Debt suits and JPMorgan Chase: a recommended ProPublic article

I recommend Patrick Rucker’s new article on ProPublica entitled A Return to Robo-Signing: JPMorgan Chase Has Unleased a Lawsuit Blitz on Credit Card Customers to anyone interested in debt suits.

          JPMorgan stopped filing suits against consumers in 2011 and resumed in 2020. In 2021 JPMorgan filed thousands of lawsuits against Texans and the article explains what they can expect:

          “In Texas a decade ago, lawmakers pushed most credit card cases into the state’s version of small claims courts, known as justice courts. The rules of evidence are more lax there and the judge might not even be a lawyer. A retired basketball player presides over one such courtroom in Houston. “One of these judges said to me: ‘What’s the point of seeing a bunch of evidence? We already know these people borrowed the money,’” said Jarzombek, the Fort Worth attorney. “I said: ‘Why even have a trial, then? Let the banks take whatever they want.’””

          Since September 2020, Texas justice courts can hear cases involving up to $20,000 making “small claims court” a somewhat misleading label.

          In 2021, JPMorgan sued about 300 consumers in justice court over a credit card debt. In 2020 they sued just one.

How to find a company’s Texas registered agent.

A registered agent is the person or company designated by law to receive service of process. “Service of process” is just legalese for handing someone a lawsuit or similar document. (Disappointingly, the process server doesn’t have to say “You’ve been served!”) Most, but not all, companies are required to designate such an agent and register them with the Texas Secretary of State.

You can easily search the Texas Secretary of State’s website for the registered agent for a minimal charge but you’ll need to setup an account.

But you can also search the Texas Comptroller’s site for free and with no login.

Some companies don’t have a registered agent list with either the Texas Secretary of State or the Comptroller.

If a debt collector calls to warn you about being served, it’s probably a scam.

I recently sued a debt collector who left a voicemail for my client saying they needed to verify his address so he could be served with a lawsuit.

        This is the slightly edited transcript of that voicemail:

        “This information is intended for [CLIENT]. Claim number 115-1193. This is Samantha Scheels contacting him regarding an order that was submitted to my office. I need to verify an address for service of process at your residence and place of employment. [CLIENT], you have a claim that is being filed against you. At this point you’re being granted an opportunity to contact the firm handling the case to resolve this matter voluntarily. That firm can be reached at [PHONE NUMBER]. Case number again 115-1193.”

        If you get a call or voicemail like this, it is a probably a scam. “Service of process” just means a process server handing you a lawsuit. And process servers rarely call to let you know you will be served because people avoid them.* Calls like this are almost always an immoral debt collector trying to scare consumers into paying.

        When a debt collector leaves a message like this, they violate the Fair Debt Collection Practices Act (“FDCPA”).

        Debt collectors can’t:

  • threaten to sue when they don’t intend to;
  • pretend to be lawyers when they’re not;
  • place calls without disclosing the debt collector’s name; or
  • use a false or misleading representation.

        If you receive a call like this, call a lawyer.

* Don’t avoid process servers. That’s call “ducking service” and it is pointless. After a few unsuccessful attempts to serve you, the opposing party can request “alternative service”. Alternative service usually means taping the lawsuit to your door which might then blow off or get destroyed by rain. Be an adult, take the lawsuit, and call a lawyer.

Texas debt collector loses case, gets hit with a massive fee request

Phoenix Recovery Group, also known as Tolteca Enterprises, Inc., lost a class action lawsuit in  December of 2019. A district judge in ruled that Phoenix’s debt collection letters to consumers violated the Fair Debt Collection Practices Act (“FDCPA”) by omitting language required by law and by being misleading as to the amount of the debt.

            The judge ruled only as to liability and the parties continued to litigate as to the amount Phoenix would have to pay. Under the FDCPA, Phoenix would owe statutory damages, plus the a reasonable attorney fee and costs. In an FDCPA class action, the maximum statutory damages were 1% of the net worth of Phoenix. In February of 2021, the parties stipulated 1% of Phoenix’s net worth was $3,600. Two months later, the parties agreed Phoenix would pay statutory damages of $3,600 to the class and $1,000 to the lead plaintiff. The parties were unable to agree to the amount of attorney fees Phoenix would pay.

            The judge ordered plaintiff’s counsel to submit a fee request. This amount is now what the plaintiff paid her lawyers. Nearly all FDCPA cases are taken on contingency, meaning the lawyer gets paid if they win the case or settle. These fees almost always dwarf the statutory damages. This case was no exception.

            The plaintiff’s lawyers requested $101,995 in fees and $8,071.86 in costs (the cost of mailing the class notice to 13,844 consumers who received unlawful letters from Phoenix). Phoenix had earlier ignored the opportunity to settle for $20,000 and only offered to settle after 22 months of litigation, and then only for a nuisance value.

            The judge hasn’t ruled on the fee request.

First thing I do when I review a debt lawsuit.

The first thing I do when a potential client comes with a lawsuit on a debt is to check to make sure it was filed in the correct place. I do this check because a lawsuit filed in the wrong place is usually a violation of the Fair Debt Collection Practice Act (FDCPA). Finding a violation of the FDCPA is, at the very least, great leverage to use against a debt collector.

            To avoid violating the FDCPA, suits to collect a consumer debt must be filed in one of two places:

  • Where the contract was signed; or
  • Where the consumer lives when the suit was filed.

            When cases are filed in district or county court, the debt collector needs to file in the correct county. When the case is filed in justice of the peace (JP) court, the debt collector needs to file in the correct justice of the peace precinct. I usually see this problem with suits filed in JP court and rarely in county or district court.

            I first determine what JP precinct the potential client lives in. Some counties, like Travis, publish maps. Others, like Williamson, have an address search. For most counties, the only way to discover is to call a JP’s office and politely ask. If the suit was filed in the same precinct that the potential client lives in, the debt collector filed in the correct venue and did not violate the FDCPA.

            If the precincts are different, I need to figure out where the contract was signed. Was it signed a business? If so, what precinct is that business in? Was it signed at a previous address? If so, what precinct is that residence in?

            If a debt collector sues in the wrong place, a motion to transfer venue is usually appropriate. And I will ask my client to consider suing the debt collector in federal court for violating the FDCPA.

How to resolve an old judgment when you can’t find the person to pay.

As an example, let us say you got evicted in 2016 and your landlord got a judgment for $1500 against you. You forgot about the matter because you own your own home. But now you want to sell your house and the title company says you must take care of the judgment before they will sign off. Unfortunately, you cannot find the landlord.

            How do you resolve the old judgment?

            Fortunately, Texas law provides a solution, in § 31.008 of the Civil Practice and Remedies Code. The bad news is that it takes at least 15 days and realistically more like 30-45 days. The solution is that you can pay the full judgment, plus interest, into the registry of the court after making exhaustive efforts to find the landlord. In legalese, in this case the landlord would be called the “judgment creditor” since they were the winner.

            Section 31.008 requires sending letters certified mail, return receipt requested. Click here for more information sending certified mail. The letters must go the judgment creditor’s last known address, the address appearing in the court records for the judgment creditor and its lawyer, and the address for the judgment creditor’s lawyer as appearing on the State Bar of Texas’ website.

            If after 15 days the judgment creditor does not respond, you can file an affidavit with the court stating the notice was sent, the judgment creditor did not respond, and that their location is unknown. The court should then let you pay the judgment into the registry of the court. You must then prepare a release of judgment, which the court will then sign on behalf of the judgment creditor.

            If the judgment creditor can be found but refuses to accept payment, or accepts payment but refuses to sign a release of judgment, things are more complicated and a court hearing is required.

What does it mean to “re-age” a debt?

To “re-age” a debt is to change the date the debt was defaulted. A debt is defaulted when a consumer fails to make a payment as scheduled. By re-aging a debt, a debt collector can make it appear that a debt is newer than it is.

            By making old debts look newer, debt collectors can keep debts on a consumer’s credit report longer than allowed. (Most debts fall off a credit report after seven-and-half years.) Re-aging can also make it appear that a debt is still within the statute of limitations (four years for most debts in Texas) and that the consumer can be sued to collect it. Finally, re-aging hurts consumers because older negative entries effect a credit score less than newer entries.

            The best re-aging cases are the first two categories: reporting non-reportable debt or making debt look within the four-year statute of limitations.

Identity theft and debt collection

Identity theft can ruin a credit score. After the thief steals an identity, they will use the stolen identity to make purchases on credit and then disappear. The victim is left to deal with the debt collectors and the consequences.

            Debt collectors should cease collection efforts after they receive notice that the debt results from identity theft. Click here to learn how to send that notice. Smart debt collectors stop not just because it is the right thing but also because continuing to collect such debts might violate federal law.

            Victims of identity theft rarely legally owe the debts the thief racked up. When a debt collector has been informed that the debt results from identity theft and continues to try to collect, they are attempting to collect money not owed. In legalese, they are “making a false representation of the amount of the debt.” That violates the Fair Debt Collection Practices Act (FDCPA) and the Texas Debt Collection Act.

            The FDCPA also prohibits communicating credit information which is known or should be known to be false. A debt collector cannot just stick their head in the sand and ignore a consumer telling them the debt is not owed.

            To avoid liability under the FDCPA for an error, a debt collector must show they have procedures designed to avoid that specific error. It is exceedingly difficult to convincingly argue that a debt collector has reasonable procedures to avoid an error, like collecting money not owed, when they persist in making the error after being informed of it.

            Debt collectors must operate their business in compliance with the law. When they choose not to operate lawfully, consumers have powerful tools under state and federal law to force compliance and recover damages.

How to dispute a debt with a debt collector

            Consumers have the right to dispute debts in collection. The best way to dispute a debt is in writing with trackable delivery. Sending a letter via certified mail return receipt requested with the United States Postal Service is the gold standard method.

            First, pull a copy of your credit report.

            Second, carefully review the entries on your credit report. It will look something like this:

            Third, address the letter to the debt collector using the address on the credit report (red box).

            Fourth, include information that will allow the debt collector to identify the account like your name, the account number (blue box), the original creditor (green box) and the balance (purple box).

            Fifth, write a very short letter. A dispute letter should not be fancy. The 5th Circuit Court of Appeals wrote, “Aside from invoking the word “dispute,” we struggle to see how a debtor could dispute a debt more clearly than by writing, “the amount you are reporting is not accurate.“”

            Sixth, make a copy of the letter. Put the copy someplace safe. I recommend taking a photo using a phone and then emailing it to yourself so you still have the copy if you lose your phone.

            Seventh, send the letter certified mail return receipt requested at the Post Office. There are two things that need to be attached to the envelope:

Green card for certified mail return receipt requested


Certified mail receipt

            Finally, mail the letter and keep the returned green card. Mailing a letter this way will cost about $7.00.

You should never* default on a debt collection lawsuit

A default judgment is the legal version of a forfeit victory. When the defendant doesn’t “show up” by filing an answer to lawsuit so the plaintiff wins by default. Debt collectors like Midland Credit Management, Inc. (“Midland”) and Portfolio Recovery Associates, Inc.  (“PRA”) rely on default judgments. These debt collectors know consumers usually file no response with the court in a collection suit.

            Consumers fail to respond, calling filing an answer in legalese, for several reasons. It is too stressful. They think owe the money. They can’t afford an attorney. Some consumers even believe failing to respond will stop the lawsuit until they do.

            Debt collectors need consumers to default to make a profit. Midland and PRA file thousands of lawsuits each year in Texas courts. Litigating each case would quickly suck all the profit out of collecting these debts. Instead, these businesses rely on the knowledge that consumers will fail to respond over 75% of the time.

            When consumers fail to file an answer, the consumer gives up their best opportunity to resolve debt. The resolution could be beating the debt collector’s case, or settling for less than full value owed, or correcting the debt collector’s inaccurate requests. Once a debt collector has turned a debt into a judgment, the debt collector has far more leverage to use against a consumer. And the consumer has far fewer ways of challenging inaccuracies.

            Once a debt has become a judgment, a debt collector can use the courts to freeze bank accounts, seize non-exempt property, and make it difficult to buy or sell property.

            Failing to respond to a lawsuit rarely makes the situation better and frequently makes it much worse.

            * Almost never. I can think of some far-fetched circumstances when failing to respond is the best option but that happens very rarely. In any case, consult with a lawyer. Hiring a lawyer isn’t’ cheap but consulting a lawyer usually is.