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MORE DEBT COLLECTION CONFUSION AND MISCONCEPTIONS

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MORE DEBT COLLECTION CONFUSION AND MISCONCEPTIONS 

 

1.  THE CONSENT ORDERS BETWEEN THE CONSUMER FINANCIAL PROTECTION BUREAU (CFPB) and MIDLAND FUNDING and the CFPB AND PORTFOLIO RECOVERY ASSOCIATES ARE “LAW”.

FALSE

The CFPB is not a legislative body that can enact laws.  Check out the following two links to the CFPB website 

https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/institutions/

https://www.consumerfinance.gov/about-us/the-bureau/

None of the information in either link implies the CFPB has the authority to enact law.   

Now to the Consent Orders. There is no statement in either Order that declares the provisions within those Orders to be “law”.

The requirements listed in the Orders are imposed upon the “Respondents”.   All one must do is read the Orders and the “Respondents” are identified.  The Respondents are the defendants.  The requirements are not placed upon any other debt buyers.  If they were “law”, ALL debt buyers would be required to adhere to them. 

As to enforceability, the following is from the United States Supreme Court.

The Supreme Court has held that "a consent decree is not enforceable directly or in collateral proceedings by those who are not parties to it even though they were intended to be benefited by it."   Blue Chips Stamps v. Manor Drug Stores, 421  U.S. 723, 750, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975).

While instructive, the Consent Order is not binding on this Court. Madinya v. Portfolio Recover Assocs., LLC, No. 18-CV-61138, 2018 WL 6590829, (S.D. Fla. Dec. 14, 2018) (See Christensen v. Harris Cty.,529 U.S. 576, 587 (2000)).

The Consent Orders are between the CFPB and Midland Funding (Encore) and the CFPB and Portfolio Recovery.   They include specific consumers who were affected by specific acts during specific timelines.  Therefore, only those parties are affected by and can enforce the provisions contained within.   

Here is a quote from the Consent Order between Midland Funding (Encore) and the CFPB.

Page 62 

193. The provisions of this Consent Order will be enforceable by the Bureau.

It DOES NOT state that courts can enforce the provisions.

Just an added note, in the event the CFPB does not have to initiate another action against the two debt buyers, the requirements placed upon Midland and Portfolio expire years from the date of each Order.

Page 62 of the Midland Order

190. This Consent Order will terminate 5 years from the Effective Date or 5 years from the most recent date that the Bureau initiates an action alleging any violation of the Consent Order by Encore. 

That same statement is located on page 58 of the Portfolio Order.

 

2.  WHEN AN ORIGINAL CREDITOR TAKES A TAX DEDUCTION, IT IS KNOWN AS “ACCORD AND SATISFACTION”.   THIS RENDERS THE DEBT SATISFIED AND LEGALLY, NO ONE CAN MAKE ANY FURTHER ATTEMPTS TO COLLECT ON THE DEBT.

FALSE

The following is from the U.S. Code of Federal Regulations.

26 CFR 1.166-1 - Bad debts

(f) Recovery of bad debts. Any amount attributable to the recovery during the taxable year of a bad debt, or of a part of a bad debt, which was allowed as a deduction from gross income in a prior taxable year shall be included in gross income for the taxable year of recovery

Notice the above cited federal regulation states "[a]ny amount attributable to the RECOVERY". Then it states "which was allowed as a deduction from gross income in a prior taxable year".

Those phrases show that a business which claims a tax deduction for a bad debt is allowed to RECOVER some of that debt at a later time. Once it recovers some of that bad debt, it must claim the amount of the recovery as part of its income.  This means that the original creditor can sue a consumer, or it can sell the account to a debt buyer in order to recover some of its loss.

In the following ruling, the Michigan federal court noted that Chase and WFNB sold accounts AND were allowed to receive a bad debt tax deduction.

Instead of amassing interest on a worthless account, Chase and WFNB sought to sell the accounts and shift the risk of nonpayment to a third party for a nominal fee. This practice also permitted Chase and WFNB to remove the account from the financial records and receive a bad debt tax deduction. See I.R.C. § 166(a)(2). McDonald v. Asset Acceptance LLC, 296 F.R.D. 513 (E.D.Mich.2013).

As to “accord and satisfaction”, that defense is available only if the consumer is a party to the agreement.  An agreement between the original creditor and the Internal Revenue Service regarding a tax deduction does not include the consumer.

Allen v. R.G. Indus. Supply (Ohio Supreme Court, 1993)

"An accord is a contract between a debtor and a creditor in which the creditor's claim is settled in exchange for a sum of money other than that which is allegedly due. Satisfaction is the performance of that contract."

Lazzarotti v. Juliano (Pennsylvania Supreme Court, 1983)

"An accord and satisfaction is the result of an h which may be and usually does result from an implied agreement arising from the circumstances. If an agreement stems from a disputed claim, the acceptance of an amount less than the creditor claims to be due, when tendered by the debtor in full satisfaction of the creditor's claim, becomes a completed accord and satisfaction."

Horizon Well Service, L.L.C. v. Pemco of New Mexico, L.L.C. (New Mexico Court of Appeals, 2015)

"When considering the existence of an accord and satisfaction, we should examine the following elements: (1) [d]id the debtor make an offer in full satisfaction of the debt; [(2) w]as there an unliquidated or disputed claim which formed the basis of this offer; [(3) w]as this offer accompanied by acts and declarations which amounted to a condition; [(4) w]ere those acts and declarations such that the offeree was bound to understand them; and [(5) w]as the offer accepted in full satisfaction of the debt."

MECO, Inc. v. Township of Freehold, NJ (Superior Court of New Jersey, Appellate Division, 2011)

"The traditional elements of an accord and satisfaction are the following: (1) a dispute as to the amount of money owed; (2) a clear manifestation of intent by the debtor to the creditor that payment is in satisfaction of the disputed amount; (3) acceptance of satisfaction by the creditor."

 

3.  DEBT BUYERS CANNOT REPORT TO CREDIT REPORTING AGENCIES.

FALSE 

The Fair Credit Reporting Act does not differentiate between an original creditor, collection agency, or debt buyer.  It refers to a “person”.

Fair Credit Reporting Act, 15 U.S.C. 1681a(b)

(b)The term “person” means any individual, partnership, corporation, trust, estate, cooperative, associati

no one can attempt any further to collect this debt. 

Regarding collection accounts:

Fair Credit Reporting Act (FCRA) - 15 U.S. Code § 1681c(a)(4)

Requirements relating to information contained in consumer reports

(4) Accounts placed for collection or charged to profit and loss which antedate the report by more than seven years.

A debt buyer is a “person” as defined by the FCRA.  As a “person”, it can report a collection acco

From the Consumer Financial Protection Bureau -page 8

“Once the account is in collections, the creditor, debt collector, or debt buyer can report the account to one or more of the three largest nationwide consumer reporting agencies (NCRAs).”

https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf

From Experian:

“Once an account is sold to a collection agency, the collection account can then be reported as a separate account on your credit report.”

https://www.experian.com/blogs/ask-experian/credit-education/report-basics/how-and-when-collections-are-removed-from-a-credit-report/

1692e(8) of the Fair Debt Collection Practices Act (FCRA)

(8)Communicating or threatening to communicate to any person information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.

The FDCPA only applies to debt collectors. This shows that a disputed debt applies to a debt reported on one’s credit report.

From the Consumer Financial Protection Bureau -page 8

“Once the account is in collections, the creditor, debt collector, or debt buyer can report the account to one or more of the three largest nationwide consumer reporting agencies (NCRAs).

https://files.consumerfinance.gov/f/201412_cfpb_reports_consumer-credit-medical-and-non-medical-collections.pdf

From Experian:

“Once an account is sold to a collection agency, the collection account can then be reported as a separate account on your credit report.

https://www.experian.com/blogs/ask-experian/credit-education/report-basics/how-and-when-collections-are-removed-from-a-credit-report/

Midland Funding is a debt buyer. The following is from a consent decree issued by the Consumer Protection Financial Bureau with Encore Capital and Midland Funding.

“i. for those Consumer accounts where the Debt is Time-Barred and generally cannot be included in a Consumer report under the provisions ofthe FCRA, 15 U.S.C. § 1681c(a), but can be collected through other means pursuant to applicable state law, Encore will include the following statement: ‘The law limits how long you can be sued on a debt and how long a debt can appear on your credit report.’

The above shows that due to a time limit, Midland cannot report a debt to the credit reporting agencies.

Page 38 at https://files.consumerfinance.gov/f/201509_cfpb_consent-order-encore-capital-group.pdf

BUT, if the debt is not beyond the 7-year reporting period, Midland can report it to the credit reporting agencies.

ii.  for those Consumer accounts where the Debt is Time-Barred but can be collected through other means pursuant to applicable state law, and may be included in a Consumer report under the provisions of the FCRA, 5 U.S.C. § 1681c(a), Encore will include the following statement: "The law limits how log you can be sued on a debt. Because of the age of your debt, we will not sue you for it."

Page 39 at https://files.consumerfinance.gov/f/201509_cfpb_consent-order-encore-capital-group.pdf

Notice that the two requirements in the Consent Order state when Midland can and cannot report debts to credit reporting agencies. If a debt buyer were not allowed to report to credit reporting agencies, the CFPB would not include those requirements.

 

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