Defense of Unsecured Debt

Defense of Unsecured Debt Presented by Jean L. Murray Vermont Legal Aid, Inc. P.O. Box 606, Montpelier Vt 05602 jmurray@vtlegalaid.org October, 2016 Date Consumers 1. Missed payments because of Illness, exploitation, death of family, loss of job, divorce 2. When they got in trouble, credit company refused to negotiate. 3. May never have heard of the plaintiff 4. May be the wrong debtor, wrong amount 5. May want to pay what they owe, but a. it is impossible; their income may be exempt from collection b. paying what is asked (7 months of penalty interest) is unfair 1

Credit Card collectors in Court Debt inflated by penalty interest rates accrued after default on card. Litigation strategy is to get judgment by default no admissible evidence needed Volume business; get some payment on many accounts. Know debtor is exempt from collection, but proceed anyway. The structure and practices of the debt buying industry. FTC report, 2013 https://www.ftc.gov/sites/default/files/documents/reports/structure andpractices debt buying industry/debtbuyingreport.pdf In FY 2013 (approximately) Small Claims 4900 new cases, 2800 default Superior Court 6,696 new cases, 2422 default 2

Most important Exemptions from collection VRCP Form 34: 12 VSA 2740; 12 VSA 3170 and more Standing Debt buyers must prove assignments Evidence VRE 902(11) does not eliminate need for foundation witness Pleading and Default rules Urging debt collection plaintiffs to have evidence prior to filing case Interview client Midland says you owe a debt to Citibank. What do you know about Citibank? Do you have any papers or statements from Citibank? Did Midland ever send you a letter about this debt? I see you have a Complaint from Midland. What do you know about Midland? Advise client How exemptions apply to them Payments revive statute of limitations Consideration of bankruptcy Consumer rights possible affirmative case or counterclaims Fair Credit Reporting Act 15 U.S.C. 1681 Fair Debt Collection Practices Act 15 U.S.C. 1692 3

Exemptions 12 VSA 2740 12 VSA 3170 Assistance from Department of Health Care Access 27 VSA 101 Tenancy by entireties judgment against one spouse can t be lien Exemption math Earnings. Federal minimum wage = 7.25 hour x 40 = $290. If client earns $290. or less a week, then his earnings are exempt from collection. Disposable at least means, after taxes. Likely means after taxes and insurance are deducted. Could mean net paycheck after necessaries (housing, utilities, food) paid for. Homestead 27 V.S.A. 101 Value = 150,000. Mortgage = 90,000. Equity = 60,000. Exemption = $125,000 If creditor got judgment, not likely to foreclose on lien because would take nothing. Payment plan math $2000 judgment earns $240. a year interest, 9 V.S.A. 41a. $15 payment month = $180 a year. Principle never gets paid. $50. payment a month; pays a lot more in interest. Principal borrowed: $2,000.00 Regular Payment amount: $50.25 Total Interest Paid: $562.75 Annual Payments: 12 Total Payments: 51 (4.25 years) Annual interest rate: 12.00% Periodic interest rate: 1.0000% Debt Service Constant: 30.1500% *Total interest paid as apercentage of Principal: 28.137% 4

Renewal of judgment Statute of limitations on judgments is eight years 12 V.S.A. 506 Action to renew judgment is Whole New Case Venue defense Interest could keep going in perpetuity Standing/Assignment Plaintiff s legal theories and proof required Debtor breached terms of credit card agreement Card agreement Does agreement specify post default interest? Reason for default Statement showing no payment Date of default Agreement lists defaulting conditions; creditor may find default the day after payment missed. 5

Plaintiff s legal theories and proof required Account stated Statement Sent to Defendant Defendant made payment Defendant recognized stated debt as existing Plaintiff gets amount on statement Plaintiff does not get card agreement interest Plaintiff s legal theories and proof required Unjust enrichment No written contract exists, but (1) a benefit was conferred on defendant; (2) defendant accepted the benefit; and (3) defendant retained the benefit under such circumstances that it would be inequitable for defendant not to compensate plaintiff for its value. 561 A.2d 90 (1989) CENTER v. MAD RIVER CORPORATION Must be different evidence than contract evidence Unifund v. Zimmer 2016 VT 33 What is Default on card agreement? Credit card agreement defines default Statute of limitations runs from date of default Pre judgment interest runs from date of default Default is not the same thing as charge off Charge off defined 65 Fed Reg 36903. (2000) The FFIEC, on behalf of the FRB, FDIC, OCC and OTS made a policy called Uniform Retail Credit Classification and Account Management Policy the purpose of which seems to be to force credit card banks to refrain from carrying as receivable assets accounts that haven t been paid on for 180 days. Charge Off means the bank has to subtract the six month old debt from its accounts receivable. Unless card agreement specifies interest rate after default, interest rate is prejudgment interest rate. 6

Evidence Standard at summary judgment: affidavit based on personal knowledge; arguably more than I looked at the records. VRCP 56(c). Witness foundation for VRE 803(6); arguably more than I looked at the records. Unifund v. Zimmer, 2016 VT 33, VRE 902(11) certification Must give advance notice (time to do memorandum of objection) Only gets the attached documents in; not the missing information, which is usually the connection between the Bill of Sale and uniquely identifying information (the data set). Not the law Reg Z requires records to be thrown away after two years. Sec. 226.25 Record retention. (a) General rule. A creditor shall retain evidence of compliance with this regulation (other than advertising requirements under Secs. 226.16 and 226.24) for 2 years after the date disclosures are required to be made or action is required to be taken. The administrative agencies responsible for enforcing the regulation may require creditors under their jurisdictions to retain records for a longer period if necessary to carry out their enforcement responsibilities under section 108 of the act. (b) Inspection of records. A creditor shall permit the agency responsible for enforcing this regulation with respect to that creditor to inspect its relevant records for compliance. Code of Federal Regulations Requires original creditor to charge off debt after six months. Charge off is Not required by the CFR, as she says, but I think the only cite for a federal charge off is 65 Fed Reg 36903. (2000) What I ve got so far is: It looks like a government agency called the FFIEC, on behalf of the FRB, FDIC, OCC and OTS made a policy called Uniform Retail Credit Classification and Account Management Policy the purpose of which seems to be to force credit card banks to refrain from carrying as receivable assets accounts that haven t been paid on for 180 days. It is an accounting regulation, and does not dictate the date of default. Once PFC is established, there is a burden shift to Defendant to prove not owed. * Krawczyk v. Centurion Capital Corp., 2009 U.S. Dist. LEXIS 12204 (N.D. Ill. Feb. 18, 2009) says Plaintiff s affidavits are enough to survive summary judgment. Agreements transferring title are not trade secrets and there should be 26(c) protective order, not objection to interrogatory. 7

Credit card collectors must plead V.R.S.C.P. 3(h), V.R.C.P. 9.1 Standing chain of title Statute of limitations date of default Facts going to theory Breach of contract: contract, date and reason for default; break down of principal and interest under the contract Account stated: statement balance and payment made on that balance Collectors moving for default V.R.S.C.P. 3(e), V.R.C.P. (b)(7) Signed writing or statement showing purchase Documents showing chain of title including uniquely identifying info about the account transferred last four digits of account number. Collectors don t follow rules Pleading: Say charge off rather than default Post default interest not identified Otherwise known as prejudgment interest No Amount due at the time of the last payment Non specific about servicer s title Pretend Forward flow agreement suffices for title Default documents: Very few contracts (check to see if post default interest is in contract) few statements showing a/c used for purchase Never provide transfer showing account number 8

Defendant s Answer VRCP 8(b) If a party is without knowledge or information sufficient to form a belief as to the truth of the averment, the party shall so state and this has the effect of a denial. see page 18 of 9 18 in handouts. General denial Statute of limitations must be plead, or it can t be used at trial. Procedural Defenses Lack of Service Utterly failed to serve right person. Must move to dismiss before answering; appearance or answer waives lack of service. Failure to timely commence case Rule 3 must be served within 60 days of filing Failure to follow pleading rules. VRSCP 3(h) VRCP 9.1 must make allegations establishing standing and At least one legal theory Motion for more definite statement; who is Plaintiff, really? MTD: Plaintiff didn t follow VRSCP 3(h) or VRCP 9.1 * Gets dismissal without prejudice * Shows court credit card collectors don t follow rules; * rules require facts in prima facie case and collectors don t have those http://www.mass.gov/ago/docs/consumer/lustig glaser wilsoncomplaint.pdf 9

Motion to dismiss for failure to follow rules VRCP 12(b)(6) failure to state a claim:... moves the Court pursuant to V.R.S.C.P. 13 by analogy to V.R.C.P. 12, to dismiss the above captioned case because Plaintiff s complaint fails to comply with the requirements of Vermont Rules of Small Claims Procedure 3(h). Dismissal is required because there is no other way to enforce the pleading requirement. Specifically, this case must be dismissed because Plaintiff fails to allege the amount due at the time of the last payment 3(h)(3), date and basis for default as required by 3(h)(4), fails to allege the amount of post default interest separately identified as required by 3(h)(5). Moreover, rather than state the assignment date and parties, and include uniquely identifying information about the account, 3(h)(7) Plaintiff s complaint and attachments cast doubt upon Plaintiff s right to collect the debt owed to the original creditor. Pleadings: Collectors don t follow rules Say charge off rather than default Post default interest not identified Otherwise known as prejudgment interest No Amount due at the time of the last payment Non specific about servicer s title Pretend Forward flow agreement suffices for title Default documents: Very few contracts (check to see if post default interest is in contract) few statements showing a/c used for purchase Never provide transfer showing account number Who is the plaintiff? Affiliate Servicing affiliate Successor by merger Assignee Are words, not evidence of title, or real party in interest Who has title? Equitable title and legal title can be assigned separately, but assignment must divest assignor of all control over the right assigned. Kearney v. Cavalry Portfolio Servs., LLC No. 12 CV 00860, 2014 U.S.Dist. LEXIS 105577 E.D. N.Y. July 31, 2014 10

Motions to remove default Post judgment interrogatories: affidavit of exemptions Trustee process. Bank accounts contents including social security payments are protected by Banking rule 31 CFR 212 In Vermont, consent required to access credit reports 11