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How does Debt Validation apply to co-signers?

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@graym

 

The problem that might arise with your friend filing a countersuit is the fact that she is not the one who has been contacted.  The violation has been committed against the cosigner.

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All of this really stems to what are the rights of a co-signer in this type of situation.  It is not an original creditor, and the original borrower is disputing the debt.  They are bypassing the dispute from the original borrower and focusing only on the co-signer.   This puts her relationship with the co-signer in a very bad situation because they are harassing the co-signer yet there is nothing the original borrower can do here.  They didn't even mail her the documents, only mailing them to the co-signer. 

 

A co-signer does not have all of the documentation that an original borrower would have in terms of payments etc to be able to adequately defend themselves the same way an original borrower can.  If the debt is being disputed by the original borrower, it seems rather ridiculous they can completely bypass her involvement and focus solely on the co-signer, especially after a timely dispute letter.  Based on the literal meaning of the FDCPA, I would take it to mean that they have to fulfill their validation obligations with the original borrower before they can continue collecting from a co-signer.  I would also believe this would effectively make the filing of a lawsuit against a co-signer a violation of the FDCPA as well since it is an attempt to collect the debt without satisfying the validation request of the original borrower.  Otherwise they can just do what they are doing and harass the co-signer and ignore the timely validation from the original borrower.   Either there is a very big loophole in the FDCPA here, or they are violating the law and I would tend to lean towards violating the law.  I would also think the counter-suit can be filed by the original borrower, as they are the ones who sent in the dispute letter and it could easily be argued that attempting to collect from a co-signer, even filing a suit, is a violation of the original borrowers FDCPA rights as contacting a co-signer to collect on a disputed debt not yet validated to the original borrower is a form of harassment which affects the original borrower. 

 

I also wouldn't think that sending validation to the co-signer who lives at a different address from the original borrower would satisfy the validation requirements to the original borrower as it would not be received by the original borrower at the co-signer's address.  One might assume that the co-signer can give a copy of the documentation to the original borrower, but that's not a guarantee in all situations depending on the relationship between the co-signer and original borrower.  It should be mailed to the original borrower at the original borrower's address, especially if the collector has it, which in this case they do as they already sent a notice of debt there.

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@graym

 

It doesn't matter whether or not the JDB sues the cosigner.  If the cosigner is considered a consumer under the FDCPA, then he could sue for FDCPA violations.

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Can someone help out with this.  I received a copy of the disclosure they sent.  They are charging 6.67% interest.  They didn't supply a contract, but only a disclosure that states the interest rate is conducted via the Wall Street Journal's monthly Libor.  However, unless I'm misunderstanding things, the monthly Libor is far below 6.67%? 

 

Can anyone more financially savvy help me out here, what should the interest rate be if it is calculated at the LIBOR Index adjusted monthly? 

 

Their paperwork states it is an F3 Monthly Libor and lists said rate at 6.67%. 

The only other thing in there that mentions interest is that it says in the event of default, they can increase the rate by a fixed 2% but to see the contract for further details (no contract was provided though). 
 

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That's saying the LIBOR Rate was manipulated, which unfortunately is probably true.  However, I'm saying the interest rate they are charging doesn't even match the posted LIBOR rate unless my math is wrong.  Additionally, the disbursement of the loan was for 14,300 or so.  It says the Loan was charged off 2 years later at 17,700.  However, their accounting of the debt starts from $17,700 but doesn't show how the debt went from 14,300 to 17,700 in 2 years.  Even a max interest rate and 0 payments in 2 years would not increase the loan by that much, and I'm fairly certain she did make payments.

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So I see a spot where it says the original Margin is 6.5% interest.  So based on that, I guess 6.67% is pretty close because the current LIBOR rate is .15, which added to 6.5 is 6.65%.  

 

Do we have a right to request an accounting from 0 and/or proof of ownership?  Or do they not have to provide any of that.  I'm going to have to go look at her old bank statements as well because for the charge-off amount to make sense, which has to be heavily inflated with extra fees, there would have to be 0 payments at all.   That doesn't make any sense considering all of her other loans are current so I'm curious how this one somehow slipped through the cracks. 

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Do we have a right to request an accounting from 0 and/or proof of ownership?

 

 

You can request those things, but they're not required to provide them outside of court.

 

I'm going to have to go look at her old bank statements as well because for the charge-off amount to make sense, which has to be heavily inflated with extra fees, there would have to be 0 payments at all.

 

 

Not necessarily.  It would depend upon the interest rate that was being assessed during the life of the loan and how many payments she made.  12% interest on $14,300 for one year is around $1700. 

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They provided the signed page of the contract only (not the full contract, just the signature page) and provided a Note Disclosure Statement.  On the Note Disclosure Statement it states that in the event of default, Lender (or any subsequent holder of your Loan Note) may increase the margin used to compute the Annual Percentage Rate by two percentage points (2%). 

 

See your contract documents for any additional information about non-payment, default, an required repayment in full before the scheduled date, any security interest and prepayment refunds and penalties. 

 

Is that enough to give them the right to collect interest on the loan or do they need to have the actual part of the contract that deals with default as referenced in the Note Disclosure Statement?  According to everything they sent, she has paid $15,000 on this loan already (original amount $13,000 + 1,364 disbursement fee).  They are stating she still owes Principle of $6,300.

 

I'm also going to have her check her old bank records to see what payments were made to the original Creditor because they didn't provide any of that documentation, they just listed the charge-off amount as $17,700 (no proof of charge-off, transfer of title etc). 

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We really can't answer all your questions.  If you read thru that entire suit I cited, you'll note that the OCs that wrote the original loans are included because they misrepresented the LIBOR.  There's also a reference as to whether National Collegiate Trust has any right to collect on those debts anyway.

 

Bottom line...NCT is a bottom feeding JDB who is out to make a lot of bucks off private student loans.  Its highly unlikely that they are playing by the rules, but, since most debtors are rolling over and coughing up money, NCT isn't going to let legality stand in their way.  Like most JDBs,  if someone stands up to them, they'll just move to the next name on the list.

 

So...get a lawyer.  Look on www.naca.net and see if there is one in your area familiar with NCT.

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@graym

 

They provided the signed page of the contract only (not the full contract, just the signature page) and provided a Note Disclosure Statement.  On the Note Disclosure Statement it states that in the event of default, Lender (or any subsequent holder of your Loan Note) may increase the margin used to compute the Annual Percentage Rate by two percentage points (2%).

 

 

Okay, what am I missing?  I thought you said they didn't validate the debt.   Was that information sent with the dunning letter?

 

In any case, at this point, what they've provided is sufficient just to attempt collection unless your state laws (or federal, if they apply) requires more.  Now, your friend can request more documentation and refuse to negotiate without more documentation.   The JDB may comply if they really want to negotiate and keep this out of court.  OR they could offer a settlement at which point your friend could counteroffer. 

 

OR the JDB could simply sue.  In a court, they would need to provide more evidence of the amount owed, the interest rate, and the right to charge that rate.

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@graym

 

 

Okay, what am I missing?  I thought you said they didn't validate the debt.   Was that information sent with the dunning letter?

 

In any case, at this point, what they've provided is sufficient just to attempt collection unless your state laws (or federal, if they apply) requires more.  Now, your friend can request more documentation and refuse to negotiate without more documentation.   The JDB may comply if they really want to negotiate and keep this out of court.  OR they could offer a settlement at which point your friend could counteroffer. 

 

OR the JDB could simply sue.  In a court, they would need to provide more evidence of the amount owed, the interest rate, and the right to charge that rate.

 

They did not validate the debt to her, they validated it to the co-signer only.  Two notices were sent out, two timely debt dispute letters were sent in, they only sent validation to the co-signer ignoring her completely and started robo-calling the co-signer.  Earlier in the thread I thought he had not received validation yet (but I now know this was incorrect and he was out of town and it had been sitting in his mailbox).   However, she received absolutely nothing in the mail from them.  It would appear they've decided they are only going after the co-signer.  I would still state that because she sent in a timely debt dispute letter, they should still have to validate the debt to her before resuming any collection on the account

 

The real question is whether a timely validation request stops ALL collection on the account (Which it should based on the wording of the FDCPA), or if it only stops collection specific to each consumer.  However, the argument can easily be made as I said before, that robo-calling the co-signer is a collection tactic that impacts the original borrower as it logically puts a strain on their relationship. 

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Google National Collegiate Trust.  You'll find references to cases where they went after the co-signer first.  Why?  Because parents have money. 

 

Is it legal?  THEY DON'T CARE.  Its profitable.

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They did not validate the debt to her, they validated it to the co-signer only.  Two notices were sent out, two timely debt dispute letters were sent in, they only sent validation to the co-signer ignoring her completely and started robo-calling the co-signer.  Earlier in the thread I thought he had not received validation yet (but I now know this was incorrect and he was out of town and it had been sitting in his mailbox).   However, she received absolutely nothing in the mail and the validation is only addressed to the co-signer.

 

If they validated to the co-signor they can call him.  If they didn't validate to her they cannot call her.  If they aren't calling her no problem

 

The issue is they are joint and separately liable for the debt.  While they CAN go after both of them the JDB  can choose to go after only one of them and it is legal.

 

I do not know why you are getting your bloomers in a knot over this.  A google search reveals a litany of law firms willing to sue this bottom feeder.  I would simply find a law firm and turf it to them to put an end to it.

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Google National Collegiate Trust.  You'll find references to cases where they went after the co-signer first.  Why?  Because parents have money. 

 

Is it legal?  THEY DON'T CARE.  Its profitable.

There's a reason that my son's SMA loan ended up on my CRs, and not his....

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I contacted an Attorney today and he agreed to look over the paperwork so the ball is in motion on that part.  The more information I get out of this, the more this stuff annoys me.  She actually has all of her original paperwork and the complete contracts as well.  One interesting part of the contract is that it specifically states that the laws of California apply to everything in the contract and that the max interest rate can't exceed the max allowable interest rate of California so I'll have to look into that.

 

From her old paperwork it looks like right in the beginning these loans were serviced by American Education Services.  She took out 2 loans, 1 year apart from Bank of America.  The first loan was for $12,300 and has a margin rate of 4.5% and is attached to the monthly LIBOR index.  The second loan was for $13,000, has a margin rate of 6% and is also tied to the monthly LIBOR index.  Both loans were serviced by American Education Services (AES).  In her old paperwork it shows that they were grouping payments and only applying them to one loan.  So basically she was making payments, but instead of them being applied to both loans as they should have been, AES applied the totals to only one loan and the 2nd loan defaulted. 

 

I had her log on to AES and it does not list any information from the defaulted loan, just that it defaulted.  Additionally, it would only allow me to see 1 year of payment history on the current loan.  It lists NCT (Which I assume stands for National Collegiate Trust) as the owner of both loans, even the loan that is current and currently being serviced by American Education Services.  Here's the part that completely floors me.  Both loans had nearly identical balances back in 2008 (14,300 and 14,800 from the paperwork).  The loan that is current had a margin rate of 4.5%.   The loan that defaulted had a margin rate of 6% and both were tied to the exact same monthly LIBOR Index.   The loan which stayed current (on her credit report, on-time payments for the last 5 years) and is being serviced by American Education Services has a current balance of $13,300.  This is the loan with the LOWER interest rate, which has been paid on-time for the past 5 years.

 

The loan with the HIGHER interest rate that defaulted and was sent to collections with NCO and now with Weltman Weinberg and Reis, which she has also paid for the last 5 years, has a current balance of $6,300.  Someone please explain to me how after 5 years of payments on both loans, the one that defaulted and went into collections with the HIGHER interest rate (6%) is at $6,300 but the loan that stayed current with American Education Services with the lower interest rate (4.5%), somehow stayed that high (above the original loan amount even years later).  Additionally, this is a loan that in the beginning was receiving double payments which allowed the higher interest rate loan to default in the first place.

 

Ironically enough it would appear the best thing that ever happened to her was defaulting on that loan and getting out from under American Education Services.  Next step we're going to have to make some phone calls and get a history of these loans dating back to the periods of default in 2007.   I know about 2 years ago she had problems with American Education Services when she moved, and gave them her updated address but they continued sending bills to the wrong address.  When she called in to inquire why she wasn't receiving the bills, they figured out the mistake and that they failed to update her address, but forced her to join a loan rehabilitation program of some sort.   I remember telling her to argue that she shouldn't have to do that because it wasn't her fault they screwed up the billing address, but they were just rude to her on the phone and refused to do anything about it so she ended up going through some rehabilitation program.  Now I'm wondering what that did to her interest rates and if there were any fees associated with that.   Just looking at the terms of her private student loans are ridiculous (the initial interest rate was around 11%), a fee of 10% for origination as well with margins of 4.5 and 6%.   The banks know these young students don't really understand the terms of the loans, then they end up repaying these things for decades.  It would appear American Education Services restructured her loan to lower the monthly payments specifically to spread the loan out longer.   I feel like this system is predatory in nature and really, really, really, broken. 

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They have upped the calls on her co-signer to 2-3 per day.  We're sending them another dispute letter, from both parties, and asking them for a full accounting of the debt and to cease all phone calls.  She has paperwork showing that this loan and another student loan were both being serviced under AES and the bills were giving combined totals for both loans.  Somehow, this particular loan defaulted yet the other loan is still current with AES.  How exactly does that happen?  The only thing we can think of is something funky with how AES was applying the payments such as applying the full payment only to one loan, instead of to both like it should have been applying them.  Assuming this theory is true, I'm sure it's a complete coincidence that the payments were being applied only to the loan with the lower interest rate.

 

She has proof that both loans were serviced under AES with grouped billing (she has a copy of one of the bills), and obviously payments were being made to AES if one loan did not default.  Otherwise, both loans would've defaulted as their billing was grouped.  How the payments were applied by AES is unknown to us.   All the debt collector sent us was what they claim was the charge-off amount in their accounting spreadsheet, but nothing to show that this charge-off amount was correct.  They sent us an accounting of the debt from this charge-off amount to the current total they state is owed and are demanding in full.   However, based upon their accounting she has already paid a little over $15,000 to them, not including payments made to AES.  The original disbursement amount was only $14,300 or so.   She has obviously paid more than the disbursement amount based on their records which we now have.  The only question is what, if anything else, is actually owed based on a proper accounting of the debt.  They haven't shown us how the debt went from $14,300 to their starting point of $17,800.  Without that information, it's impossible for us to verify exactly how much is owed, if anything else is owed.  We can't determine whether her payments to AES were probably applied as well.  We also can't determine if any fees or illegal interest was added to get the figure to $17,800 in the first place.

 

They have a copy of the signature page of the contract, but she isn't disputing that she took out a loan.  Our dispute is that it has been paid and the only way to determine the remaining amount owed, if anything is still owed, is with a full accounting of the debt showing how they arrived at the $17,800 figure.  All of this is explained in the letter to them.  So, we'll see what the response is.  Additionally, we requested proof of ownership of the loan.  Obviously they don't have to send us anything but we aren't going to pay them anything until they do.  Frankly, without an accounting of the debt, I don't see how they would be able to win in court either.  As she has paid over the disbursement amount, the only remaining dispute is the amount of the charge-off and amount of interest applied. The fact that we are disputing the amount would be enough to defeat a claim of account stated, and a breach of contract claim would fail without a full accounting of the debt since over the disbursement amount has already been paid.  We'd still be able to raise the defense of lack of standing etc, and she could raise the defense of fraud due to the LIBOR scandal.  Additionally, if we raise the issue of standing and right to collect on the loan, couldn't we also file a counter-claim (assuming they sue) for the amount we have already paid them (over $15,000).  At the very least that would add some significant risk to their case, and get it out of county court. 

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Alright, my girlfriend and I worked together to draft this letter.   Let me know what you all think.  Too wordy? Missing something? I'm open to feedback!

 

Name

Date

Address

City, Zip

 

Weltman, Weinberg & Reis

3705 Marlane Drive

Grove City, Ohio 43123-8895
WWR No.: 00000000

 

Certified Mail: 0000 0000 0000 0000 0000

 

DEBT DISPUTE LETTER

Dear Weltman, Weinberg & Reis,

 

I understand and respect your need to communicate with me regarding this debt, however you are currently calling my cell phone multiple times per day which I consider a form of harassment. Stop calling my cell phone an excessive number of times to harass me. Please limit your phone calls to one phone call per week so that we may keep the lines of communication open, without you using an excessive number of phone calls as a form of harassment. Additionally, please do not call me between the hours of 9AM and 5PM as these are the hours that I am at work and it is inconvenient for me to receive calls while I am at work.

 

Thank you for the documentation that you provided with your letter, but the limited documentation provided to us does not verify that any debt is owed. According to the documentation you provided, we have already paid in excess of $15,000. The amount already paid is greater than the original disbursement amount of the contract. With the disbursement amount having been satisfied in full, you are solely seeking payment on the interest. However, it is impossible to determine a proper calculation of the amount owed, if any remainder is owed, without a full accounting of the debt from the date the contract was taken out. Your accounting of the debt, and your basis for stating that a debt is owed, is starting from a figure of $17,726.47 which you claim is the charge-off amount. This amount is significantly higher than the original contract amount, yet you did not provide any documentation that explains how this figure was calculated. We dispute the charge-off amount you are listing and request an accounting of how you calculated this amount. As stated, we believe this debt has been paid in full.

 

Additionally, we dispute that this debt was ever defaulted upon. We have attached for your records paperwork which shows that this loan, and another loan, were both consolidated under American Education Services (AES). We were making payments to AES for both of these loans as evidenced by the fact that the other loan listed is still current and has never been in default. If the bills were being consolidated into one payment, and this payment was being made to the same servicer for both loans, how is it that this loan defaulted but the other loan did not? We believe this loan was put into default by error and that this loan was never defaulted upon based upon the terms of the contract. We submit that payments which we made to AES were incorrectly applied to this loan due to error on the part of AES.

 

We were not aware that this loan had been defaulted upon until you brought it to our attention by phone call just recently and as you can tell by our reaction during this phone call, the fact that this loan was in default caught us by surprise.  As you can see from the documents you provided, we have been timely paying this loan for many years and did not have any reason to suspect that it had ever been defaulted upon. We did not previously receive any notification that this loan was being pursued by a debt collector. We also never received notice of an assignment of this debt pursuant to F.S. 559.715 which states:

 

Assignment of consumer debts.—This part does not prohibit the assignment, by a creditor, of the right to bill and collect a consumer debt. However, the assignee must give the debtor written notice of such assignment as soon as practical after the assignment is made, but at least 30 days before any action to collect the debt. The assignee is a real party in interest and may bring an action to collect a debt that has been assigned to the assignee and is in default.

 

We should have been given notice of the assignment and of the default as we have, at all times, thought we were current on this loan and that it was not in default. We therefore must object to the assignment as we do not believe the debt was ever in default. As it was assigned without any notification to us, we also request documentation showing to us that the assignment was proper and that you are the rightful owner.

 

As you have not yet verified to us that any debt is owed we will not be making any payments at this time as we believe this debt has been paid in full. If you can provide documentation to us to verify that an amount is owed, we are more than willing to discuss this matter with you further. In the event that you can not provide verification to us that any debt is owed to you, we kindly ask that you cease and desist from collecting this debt.

 

Sincerely,
Name

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What are you trying to accomplish with the letter?  If you want them to cease and desist, just send them a cease and desist.  This is going to go one of two ways, you send them a C&D letter and they close their file and cease and desist or they are going to initiate a lawsuit and you can request all the documents that you want during discovery.

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What are you trying to accomplish with the letter?  If you want them to cease and desist, just send them a cease and desist.  This is going to go one of two ways, you send them a C&D letter and they close their file and cease and desist or they are going to initiate a lawsuit and you can request all the documents that you want during discovery.

 

The purpose of the letter is to show them that we have extremely valid defenses to any lawsuit to ideally prevent them from filing a lawsuit in the first place.  Even if a court accepts the argument that the contract was defaulted upon, there is proof of payment of the entire disbursement amount of the contract.  In order to establish that any additional money is owed, they would need to provide to the court the same documents we are currently requesting which is a full accounting of the debt to determine proper application of interest/fees pursuant to the terms of the contract.   Therefore, we have an affirmative defense of accord and satisfaction which is supported by proof of payment exceeding the disbursement amount of the contract.  If they can provide actual verification of a debt that is owed, we are willing to discuss it with them and we have shown a willingness to pay.  If they can't, we do not wish to pay a debt we do not believe is owed. 

 

However, even though I think we would win in court, who the heck wants to go to court?  It's a waste of time if it can be avoided so the purpose of the letter is to lay it all out there in the hopes we can prevent them filing a suit and walk away from this one.  I think we might take out the cease and desist portion at the end for the time being so we can leave open the possibility of working out a settlement of something small like $1,000 in exchange for a written accord and satisfaction to put this matter to bed for good.  I don't think it is owed, but for something small like $1,000 it might be worth it for peace of mind. However, I haven't discussed that with her yet.

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Since this is not a typical debt buyer, its difficult to be certain...but...if it were, I would say that they will not be swayed by your letter. First, they probably won't read it...the mail is opened by a minimum wage clerk who puts the C&Ds in one pile, the DVs in another, and the "who cares" in a third.

You're asking for evidence that they, by law, would only need to produce in court...maybe.

If you don't want to take the time to fight this yourself in court, get a lawyer. Your $1,000 to a lawyer may get you much more in return.

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Since this is not a typical debt buyer, its difficult to be certain...but...if it were, I would say that they will not be swayed by your letter. First, they probably won't read it...the mail is opened by a minimum wage clerk who puts the C&Ds in one pile, the DVs in another, and the "who cares" in a third.

You're asking for evidence that they, by law, would only need to produce in court...maybe.

If you don't want to take the time to fight this yourself in court, get a lawyer. Your $1,000 to a lawyer may get you much more in return.

 

It's quite possible you are correct, and the letter won't even be read.  However, it is still worthwhile to send the letter as it establishes potential liability for them under the FDCPA.  Specifically, we are asking them to stop calling multiple times per day as we view that as harassment, and we are stating that the debt was defaulted in error and should not have been in default.  

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Well, do what you think you need to, but, under the FDCPA, they only need to respond with the OC's name, the account number, and the amount...and they only need do that if its within 30 days of the initial communication.

So...at this point...your choices are a complete C&D or write them a check.

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