.com, which advertises “free” credit reporting, is deceptively marketed and designed to take advantage of people who are worried about their credit scores.
The Product: Freecreditreport.com
First, what is the product sold by the company? It is monitoring of your credit report created by Experion, including alerts warning you of new information which might harm your score. Since Experion is just one of the three main credit reporting agencies, and since these agencies may report different information on your report, the product is of very limited utility.
Second, there’s nothing free about this “free” credit reporting “service.” You can sign up for a trial offer of seven days. It costs a buck and gives you pretty much what you could get for free if you followed links provided by the government. Credit agencies are required to give you a free credit report once a year. At the end of the seven-day “trial” period (but the service may be inactive for the first two of those days), if you forget to cancel the service, they’ll be billing you for $16.95 per month until you do cancel.
Why It’s a Scam
I believe that setting up and heavily advertising something as free when it isn’t free is deceptive marketing. A trial period of only seven days – two days of which don’t even work – is clearly designed to trap and rip off people who aren’t on their toes. And it isn’t even free.
Maybe most important of all is the whole service anyway. To suggest that constantly monitoring one credit bureau is enough is false because the credit bureaus can have different information and you would need to check all three. Ironically, it is also true that getting your credit report every month is also much more than you need – you won’t need your report nearly that often if you are in process of repairing your report (as i suggest how to do in this month’s Life after Litigation article). The process moves much more slowly than that.So your actual need of the product is very limited. The service costs far more than it is worth in my opinion.
And finally, the who marketing of the service is designed to create impulse buys. The ads raise the prospect of identity theft or sudden action by credit bureaus and offer FreeCreditReport.com as some sort of solution. It would not in fact help much with either of these problems. Simply knowing that you’ve suffered identity theft or negative credit reports is only the small tip of the iceberg in protecting your rights.
You Can Beat the Debt Collector
(Even If You Couldn’t Win the Lawsuit!)
If you’re being sued, I’m sure you’re scared. Everyone is. But hear this: you have a very good chance to win the suit if you stand up for yourself. Believe it or not, if you know what you’re doing, the odds are actually stacked in your favor against a debt collector. And it isn’t that hard to learn what you need to know to take them on and beat them.
And even more important, if you stand up for yourself, you will probably beat the debt collector even if you couldn’t win the suit. Read on to see why this is true.
Some Very Basic Facts You Need To Know
If people would stand up for themselves, debt collectors would have a very hard time making any money. Lucky for them, most people don’t stand up for themselves.
The Debt Collector’s Problems
The debt collector will have a lot of problems if you stand up for yourself. They usually don’t have the records they need to prove their case even if you actually did owe the money. And more often than you might expect, you don’t owe them the money because of certain time limits or because they can’t prove they own the debt. They also have certain even bigger practical difficulties that you can use to protect yourself if you know how to find them.
FEAR-The Debt-Collector’s Best Friend
Because the debt collectors would have such a hard time winning if you fight back, they rely on the terror of the collection process to scare you into settling the case or giving up altogether. This fear of the legal process is the most important weapon the debt collectors have. If you can handle that, chances are you’ll get off scott-free. That’s why YourLegalLegUp litigation materials explain how the debt collection business operates from top to bottom.
You Have Almost Nothing To Lose
Strange as it may seem, now that you’ve been dragged into this suit, most of the bad has already happened. It costs very little to fight if you do it yourself. And if the company wins, they are going to get the same thing (in almost every case) whether you fight or not. In other words, it won’t get worse if you fight.
And if you fight and win, as I explain in the section about counterclaims, not only will you not owe them anything, but they may have to pay you.
In other words, you have basically nothing to lose by fighting and everything to win!
Why You Have a Chance to Win
You actually have a very good chance of winning the lawsuit filed against you- if you stand up for yourself. Look at the lawsuit filed against you-the “Petition” it’s usually called. It may look like it was done carelessly, and it probably was. But the paragraphs of the petition say the things the debt company would have to prove to the court-if you stand up for yourself.
They have to prove the existence of a “contract,” or some obligation for you to pay. They have to prove they own the right to sue you. And they have to prove the amount you owe. You might think they could easily do that, but in fact it is difficult if not impossible for them to prove these things.
Discovery – Requests for Documents
This is going to be a brief article. For a fuller discussion and samples, look in the Litigation Manual and Forms. Still, you should be able to create your own after reading this. If you do not already own the Debt Defense System, you should consider it. Membership with us allows us to help and guide you every step of the way.
As with other discovery, Requests for Documents are controlled by the rules of civil procedure for your jurisdiction. And there are two sets of rules you must consider: your state rules in general and, if you are in some sub-court of the state, the rules regarding your court; and your “Local Rules” if your court has them.
Sub-Courts
An example of what I mean by “sub-court” might be what we have in Missouri, Associate Circuit courts. These are courts that are designed to handle smaller amounts of money. Or small claims courts (even less money). Many states have similar types of arrangements, and these sub-courts will have their own special rules, and these rules always control when and how much discovery you can conduct. I normally suggest that people avoid these courts because the can be a little too relaxed about the rules. Relaxed rules may seem “easier” for you, but in reality what they do is let the debt collectors get information in that they couldn’t otherwise – and your best chance of winning is to keep that evidence out.
Even if you’re not in that sort of sub-court, your court may have “local rules,” which are rules designed to elaborate on your state’s rules of civil procedure. The rules of civil procedure will create the general structure of discovery and set the penalties for not cooperating – the local rules will establish certain limits: only a certain number, for example, or that they must be in a certain format (not “compound,” usually, meaning without sub-parts).
Whatever the situation, you must find the rules controlling your discovery, or you may do something wrong, giving the debt collector an easy out. To find your rules of civil procedure, follow this link. Any special rules may be mentioned in your rules of civil procedure or in your court’s web-page. I am not aware of these rules – but you must be.
Content of Requests for Documents
The term “document” for purposes of requests is very broad and contains things like electronic records, facsimiles, any non-identical copy of a record, etc. The term is usually defined in the rules of civil procedure, and the way you would define it is to refer to that rule: “by requesting documents, defendant intends all documents as defined by Rule ___, ____Rules of Civil Procedure.
What You Request
You want everything thing the debt collector could use to support its case or attack yours. At a minimum you should ask for any document in their possession or control which you signed or which they contend applies to you in any way. You want all documents relating to the amount or terms of any alleged debt, every document showing or relating to any agreement you made with them, including any notes or comments. You want every document showing or relating to anything you said. If you have a counterclaim, you’ll want to create requests that get everything they have related to that.
Standard
The standard for requests for production is that you are asking for documents in their possession or control. Possession is obvious, but control includes documents that other people have created for them or in support of their business: accountant’s records, for example, or account records (of your account) if the original creditor agreed to provide them if requested. If these documents are not provided or objected to, but then they try to use them at court, you should request to have them excluded from trial.
Objections
When the other side objects – as they will, to everything you ask – you will, eventually, have to eliminate those objections so that you can be sure you have everything they have. Just because they deny having something you would expect them to have, though, does not mean you can file a motion to compel. Rather – once they have answered, you pretty much have to take them at their word for not having stuff they say they do not have. That is, unless you have evidence they are actually hiding something.
Discovery – Requests for Admissions
Like my article on requests for documents, this is going to be a brief article. For a fuller discussion and samples, look in the Debt Defense System. Still, you should be able to create your own after reading this.
As with other discovery, Requests for Admissions are controlled by the rules of civil procedure for your jurisdiction. And there are two sets of rules you must consider: your state rules in general and, if you are in some sub-court of the state, the rules regarding your court; and your “Local Rules” if your court has them.
Sub-Courts
An example of what I mean by “sub-court” might be what we have in Missouri, Associate Circuit courts – courts that are designed to handle smaller amounts of money, or small claims courts (even less money). Many states have similar types of arrangements, and these sub-courts will have their own special rules, and these rules always control when and how much discovery you can conduct.
Even if you’re not in that sort of sub-court, your court may have “local rules,” which are rules designed to elaborate on your state’s rules of civil procedure. The rules of civil procedure will create the general structure of discovery and set the penalties for not cooperating – the local rules will establish certain limits: only a certain number, for example, or that they must be in a certain format (not “compound,” usually, meaning without sub-parts).
Whatever the situation, you must find the rules controlling your discovery, or you may do something wrong, giving the debt collector an easy out. To find your rules of civil procedure, follow this link. Any special rules may be mentioned in your rules of civil procedure or in your court’s web-page. I am not aware of these rules – but you must be.
What Admissions Are
I have done my best to warn you throughout this series, in my Debt Trouble series, and elsewhere, about the risks of admissions. Whereas requests for admissions are covered in the rules of discovery, they really are not discovery: they are a sort of agreement that certain issues do not need to be argued about. You aren’t seeking information or evidence, you are asking the other side not to dispute the issue – to make evidence unnecessary. That means that while you can argue about what documents or interrogatory answers mean and whether they “establish” any fact, once an admission is made, the issue is resolved and decided. When it comes to answering their requests for admissions, that means you should be very, very cautious. One reason I encourage people to send out discovery first is that I want you to see how they handle yours before you try to answer theirs.
Content
If you have unlimited requests for admissions, you should make sure, at least, to ask them to admit to no knowledge or information regarding each part of their petition. For example, if their first allegation is that you owe them money, you ask them to admit that you do not. And then you ask them to admit they have no evidence that you do. (That’s two separate requests, because requests for admissions must never be “compound” – they can’t have more than one part.)
Special Warning Regarding Requests for Admissions
It should be obvious from the above that requests for admissions are basically just traps for suckers. They will deny or object to every single request you make on any basis, however flimsy. If your rules limit your total discovery to a certain number of requests and include requests for admissions in that number (so that for every request for admission, you lose an interrogatory), I suggest you skip the requests for admissions altogether. On the other hand, many jurisdictions do not limit them this way. The reason you use requests for admissions is that you want to have the materials you need for a motion for summary judgment even if they don’t respond to your discovery at all.
Four Sneaky Tricks of Debt Collectors
Debt collectors make their money by scaring or tricking, people into forfeiting their rights to defend themselves. Often they will let you think you have come to some sort of agreement with them to avoid court (and judgment), they won’t work with you to accommodate your schedule, and in general try to trick, intimidate and scare you into staying away from court. Then they get default judgments. Here are some of their more common tricks. Check out the Litigation Manual and materials for things you can do if debt collectors try these on you.
Don’t let them trick you out of your right to defend yourself. If you fight, you have an excellent chance to win – if you don’t show up and they get a default judgment you may find your wages or bank accounts garnished before you know it.
How to Argue Motions in Court
What to Say and How to Say it
When you’re sued for debt, you may need to make or defend motions in court, and this sometimes means making arguments before the court. This video will help you know what to say and how to argue motions in court.
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Defending Motions for Summary Judgment in Debt Collection Cases
Much More on Foreclosure
Foreclosure and the Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act was designed to control debt collectors in the process of debt collection. Foreclosures exist in order to force the debtor, one way or another, to pay a debt, and in recent years it would be hard to find a more abused area of collection law. The FDCPA should, therefore, apply. Not all courts agree. The essay below is, perhaps unfortunately, designed to address this issue in depth and detail. Thus it will require some effort to read. There are videos at the bottom of the page about Foreclosure as a procedure for debt collection and about what jurisdiction is and how it applies in this situation.
Applying the FDCPA to Foreclosure Actions
The Fair Debt Collection Practices Act (FDCPA) is a law that, primarily, applies to “debt collectors” who are “collecting debts” (as those terms are defined by the statute. Foreclosure and all the actions leading to it are clearly attempts to collect a debt. Whether the FDCPA will be applied to them, on the other hand, is not so clear.
Currently, it appears that a majority of the district courts that have ruled on the question have found that the FDCPA does not apply. Most of the circuit courts of appeal addressing the question, on the other hand, have held that it does. Eventually the law will probably catch up with common sense and the broad remedial purpose of the FDCPA, but for now whether the Act will apply to foreclosure may depend on where you live – and what court you file your suit in.
In this essay we will first discuss the arguments in favor of applying the FDCPA to foreclosure, then the arguments against it, and finally will compare the relative merits of the arguments. The good news for anyone seeking to apply the FDCPA to foreclosure is that even the jurisdictions that have held it does not apply have exceptions that open the door to a considerable extent. In whatever jurisdiction you use, you will need to know all the arguments.
The arguments in support of applying the FDCPA to foreclosure are both numerous and intuitive. The legal purpose of foreclosure is to collect a debt, whether the process requires the filing of a lawsuit and judgment (judicial) or is simply a formal process that does not require a judgment (non-judicial). Foreclosure is designed to allow for the original owner to take the property, sell it, and use the money to pay off a debt. The foreclosure process has often been abused and in ways similar to other debt collection techniques; nothing in the Act itself exempts foreclosure; and several parts of the Act strongly suggest that foreclosure was intended to be included.
The arguments against including foreclosure, by contrast, are superficial and counterintuitive, relying on hornbook rules of statutory construction like “the expression of one concept implies the exclusion of the unexpressed” or reading a statute in a way which avoids “surplussage.” On the other hand, some courts rely on the fiction that the holder of the security interest is somehow the “true” owner of the property in question and that it is somehow unjust to allow the debtor to continue to possess the property. Thus the foreclosing entity is merely “taking back” what is truly its property and need not obtain a judgment in order to do so, a notion based on the mistaken assumption that all foreclosable liens are purchase money mortgages.
In Glazer v. Chase Home Finance, LLC, __ F.3d __, 2013 WL 141699 (6th Cir. Jan. 14, 2013), the court stated as follows:
Unfortunately, the FDCPA does not define “debt collection,” and its definition of “debt collector” adds little, as it speaks in terms of debt collection.
But the statute does offer “guideposts.” It defines the word “debt” as “any obligation of a consumer to pay money arising out of a transaction in which the … [money or credit is spent]… primarily for personal, family, or household purposes.” 15 U.S.C. Sec. 1692a(5). This language suggests that coverage depends on the purpose of the debt, rather than whether the debt is secured, citing, Haddad v. Alexander, Zelanski, Danner & Fioritto, PLLC, 698 F.3d 290, 293 (6th Cir. 2012) (applying FDCPA to condo assessments). Accordingly, home loans are debts even if secured, Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216-17 (11th Cir. 2012); Maynard v. Cannon, 401 F.App’x 389, 394 (10th Cir. 2010).
This case draws significant support from important cases in two other circuits of the federal appeals courts, Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Cir. 2006) and Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3d Cir. 2005).
The Act’s substantive provisions indicate that debt collection is performed through either a “communication” (Sec. 1692c), “conduct,” (1692d) or “means,” (1692e, 1692f). These broad words suggest a broad view of what the Act considers collection. Nothing in these provisions limits applicability to collection actions not legal in nature. Foreclosure’s legal nature, therefore, does not prevent it from being debt collection.
Glazer referred to Black’s Law Dictionary, which the Supreme Court relied on in Heintz, 514 U.S. at 294: “In ordinary English, a lawyer who regularly tries to obtain payment of consumer debts through legal proceedings is a lawyer who regularly ‘attempts’ to ‘collect’ those consumer debts.”
Thus, if a purpose of an activity taken in relation to a debt is to “obtain payment” of the debt, the activity is properly considered debt collection. See Shapiro & Meinhold v. Zartman, 823 P.2d 120, 124 (Colo. 1992)(foreclosure is a method of collecting a debt by acquiring and selling secured property to satisfy a debt).
In fact, every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt, either by persuasion (i.e., forcing a settlement) or compulsion (i.e., obtaining a judgment of foreclosure, selling the home at auction and applying the proceeds to pay for the outstanding debt). Glazer v. Chase, at p. 11. The existence of redemption rights and the potential for deficiency judgments demonstrate that the underlying purpose of foreclosure is to obtain payment of a debt, Glazer, id., citing Eric M. Marshall, Note, The Protective Scope of the Fair Debt Collection Practices Act: Providing Mortgagors the Protection They Deserve from Abusive Foreclosure Practices, 94 Minn.L.Rev. 1269, 1297-98 (2010) and not, more esoterically, to repossess (or become possessed of) the security.
No provision of the Act excludes forclosure or the enforcement of security interests from its reach, generally, and some affirmatively suggest that such activity is debt collection. Section 1692f prohibits debt collectors from using unfair or unconscionable means “to collect any debt,” and the non-exhaustive list of specific activities applied to that includes “taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if there is no present right to possession of the property claimed as collateral through an enforceable security interest.” 15 U.S.C. Sec. 1692f(6)(A). As Glazer points out, the example’s presence within a provision that prohibits unfair means to “collect or attempt to collect any debt” suggests that mortgage foreclosure is a “means” to collect a debt. Glazer, p. 11.
And Section 1692i requires a debt collector bringing a legal action “to enforce an interest in real property securing the consumer’s obligation” to file in the judicial district where the property is located. 15 U.S.C. Sec. 1692i(a)(1). This provision applies only to “debt collectors” as defined in the first sentence of the definition 1692a(6). This suggests that filing any type of mortgage foreclosure action is debt collection.
Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3rd Cir. 2005)
Piper v. Portnoff was a case involving utility bills. The defendant lawyers made numerous demands on outstanding utility bills without adhering to the FDCPA. When the plaintiff did not pay the bills, the firm obtained a lien on the plaintiff’s home. Then the lawyers sought to foreclose on the lien. The defendants attempted to argue that the FDCPA did not apply because they had only sought to foreclose on a security, and the Third Circuit rejected this argument.
The Piper case did involve numerous pre-foreclosure notices and threatening letters involving a simple bill before the bill was converted to a lien, so the court was probably influenced by the fact that the lien’s purpose in this case was simply a step in the collection process which foreshadowed – in very short order – the foreclosure of the lien to collect the debt. The sequence of events highlighted the absence of what might be considered a “normal” part of mortgages which the courts applying an “unjust enrichment” theory accept as given, i.e., that the lien was part of the means by which the plaintiffs had purchased the house.[1] The sequence of events in Piper demonstrates that not all property liens arise in a way which suggests that the lender truly “owns” the property rather than the debtor, and negated the unjust enrichment aspect of the argument in favor of permitting foreclosure as not the “collection of a debt.”
In reality, as Glazer points out, nothing is clearer than that mortgage foreclosure is all about collecting a debt. Its purpose is very simply to obtain money to pay a debt, and any overage is due back to the debtor. The holding of Piper was that a debt’s conversion to a lien did not alter its character as a debt. Nothing in the FDCPA suggests a different rule for cases involving purchase-money security vs. security interests that arise in other ways as it did in Piper. An even more powerful case relating to this is Romea v. Heiberger & Assocs., 163 F.3d 111 (2d Cir. 1998).
Romea v. Heiberger & Associates, 163 F.3d 111 (2d Cir. 1998)
Romea was a case involving eviction for failure to pay rent. In this case, the plaintiffs had fallen behind in rent due, and the defendant sent them a “three-day notice” as required byNew Yorklaw as a prerequisite of eviction. The notice did not contain the required FDCPA mini-miranda warning or right to demand verification, and the plaintiffs filed suit under the FDCPA.
The defendant argued that since the three-day notice was a statutory prerequisite for repossession of the property for nonpayment of rent, it was not a “communication” in an attempt to collect a debt. Noting that the defendant “made no attempt to deny that its aim in sending the letter was at least in part to induce Romea to pay the back rent she allegedly owed,” the court held that the fact that the letter was a statutory prerequisite to eviction was “wholly irrelevant to the requirements and applicability of the FDCPA.” The notice was an attempt to collect a debt that had to comply with the FDCPA’s requirements.
The Romea court also rejected the argument that because the 3-day notice was a statutory prerequisite to eviction it was a pleading. In the first place, the required notice was not a pleading at all under New York law, but merely a notice to the tenant of what must be done to forestall a summary proceeding. More significantly, however, the 2nd Circuit construed the 15 U.S.C. Sec. 1692a(6)(D) exemption to apply “only to process servers, and not to those who prepared the communication that was served on the consumer.”
Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2006)
In Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2006), a bank hired a law firm to foreclose on a house because the home loan was in default. The firm commenced foreclosure proceedings and contacted the plaintiff to say her home would soon be sold at auction. The plaintiff filed suit under the FDCPA.
The defendant argued that the plaintiff’s debt ceased to be a debt for purposes of the Act once foreclosure proceedings began, and that foreclosure was distinct from the enforcement of an obligation to pay money. The Fourth Circuit rejected the argument, holding that the debt remained a “debt” and that the firm’s actions surrounding the foreclosure proceeding were attempts to collect that debt. Id., 443 at 376. The court noted specifically that “the firm’s argument, if accepted, would create an enormous loophole in the Act immunizing any debt from coverage if that debt happened to be secured by a real property interest and foreclosure proceedings were used to collect the debt.” Id. Seeing “no reason to make an exception to the Act when the debt collector uses foreclosure instead of other methods,” the court held that the firm’s “foreclosure action was an attempt to collect a debt.” Id. at 376, 378.
Cases Against Applying the FDCPA to Foreclosures
The cases opposing application of the FDCPA to foreclosure are much more cursory in their analysis. Some hold that foreclosure is distinct from the debt collection process because “payment of funds is not the object of the foreclosure action.” Hulse v. Ocwen Fed Bank, 195 F.Supp. 2d 1188, 1204 (D. Or. 2002). The court in Glazer flatly rejects this argument for the reasons stated above, holding that “there can be no serious doubt that the ultimate purpose of foreclosure is the payment of money.”
Gray v. Four Oak Court Ass’n, Inc. 580 F.Supp.2d 883 (D.Minn. 2008)
In Gray v. Four Oak Court Ass’n, Inc., 580 F.Supp.2d 883 (D.Minn. 2008) the court rejects application of the FDCPA to foreclosure based on the supposed definition of “debt collector.” According to the Gray court, “the statute’s definition of a ‘debt collector’ clearly reflects Congress’s intent to distinguish between the ‘collection of any debts’ and ‘the enforcement of security interests.’”
This is so, according to Gray, because the first sentence of the definition in Sec. 1692a(6) defines a debt collector as “an person who uses any instrumentality of interstate commerce or the mails [for] the collection of any debts… The third sentence of Sec. 1692a(6) provides that for purposes of Sec. 1692f(6) a debt collector is also “any person who uses any instrumentality of interstate commerce…[for] the enforcement of security interests.” Therefore, if a party satisfies the first sentence, it is a debt collector for all purposes, but if the party only satisfies the third sentence it is only a debt collector for purposes of 1692f(6). “If the enforcement of a security interest was synonymous with debt collection, the third sentence would be surplussage because any business with a principal purpose of enforcing security interests would also have the principal purpose of collecting debts.” Id., 580 F.Supp.2d 883, 888. (emphasis added). Thus the court held that the enforcement of a security interest, including a lien foreclosure, does not constitute the “collection of any debt.”
Although there is a superficial appeal to the Gray court’s reasoning, it is untenable. It simply ignores the fact that foreclosure is inevitably intended as a means to collect a debt and builds a huge loophole into the Act which would frustrate the legislative intent. There is no basis in Gray for distinguishing the situations that arose in Piper, where the debt was converted to a security interest – a process which happens, incidentally, under Missouri law where a judgment in civil court becomes a lien on real property.
Again, the Glazer court flatly rejects the argument, citing Piper. The third sentence of the definition does not except from the definition of debt collection the enforcement of security interests; it simply “makes clear that some persons who would be without the scope of the general definition are to be included where Sec. 1692f(6) is concerned:”
[e]ven though a person whose business does not primarily involve the collection of debts would not be a debt collector for purposes of the Act generally, if his principal business is the enforcement of security interests he must comply with the provisions of the Act dealing with non-judicial repossession abuses. Section 1692a(6) thus recognizes that there are people who engage in the business of repossessing property whose business does not primarily involve communicating with debtors in an effort to secure payment of debts.
Piper, 396 F.3d at 236. And, in the words of the Fourth Circuit, “[t]his provision applies to those whose only role in the debt collection process is the enforcement of a security interest.” Wilson, 443 F.3d at 378.
This reasoning may seem a little strained, but a contrary reading excludes a large category of debt collectors for no principled reason at all in a way which inevitably would, and widely has, led to abuses that frustrate the purposes of the Act. And there is a group that satisfies this definition: repossession agencies and their agents, “who typically ‘enforce’ a security interest – i.e., repossess or disable property – when the debtor is not present, in order to keep the peace. See, Glazer v. Chase Home Fin. Slip. Op. at 15, citing cases applying the definition’s third sentence to repossession agencies: Montgomery v. Huntington Bank, 346 F.3d 693, 700 (6th Cir. 2003), Nadalin v. Auto Recovery Bureau, Inc., 169 F.3d 1084, 1085 (7th Cir. 1999), James v. Ford Motor Credit Co., 47 F.3d 961, 962 (8th Cir.1995)(noting that “a few provisions of the Act subject repossession companies to potential liability when they act in the enforcement of others’ security interests”).
Seventh and Eleventh Circuit Interpretations
The Seventh Circuit has not ruled whether foreclosure is per se debt collection, but in a non-foreclosure case took a “pragmatic” approach. In Gburek v. Litton Loan Servicing, LP, 614 F.3d 380, 386 (7th Cir. 2010, the court looked at a number of communications sent by the debt collector to the consumer. The letters threatened foreclosure and also offered to discuss “foreclosure alternatives,” and the court held that this was a communication related to debt collection.
Since most communications related to foreclosure contain information about foreclosure alternatives, whether by statutory requirement or not, it seems likely that most of them will be communications relating to debt collection. A truly pragmatic view of them would go the further step of recognizing that foreclosure is itself a form of debt collection.
The Eleventh Circuit has officially held that non-judicial foreclosure was not debt collection under the Act. In Warren v. Countrywide Home Loans, Inc., No. 08-16171 (11th Cir. 2009)(unpublished), the court perfunctorily recited the majority of district courts finding foreclosure not a debt collection and held the same way. The court did not intend for the opinion to be published, however, so it has little controlling force, if any, and was not even cited by Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211 (11th Cir. 2012), which cited Wilson, Piper, Romea and Gburek with approval and holding that “A communication related to debt collection does not become unrelated to debt collection simply because it also relates to the enforcement of a security interest. A debt is still a “debt” even if it is secured.”
Reese involved a foreclosure notice required by Georgia law as part of its non-judicial foreclosure process which also contained various statements demanding money and advising that attorney’s fees would be added to the “amount sought.” The Reese court regarded these statements as attempts to collect which converted the foreclosure into a debt collection effort. Or to put it as the Reese court did, the fact that the documents also constituted a foreclosure did not immunize their communications, clearly within the FDCPA, from the Act.
Conclusion
The majority of circuit courts have held that foreclosure is an attempt to collect a debt, and those that have not have adopted an approach that will, in the majority of cases, lead to a similar result. It is very likely that eventually all the courts will reach this common sense application of the FDCPA.
[1] A frequent justification for the special treatment of security interests is that, unlike the payment of general debts where a debtor is unable to pay, where there is a security interest made as part of the payment, it could be said that the debtor does not really own the house and would be unjustly enriched by being permitted to keep it without paying. As Piper shows, however, this is an extremely slippery slope.
Debt Collectors Do Not Fear You
And they Never Will
If debt collectors can almost never make money on a case if you fight intelligently, then why don’t they just give up when you file an answer and counterclaim? This article discusses why and explains why you should keep fighting.
If you have read my articles or watched my videos, you know that I believe the debt collectors rarely if ever start out with what they need to win a case. And they can almost never get what they need in a cost-effective way if you defend yourself intelligently (i.e., if you know a little bit about what you’re doing). In other words, I believe that in most cases if you defend yourself—with a little help that my site and materials are designed to provide—the debt collectors cannot win their case against you in a way that makes money for them.
So here’s a question: why don’t they just drop your case as soon as you begin defending yourself intelligently? Shouldn’t they be afraid of you?
Well, why do blackmailers publish the damaging stuff when their victims promise that the can’t afford the asking price? Or why does the mob break legs when you don’t pay a debt?
For a legitimate business, companies focus on creating products and making profit. Debt collectors don’t produce anything – their goal is only to make you pay. And they know that if they get a reputation for letting people get away, other people won’t be afraid enough to pay. They need fear.
Sometimes it is good business to lose money.
The debt collectors are operating a “scam” on an essentially heroic scale: I’d venture to guess that they couldn’t win ten percent of their cases on a profitable basis if the people they were suing would resist intelligently. That isn’t to say that the debt collectors couldn’t win the cases, or even shouldn’t win them (sometimes), but the model of their business is such that they buy huge amounts of debt without really knowing what sort of proof exists to support that debt. And proving cases in a court of law, in the face of intelligent and determined opposition, is an expensive and risky proposition even when all the documents exist—and in debt law, they often do not. Even where there are lawyers on both sides of big-time commercial disputes, cases very rarely go to trial—they almost always settle at a significant discount to what one side demanded.
That’s life in the real world. Lawyers are expensive, and lawsuits are wasteful and bitter.
Not so in the make-believe world of debt litigation. There, the debt collectors get judgments for everything they ask for something like 80 or 90% of the time they serve the lawsuit on the defendants. And this, as I’ve pointed out before, is all the more bizarre because their business model suggests that they would seldom if ever actually win the cases! What gives?
Pain. Pain and fear.
The debt collectors are very much like extortionists in that they strike terror into the hearts of their victims. People rightly fear lawsuits, and people without money fear them more than people with money.
So what could mess up a blackmailer or a debt collector? A reputation as a “soft touch.” Imagine what would happen if a blackmailer gave in to every victim claiming a lack of money! The same thing that would happen to a debt collector who dropped every case where someone filed an answer and counterclaim. They’d get a reputation for giving up, and that would ruin the business. In the case of the debt collectors, it would eventually reverse the strange numbers that make the whole business so profitable.
They can’t let that happen. And that is why debt collectors rarely just drop your case when you show up (although they do sometimes). If you fight your case with determination, though, they will seldom feel the need to go all the way to trial. They want to manage their reputations, but they don’t want to lose a lot of money while they’re doing it, especially since losing a lot of cases after trial might be as bad for them as settling too easily. That means they will almost always eventually either drop your case or offer you the kind of settlement you could actually afford to pay. Pennies on the dollar. There’s a good chance they’ll drop the case entirely if you refuse to settle, but there may come a time and price where it makes sense to settle just to end the fight.
That’s what happens in the real world of law.
So – Do they Ever Fear Anybody?
No. Not really. See, you worry about debt collection suits because losing would hurt you and could seriously cramp your lifestyle. It’s a new and awful experience for you where you never really know what you’re doing and whether it’s enough. Debt collectors are different, though. In the first place, they file many, many lawsuits and almost always in them. Regardless of the circumstances, that doesn’t hurt the self-confidence.
More importantly, lawsuits are just a business for these guys. They have no real “skin in the game.” Losing costs them almost nothing, and they do this every day. There’s nothing scary about a day’s work. And if they lose your case, they have a thousand more to file.
They DO worry about wasting time, though. The one thing that could seriously reduce the profits of the debt collectors is something that would multiply the amount of time they must spend on the cases. That WOULD be a disaster for them, as they have figured costs out very carefully, and lawyers are their biggest expense. Thus, the longer you stick around, the bigger a problem for them you become.
But fear you? Nah. They’ll drop the case eventually because it isn’t profitable – that’s all you need.
Blaming Banks for the Problems they Caused
Has it occurred to you that all or most of your problems were caused by the very bank that is now suing you or that the debt collector purchased the debt from and is now suing you for? Some people argue that you could use that as a defense against their claims against you.
It will not.
Blaming the banks is a kind of “unclean hands” argument, and as far as I’m concerned, it is absolutely justified in a moral sense. The courts won’t see it that way, though.
Proximate Cause
The problem with arguing that “the banks” caused your problems is “proximate cause.” Proximate cause means the “specific problem” must be linked to specific actions by a specific entity. Viewed in that light, how can you argue that, say, Capital One, by extending credit cards and maintaining their policies, has really “caused” anything to happen in society? Many people may believe that the banks, collectively, caused big problems that resulted in raising taxes and sucking resources away from regular people, but how can you assign a specific role in that to Capital One?
Likewise, how do you prove that Capital One caused you problems that you could not have, and should not have, overcome? If we were truly in a capitalistic society the argument simply could not be made: the fact that you did not overcome the problem would be proof that you should not have done so. But we live in an age of bailouts and government interference, of course.
Tell that to the judge, a life-time public employee wielding far-reaching government power every day of his or her professional life.
And then the final zinger: how do you prove what specific action by your specific bank caused some specific injury to you?
Cigarette Litigation
This whole complex of proximate cause issues prevented anyone from winning cigarette litigation for decades. What finally allowed people to get through and win some of the cases was very strong evidence of conspiracy to hide specific facts that the companies knew and had a duty to disclose. There may be evidence of banking conspiracy – there is in some cases – but unlike a cigarette plaintiff who died of lung cancer, you will be hard pressed to show how your injury came from the banks’ action unless there are more specific grounds for applying the doctrine of unclean hands.
Cutting Edge Arguments and a Warning
As I say, I have my sympathies for the position that banks should not be permitted to profit from disasters they themselves caused. And many arguments that end up winning started out as sounding a little far-fetched. So you could consider it. On the other hand, the courts sometimes punish what they consider to be “frivolous” arguments and disputes. Arguments talking about banks and banking, like arguments claiming that our monetary system is completely corrupt live on the edge of “frivolousness” from the point of view of the courts. It would be possible that they could make you pay for taking that position.