Credit Card Collectors on the Front Lines of Consumer Litigation

Jack Gordon

Consumer activists and attorneys hold a special place in their litigious hearts for credit card debt buyers and collectors, especially when the paper is older. As we all know, delinquent credit card paper is frequently bundled and sold off for a fraction of its original value. Many consumer activists reason that if the originating bank is not capable of collecting the debt themselves, then they certainly feel no particular obligation to pay a subsequent entity with whom they have no direct agreement — especially when the buyer paid pennies on the dollar for it.

Of course, we all know this tortured logic is easily refuted. But that doesn’t make the job of collecting old credit card paper any easier. Consumer activists have their own term of endearment for companies who buy credit card paper – “junk debt buyers” or JDBs. Many consumers like to compare themselves to the investors burned by Wall Street’s collapse. Of course, the comparison is not particularly adept, as the investors were the ones who paid and got burned, where credit card debtors avoided payment and, in many cases, are getting away with it.

Beyond accusations of illegitimacy, many card paper buyers and collectors find themselves targeted by consumers and attorneys for filing a large number of lawsuits to collect judgments, and ultimately money. As if this wasn’t the whole point of debt collection! But I digress. If you spend any time on the consumer boards, you would see scores of consumers in a panic because they just got served and need advice on how to acquire that magic bullet that might extricate them from this pending lawsuit.

Of course, most never find it, and many who know they’re on the wrong end of the lawsuit don’t even bother showing up to defend themselves. But if there is a magic bullet for the few who choose to pursue one, it is found by filing their own lawsuit against the buyer/collector on FDCPA grounds. And here is an interesting twist: when suing the buyer/collector, many consumers are naming the original creditor in the suit as well.

A quick analysis of court data over the last twelve months shows that major card-issuing banks are being dragged into lawsuits filed against debt buyers (who currently own and work the paper) in as many as 30% of all lawsuits filed against the buyers. It is likely a tactic to increase pressure on the buyer/collector to settle quickly, and it probably works quite well. Unfortunately, consumer success in FDCPA litigation usually does a good job of breeding more lawsuits for the future.

It could also be argued this is a form of harassment against the collector, done for the purpose of humiliating or otherwise defaming the reputation of the collector in front of their major suppliers. Of course, I am not aware of any statutory protection granted to collectors against abusive or oppressive consumers.

We all know the number of lawsuits against debt buyers and collectors is rising along with suits against the entire industry. Another quick analysis of court data shows a surprising 55% or so increase in FDCPA lawsuits against major debt buyers in the last twelve months – a considerably more aggressive spike than the industry’s aggregated increase of about 11% over the same time period.

Listening to advocates for the recent ACA proposal to expunge asset buyers (which was rejected), this disparity is at the top of the list of their complaints. Of course, the dramatic increase in litigation against debt buyers is not all their fault. Blame prominent consumer attorneys for much of it – they have discovered great traction in demonizing the debt buying industry.  And like hungry lions, many have targeted what they perceive to be the most vulnerable members of the debt collection industry “herd” – the credit card debt buyers – and have been striking with increasingly annoying regularity.

Credit card paper buyers and collectors are out there fighting the good fight every day, despite attracting a higher level of consumer vitriol, more questions about their legitimacy, a much higher rate of FDCPA litigation and even threats of alienation from their own industry associations.

If you know any people who buy or collect credit card paper, give them a hug. They could probably really use it. Just try not to hurt yourself on any of the arrows sticking out of their backs. And remember, if we allow those arrows to do the job they were intended to do, your area of collections may just be the next target.

Jack Gordon is CEO of WebRecon LLC, a firm that tracks consumer litigation against collection agencies, debt buyers, law firms and creditors. WebRecon data helps those industries prevent predictable lawsuits from repeat litigants. Prior to WebRecon, Gordon ran a Michigan collection agency and a technology-oriented marketing firm.