Debt buyers purchase debts from other companies and then try and collect on them, often by filing lawsuits in small claims court. If you have been sued by a debt buyer, do not ignore court papers or assume you have no defense. Too often, consumers seek legal help after a judgment has already been entered against them and when it may be too late. Even though you may not recognize who is suing you, you still need to appear in court. You can ask the court for proof that you owe what they say you owe and demand to know who actually “owns” the alleged debt and how the amount alleged due was calculated.
The Consumer Financial Protection Bureau (“CFPB”) has stepped up its efforts to reign in debt buyer lawsuits, to help ensure fairness for consumers on questionable debt portfolio purchases. For example, in CFPB actions filed against debt buyer industry giants Encore Capital Group, Inc. and Portfolio Recovery Associates:
The CFPB found that Encore and Portfolio Recovery Associates attempted to collect debts that they knew, or should have known, were inaccurate or could not legally be enforced based on contractual disclaimers, past practices of debt sellers, or consumer disputes. The companies also filed lawsuits against consumers without having the intent to prove many of the debts, winning the vast majority of the lawsuits by default when consumers failed to defend themselves.
Although they pay only pennies on the dollar for the debt, debt buyers may attempt to collect the full amount claimed by the original lender so it is especially important to hold them to their proofs and ensure the debt is properly documented, within the statute of limitations, and legally valid.
Don’t ignore collection letters either. Save them because these letters may show discrepancies in the amount you allegedly owe and can cause a court to question the balance being sought later on by the debt buyer. And remember — don’t make a small payment on a debt you are not sure about. Investigate or seek legal help first. If you make a payment, you may re-trigger the statute of limitations and lengthen the amount of time a debt buyer can take to sue you.