Don’t be so quick to pay bills.
Sounds like bad advice – most people would like their bills
to be paid as quickly as possible. One less thing to worry about.
But a Court of Appeals case from the seventh circuit
underscores the idea that it is sometimes better to take a deep breath and wait
a bit.
We’ve been talking about jurisdiction and we’ll get back to
that topic. But this case deserves discussion. And, as you will see, it’s not
so far removed from the concepts I’ve discussed with respect to jurisdiction –
that is, take your time, examine things, think about them and then, and only
then, do anything.
The case we are talking about is Manual Pantoja v. Portfolio
Recovery Associates, LLLC (15-1567) decided by the Court of Appeals for the
Seventh Judicial Circuit.
A bit of background will help you understand what is going
on.
In 1993 Pantoja applied for a credit card from Capital One. Even
though he never used the card, and in fact never even activated it, Capital One
assessed annual fees, activation fees, late charges and so on. No surprise here…
we’ve all dealt with this kind of practice from credit card issues. The rub
comes with what happened later.
With the incredible number of credit cards issued in the
U.S. and the expected number of defaults, there is a burgeoning industry in the
acquisition and collection of these credit card accounts. Reputable banks and
other issuers often just write off these card debts, especially if there is
anything remotely shaky about the charges, as in this case. Other people and
companies have no such hesitation and knowing that these accounts have
essentially been “written off” by the banks or issuers, buy them for pennies on
the dollar.
Enter in this case such a company – Portfolio Associates.
This company’s business model was basically to buy written off accounts and try
to collect from consumers. They sent out thousands of dunning letters,
threatening bad credit reports and even litigation, then offering consumers a
compromise from the total amount in order to “resolve” the matter.
Portfolio Associates sent such a letter to Pantoja, offering
to compromise a claim of $1903.15 against a credit card that Pantoja had never
even used.
Pantoja was prudent enough to not respond to these
communications, but instead consulted an attorney. He filed suit for violation
of the Federal Fair Debt Collection Practices Act, and was awarded judgment
against Portfolio Recovery Associates.
On appeal the court held that Portfolio Recovery Associates
had violated the Fair Debt Act in that its communication contained false, deceptive,
or misleading representation or means in connection with the collection of any debt.
The first problem with the letter was that it failed to
mention that because of the age of the account (the card was issued in 1993,
Portfolio Associates’ letter was sent in 2013) the statute of limitations had
run and collecting on the debt was legally impossible.
The second problem was that the letter did not inform
Pantoja that if he made even one payment on the debt, or even tried to
negotiate the debt, he might be reviving the dead claim and eliminating his
statute of limitations defense.
So, what is the moral of this story?
There a couple actually.
First, just as with dealing with lawsuits, don’t be in a
rush. Take your time and explore your options. Here, the Fair Debt Act
violation aside, a person in Pantoja’s might have paid a claim that they no
longer had a legal obligation to pay. These companies understand human nature.
The letter was worded to communicate to Pantoja the urgency of making an
immediate payment. The intent was to make him jump at the chance of making a
$1900 claim go away for about $500. The moral of this aspect is simple. If a
creditor will take $500 today, they’ll take $500 tomorrow or next week. Any “deadline”
is artificial and is intended solely to make the person act without thinking.
Don’t fall into that trap.
Second, there are things that you can do wrong that cannot
be undone and which can hurt you. Just where answering a complaint can result
in your jurisdictional defenses being waived, responding to this kind of
dunning letter could result in you being liable for a debt that otherwise would
have been barred by the passage of time.
So again, take your time. Do your homework. Get legal help
if you need to, but do not jump on something just because some slick letter
makes it seem like the only thing to do.
