Credit Infocenter

Affirmative Defenses That Don’t Work

February 10th, 2021 · Legal Stuff

These defenses have been floating around the internet for years and are totally useless in the issues we deal with on this site.

1.  Failure of Consideration. No exchange of money or goods occurred between the Plaintiff and the Defendant. Failure of consideration will void contracts in some cases.

If the court rules that the debt buyer bought the debt, it doesn’t matter that “no exchange of money or goods occurred between the Plaintiff and the Defendant.”   If the debt buyer proves the consumer made charges and payments to the account, then that balance is owed to the new owner.  

2.  Defendant alleges that the Complaint includes references to alleged agreements made outside of the alleged written contract, violating the Parole Evidence Rule.

If that is referring to the purchase agreement between the creditor and debt buyer, I don’t know of a court that has required it.  Courts require some sort of proof, but it can be in the form of affidavits and properly authenticated bills of sale.   A consumer can try this defense, but again, he bears the burden of proving that the purchase agreement is required in order for the plaintiff to establish ownership of the account. 

3. Plaintiff’s complaint fails to allege a valid assignment and there are no averments as to the nature of the purported assignment or evidence of valuable consideration.

If the plaintiff alleges it purchased or was assigned the account, it has alleged a valid assignment.  It would depend on one’s court rules as to whether “averments as to the nature of the purported assignment” are required to be stated in the complaint or whether “evidence of valuable consideration” (such as a bill of sale) is required to be attached to the complaint.  

Do most, if any, consumers even know what the defense means?  If the judge asked them about the defense, could they explain it?

4.  Plaintiff’s complaint fails to allege whether or not the purported assignment was partial or complete and there is no evidence that the purported assignment was bona fide.

Again, this goes to one’s rules of civil procedure.  What is required to be alleged in the complaint and what evidence is required to be attached?  

5. Plaintiff’s complaint fails to allege that the Assignor even has knowledge of this action or that the Assignor has conveyed all rights and control to the Plaintiff. The record does not disclose this information and it cannot be assumed without creating an unfair prejudice against the Defendant.

This defense does not seem to apply to a credit card action.  It claims that the creditor/assignor might not have any idea that the debt was sold.  Credit card companies know if they’ve sold debts.

In regard to conveying all rights, that might apply if a state allows collection agencies that have not purchased debts to sue for the original creditor.  But when the plaintiff is a debt buyer, it can easily prove all rights were sold.

6.  Plaintiff is not an Assignee for the purported agreement and no evidence appears in the record to support any related assumptions.

This would only apply if no evidence was attached to the complaint, or if the defendant can prove the plaintiff doesn’t own the account.  It’s basically another form of “lack of standing.”

7.   Defendant claims Accord and Satisfaction as Defendant alleges that the original creditor accepted payment from a third party for the alleged debt, or a portion of the alleged debt, or that the original creditor received other compensation in the form of monies and/or credits.

Accord and satisfaction could apply, but not as described above.  That defense applies only to the parties to an agreement.  For a defendant consumer to raise that defense, he would have to be a party to the agreement.  

The creditor and debt buyer have an agreement for the purchase of debts.  It is only between the creditor and debt buyer.   The consumer was not a party to it.   And, the payment made to the creditor by the debt buyer is not considered satisfaction of the debt.  That satisfaction (payment) must come from the consumer. 

Here is how a couple of courts describe the defense.

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.”

As you can see, accord and satisfaction means the consumer and creditor (or debt buyer) came to an agreement, and the consumer complied with his part of the agreement by paying the agreed upon amount.  

8. Defendant alleges that Plaintiff’s complaint, and each cause of action therein is barred by the Doctrine of Estoppel, specifically Estoppel in Pais.

Estoppel in pais has to do with voluntary conduct.  What would be the voluntary conduct?

9. Defendant alleges that Plaintiff’s actions are precluded, whereas Plaintiff’s demands for interest are usurious and violate state and federal laws.

This works if the defendant proves the plaintiff has charged usurious interest rates.  Credit card companies are allowed to charge the interest rate of the state in which they are incorporated.  Interest rates on judgment are determined by the law of the state where judgment is rendered.

10. Defendant alleges that Plaintiff or the person or entity that assigned the alleged claim to the Plaintiff is not entitled to reimbursement of attorneys’ fees because the alleged contract did not include such a provision, and there is no law that otherwise allows them.

This works if the agreement, in fact, does not allow for attorney fees.   This needs to be explained to defendants.

11. Defendant invokes the Doctrine of Laches as the Plaintiff or the person or entity that assigned the claim to the Plaintiff waited too long to file this lawsuit, making if difficult or impossible for the Defendant to find witnesses or evidence or that evidence necessary to provide for Defendant’s defense has been lost or destroyed.

This applies only in specific situations.  It means that, even if the cause of action is still within the SOL, the plaintiff waited too long to file, and the delay has prejudiced the defendant.  

If the lawsuit was filed within the SOL, it would be up to the defendant to prove that, for instance, the witnesses or evidence he needs is no longer available.  

12. Plaintiff has no Fiduciary Duty.

That’s not an affirmative defense for a defendant.  It would be a plaintiff’s affirmative defense to a counterclaim.  

13. Plaintiff has failed to name all necessary parties.

This is another one that would work only if the defendant could prove it.  And, I suppose it would depend upon who the other parties are that the defendant claims were not named.  

14. Plaintiff’s complaint alleges damages are the result of acts or omissions committed by non-parties to this action over whom the Defendant has no responsibility or control.

Is this a round-about way of claiming ID theft?

15. Plaintiff’s complaint alleges damages are the result of acts or omissions committed by the Plaintiff.

What would be examples of the above?

16. Defendant alleges that the granting of the Plaintiff’s demand in the Complaint would result in Unjust Enrichment, as the Plaintiff would receive more money than plaintiff is entitled to receive.

The plaintiff must prove the amount claimed.  It must have admissible evidence of the charged-off amount and any interest or fees added to that balance.   

17. Plaintiff’s complaint alleges damages are limited to real or actual damages only.

That would depend upon the contract or state law.  If the contract and state law allow for attorney fees and costs, this defense won’t fly.

18. Defendant invokes the Doctrines of Scienti et volenti non fit injuria (a person who knowledgeably consents to legal wrong has no legal right) and Damnum absque injuria (harm without injury).

Scienti et volenti normally applies to insurance cases.  For instance, if you see steps to an entrance to a building are falling apart, and there’s a sign that says “Do not use steps”, but you use them anyway, you are liable for your own injuries if you fall.  You chose to take a chance on dangerous steps despite the warning.  

I suppose it can rarely be used as a defense to debt collection but not in the case of debt buying.  Most who suggest that defense are claiming that a debt buyer that voluntarily purchases a defaulted debt is consenting taking its chances and harming itself.

 Debt buying is legal.  Courts have ruled that debt buyers who prove ownership are owed the balances on accounts they purchase.   It doesn’t matter that they bought accounts that they knew were in default.

Damnum absque injuria doesn’t seem to apply either.  Most courts seem to describe the defense as “a wrong for which the law affords no redress.” When sued for account stated or breach of contract for money owed, the law affords redress.  If found liable, the redress is payment of the balance. 

Please note: WE ARE NOT ATTORNEYS. If you are being sued, it’s always a good idea to hire an attorney or get some legal assistance. If you cannot afford an attorney, a lot of people have handled their cases pro per or without a lawyer. Our articles are meant to provide basic information on handling litigation.

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New Rules Implemented by The Consumer Financial Protection Bureau (CFPB) Clarify the Way Debt Collectors May Deal with Consumers

January 21st, 2021 · Consumer Debt, Credit Rebuild, Credit Repair, Debt Collection, Debt Settlement

The Fair Debt Collection Practices Act (FDCPA) was enacted in 1977 to curb the abusive practices of debt collectors. The law has been used in court many times and has had many interpretations over time.  The CFPB has been charged with enforcing the law and guiding debt collectors and consumers with regard to the Fair Credit Reporting Act (FCRA) and the FDCPA. Two new final rules clarifying these practices were recently issued by the CFPB in regards to the way debt collectors must deal with consumers.  

Rule issued on Oct 30, 2020

This rule clarifies how debt collectors can use email, text messages, social media, and other contemporary methods to communicate with consumers. The rule will allow consumers, if they prefer, to limit the ability of debt collectors to communicate with them through these newer communication methods.

  • Debt collectors will be presumed to violate federal law if the debt collector places telephone calls to a particular person in connection with the collection of a particular debt more than seven times within seven consecutive days or within seven consecutive days of having had a telephone conversation with that person about the debt.
  • Consumers must have the option to unsubscribe from receiving text messages and emails from debt collectors or otherwise limit ways debt collectors contact them. It also clarifies the use of voicemails and other messages left by debt collectors.
  • A debt collector is prohibited from communicating or attempting to communicate with a person, in connection with the collection of a debt, through a social media platform if the communication or attempt to communicate is viewable by the general public or the person’s social media contacts.
  • A debt collector is prohibited from selling, transferring for consideration, or placing for collection a debt if the debt collector knows or should know that the debt has been paid or settled or discharged in bankruptcy.
  • Link to the text of the final rule.
  • The Final Rule will become effective one year after publication in the Federal RegisterNovember 30, 2021.

Rule issued on December 18, 2020

This rule covers initial communication with the consumer, prohibits collection activities for time-barred debts and prohibits debt collection activities on accounts held by deceased persons.  Specifically, the final rule prohibits a debt collector from:

  • Suing or threatening to sue a consumer to collect time-barred debt. 
  • Prohibits a debt collector from furnishing information about a debt to a consumer reporting agency before engaging in specific outreach to the consumer about the debt. 
  • Addresses certain other disclosure-focused provisions, such as clarifying how a debt collector may respond to a consumer’s request for original-creditor information if the original creditor is the same as the current creditor. Here is an example of the new letter which must be sent by collection agencies.
  • Additionally, the final rule interprets the definition of consumer under the FDCPA to include deceased natural persons and, relatedly, provides that, if a debt collector knows or should know that the a consumer is deceased, and the debt collector has not previously provided the validation information to the deceased consumer, the debt collector must provide that information to a person who is authorized to act on behalf of the deceased consumer’s estate.
  • Link to the new final rule.

Are the New Rules Legally Enforceable?

The actual text of the FDCPA has not changed since 2010,but interpretations of the law are ever-evolving. The CFPB is issuing these final rules primarily pursuant to its authority under the FDCPA and the Dodd-Frank Act. As amended by the Dodd-Frank Act in 2010, FDCPA section 814(d) provides 18 that the Bureau “may prescribe rules with respect to the collection of debts by debt collectors,” as defined in the FDCPA. 43 Section 1022(a) of the Dodd-Frank Act provides that “[t]he Bureau is authorized to exercise its authorities under Federal consumer financial law to administer, enforce, and otherwise implement the provisions of Federal consumer financial law.” 

The CFPB enforces the law by filing lawsuits against those debt collectors who have violated provisions of the FDCPA.  It uses final rules to provide legal interpretation of those violations.  To learn more about the process of rule development, go to the CFPB website.

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How Will Unemployment Affect My Credit?

June 30th, 2020 · Credit Repair

If you’ve been laid off recently, the last thing you will want to worry about is how your credit report will be affected by this temporary situation.  There is good news and bad news for you.  First the good:  your credit score will not be directly affected by your lack of employment.  The bad:  your lack of income could affect your ability to pay your bills and therefore your credit score could be impacted negatively.  Let’s go over each of these points.

Your credit score will not be directly affected

Your credit report contains personal information about you, such as your name, social security number, your address and where you work.  If you are temporarily unemployed, this information will not appear on your credit report, so any lender who takes a look will not know about your financial setback.  Your employment information is only updated when you apply for new credit and list your employer on the application.  This information is not retrieved from the IRS or any government entity.  You may see a list of past employers on your credit report, but there are no dates on any of this information.  

Your employment history will not affect your credit score at all.  

In addition, any compensation you receive as part of your unemployment benefits will not appear on your credit report.  Indeed, your salary or wages for any job you do will not appear on your credit report, ever.  

How unemployment can indirectly affect your credit score

Lowered income can affect your credit score in three ways: 

  1. Lowered income can affect your ability to pay your bills.  

If your income declines dramatically, which is safe to say happens in the majority of cases (except in rare cases where some people have received more money than lost wages under the 2020 CARES Act), your ability to pay bills might be affected.  If you are late on making payments to lenders and credit card issuers, this will affect your credit score.  

35% of your credit score is based on payment history, that is, if you pay your bills on time (no later than 30 days from the due date). If you currently enjoy a high credit score (a high credit score is anything greater than 780 (based on a range of 350 – 850), making even one late payment can send your score tumbling down.  As part of the CARES Act, there was no provision put into law that will exempt late payments (whether or not they will count against you) which happened due to the Covid-19 pandemic.  

  1. Your credit utilization could go up.

Credit utilization is 30% of your credit score.  If you use your credit cards to help make up for the shortfall in income, you could see your credit utilization rise.  Your credit utilization is the ratio of your balance to your total credit line per creditor.  The general guideline is to keep your credit utilization below 30%, and optimally below 10%.  The more money you charge on your credit cards, the higher your credit utilization.  Maxing out even one credit card will seriously impact your credit score.  

  1. You could open up new lines of credit.  

Opening new lines of credit could affect your credit score.  On one hand, the credit scoring model reacts favorably to new lines of credit being added to your credit report (10% of your credit score) – up to a point.  Every time you open up a new line of credit an inquiry is placed on your credit report, and this can reduce your score by 2 to 5 points, on average.  In addition, new credit reduces the average age of your credit lines and this is 15% of your score.  

Can you apply for new credit when you are unemployed?

The answer is yes, there is nothing stopping you from applying for new credit.  However, lenders and credit card companies will require you to put down your income on the application.  If you are getting a mortgage of any kind, whether it’s an equity line of credit or a refinance, you will be required to verify your income through documentation.  Credit card companies will generally not require you to verify income; auto lenders will generally not require you to verify income if you have great credit and you are putting down a large amount of money.  

If you are unemployed, taking on additional financial responsibility is probably not a good idea – if you are having trouble paying your existing bills, adding to the monthly total may not be in your best interest.  

If you are having trouble paying your bills and absolutely need a line of credit to make it through your crisis, consider getting a personal loan at a credit union, as they typically are more lenient with their credit guidelines and have lower fees.  If this is not feasible, making a budget and cutting back on spending is the way through to getting you back on your feet.  

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