Credit Card Lawsuit

But I owe the money

This is a phrase that we hear on a daily basis when someone calls our office on a credit card lawsuit consultation. We ask if they are looking to defend or settle. We start to talk about the possibility of defending the case. We review basis facts like who the original creditor is and who is suing them. If the account has been sold to a debt buyer we tell them that we can defend the case using certain defenses and can likely win. They often say “But, I owe the money…”

Our response to that potential client is no, you don’t owe the money. Most of our clients do not realize this, but here’s how it works with a credit card. You obtain a card account from the original creditor, from companies like Citibank, Discover, Synchrony. Life hits you hard and you lose your ability to pay the monthly charges so you go into default. The original creditor waits up to 180 days and then “charges off” the account. A “charge off” is an accounting term, not a legal term, that means that the creditor has a non paying customer. At this point, the original creditor has 2 choices: 1) try to collect the funds due from you by filing a lawsuit; or 2) selling the debt to a third party collection agency. Often times, for a myriad of reasons, the original creditor chooses option 2. So they sell the account to a debt buyer.

When a credit card account is sold, it is sold not as a single individual account, but rather, as part of a group of delinquent accounts. The grouping of sold accounts can be anywhere from 10,000 to 35,000 at a time. Typically, these accounts are sold for mere pennies on the dollar. In most of the data that we’ve seen the debts are sold for between 2 and 4 cents per dollar.

So the purchasing collection agency then files a lawsuit against you. (These are companies like Midland Credit Management, Portfolio Recovery Associates, LVNV Funding, Cavalry SPV). This is where “but I owe the money” comes into play. From our standpoint, you may owe the money to the original creditor at the time that you default. If they lend money to you or extend credit to you, you do have an obligation to pay it back so you do “owe the money” at that time. However, once you go into default and they charge it off, they have a choice to make. They can sue you to try to collect or they can sell the account. If they sue, then maybe you do “owe the money” and we work towards a negotiated settlement. But if they sell, then we don’t believe that you “owe the money” any longer.

We’ve put a lot of thought into this and here is our reasoning. You have a credit account and are extended credit. You certainly owe the original creditor something at that point. Once you go into default, you still “owe the money”. We believe, however, that if they sell the account, then you no longer “owe the money” because they have received compensation for your default. When they sell your account they are saying that they no longer want to deal with you and they would like to be compensated for the default. Midland Credit Management or some other debt buyer comes along and gives the original creditor money for your account. At that point, the original creditor is out of the picture. They have received what they deemed to be adequate compensation for your default. They would not have sold it otherwise, right? So if the original creditor is adequately compensated, then you no longer “owe the money” in my opinion.

This isn’t to say that a legal interest such as a credit card account cannot be bought and sold. Those transactions are are called assignments and are certainly legal. We are simply looking at this from a debtor’s standpoint. If you pay anything to that collection agency, if you believe that you “owe the money”, you are simply paying pure profit to that collection agency. After all, they paid only pennies on the dollar for your account. After the first $30 or so, any money that you pay to them is pure profit. The original creditor has been paid for the account. Do you really “owe the money”?

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