On Consumer Debt Defense

I’m of counsel with Guest and Associates, a civil litigation firm in Irving. (Yes we are related, it’s my uncle’s law firm). Recently, I’ve assisted on some consumer debt (credit card, car loans etc) defense cases. G&A does most of the heavy lifting, I help with some filings/appearances and handle consultations. Unlike most areas of civil law I’ve found consumer debt defense highly enjoyable. Theses cases and clients really resonate with me.

What’s to like about credit card/consumer debt cases?
First, there is a similar David v. Goliath narrative in both consumer debt and criminal defense. Both cases involve the little guy fighting a giant corrupt entity hell bent on destroying the individual.

Second, I have no inner free market conflict with consumer debtors not paying their balances. The credit card industry lost their free market/sanctity of contract credibility when they took bailout money and bribed our government for special favors,. I’m anti bailout and I abhor blatant hypocrisy.

Third, this is a recession, some people just can’t pay their bills. These defendants are good people in a bad position. Yes, some spent too much, but so did CITI, Fannie, AIG, etc. Unlike CITI, Fannie and AIG these consumers lack the money to hire lobbyists and/or bribe Congress. In our world turned upside down, consumer’s tax dollars are bailing out failed finance companies who, in turn, are trying to collect debt from the consumer. Taxpayers are subsidizing their own persecution and prosecution.

Finally, much credit debt is sold or “assigned” to consumer debt collections firms (Big Debt). These agencies employ scum of the earth debt collectors. Big Debt has a standard MO to maximize revenue- harass, embarrass, threaten, lie, and sometimes file a lawsuit. It’s a joy to fight Big Debt.

A typical Texas debt case

From what I have gathered here is how the system works. Joe gets a CITI card with a $10,000 limit. Joe loses his job, gets sick, and gets a divorce.

Joe has maxed out the CITI card and Joe can’t pay. First, CITI will send some letters and try to work out a settlement or call Joe repeatedly demanding payment. Joe has quit answering the phone and ignores the letters.

Eventually CITI gives up and sells, or “assigns” this debt to a Big Debt firm. Let’s call this firm Scumbag Debt Collections. SDC will buy Joe’s debt for pennies on the dollar. For example, SDC may pay $1,000 for Joe’s $10,000 debt. If SDC can scare, harass, threaten and/or persuade Joe to pay $2,000, that’s a profit.

For credit card and Big Debt companies a lawsuit is usually the last option. The reason… lawsuits cost money. There are filing and service fees and you have to hire a debt collection law firm.

The scarlet letter for a Big Law debt collection firm is bar codes on the bottom of each page. Who has so many cases they require bar codes? Really? The vast majority of debt defendants will not file an answer and a default judgment will be entered against the debtor. That’s what Big Debt counts on. The judgment ensures that Big Debt can continue to harass of the debtor for many years to come.

That’s where I/we come in. The reality of a volume/bar code law practice is that no individual case can get much attention. The discovery process can expose a weak debt case and/or make an individual case too much of a hassle to continue.

The burden is on the plaintiff to show a valid contract, and a valid assignment. Big Debt firms don’t have a few empty warehouses to keep all this paperwork.

If a case can’t be dismissed a settlement is usually in order. I haven’t seen a case go to trial yet. I’m looking forward to assisting on more consumer debt cases in the future. Not enough to abandon criminal practice, but it’s fun for civil law.


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2 responses to “On Consumer Debt Defense”

  1. FRCP 56 says:

    I attended a two-day collections CLE in San Antonio last year (and another 1/2 day nuts and bolts of collections).

    One of the speakers played some recordings of actual debt collectors in action. He explained that many of these debt collectors are ex-cons (not that there’s anything wrong with that) who are not especially familiar with the rules regulating debt collection over the phone. Apparently there are very specific statutes governing what can and cannot be said to a suspected debtor.

    I guess one problem you might run into is that, by the time the case gets to you, it is too late to have your client record the low-level debt collector exposing themselves to statutory damages (at least I think that’s how it works).

    Thankfully, much of my collections work (and defense) is business against business.

    The main thing I came away from at the CLE is that the Texas Collections Manual is the go-to resource for collections work in Texas.

  2. What is especially sad is that a lot of consumers turn to options like Consumer Credit Counseling which is run by the credit card companies, which just wreaks havoc on their credit report worse than the collection account does. Or they turn to a debt settlement company, which touts the ability to “help the consumer”, but then takes the upfront service fee from them, and does nothing.

    I feel for the consumers.

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