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

and

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.

Texas is the Wild West for debt collection

In Texas, you must undergo hundreds of hours of instruction and have a license to be a barber. A bartender must complete an accredited training course to pour drinks statewide. But to start a debt collection agency, all that is needed is cheap and easy to acquire surety bond.

            The only requirements to operate as a debt collector are obtaining a $10,000 surety bond and filing it with the Texas Secretary of State. This requirement is not for each person acting as a collector but for each company. Hundreds of people can work under just one bond.

            There is no training required to work as a Texas debt collector and no background check is required. Felons are free to work as debt collectors in Texas.

            Texas debt collectors do not have to register anywhere so it is impossible to know how many exist. However, their numbers can be estimated by the number of active bonds on file with the Texas Secretary of State. As of March 2021, there are 2300+ active debt collector bonds.

            Breaking the Texas Debt Collection Act is technically a misdemeanor criminal offense but the maximum penalty is only $500, no matter how egregious the conduct. And I am not aware of any debt collector ever being prosecuted for violating the TDCA.

            The Attorney General of Texas has a Consumer Protection division. The AG does important work but they are spread too thin to deal with even a small portion of the complaints and tips sent their way.

            The only real deterrent to unlawful behavior by debt collectors is private attorneys who file civil cases against them. Even then, many predatory debt collectors can violate the law for years between being sued. Only about 7,000 Fair Debt Collection Practices Act cases were filed in federal court in 2020, down about 18% from 2019. The numbers are down not because debt collectors are following the law better but because it is getting harder to sue them.

            With so little regulation, and so little protection for consumers, debt collectors make money by breaking the law than following it.

Who is Phoenix Recovery Group?

You may have seen an entry on your credit report for something named “Phoenix Recovery Group”. Phoenix Recovery Group is the assumed name for Tolteca Enterprises, Inc. Phoenix Recovery Group is a Texas based debt collector formed in 2002.

           They frequently collects debts related to apartment leases. Phoenix reports information on apartment debts to make it difficult for the consumer to lease an apartment or purchase a home.

Example of a Phoenix Recovery Group entry on a credit report

Phoenix explicitly uses potential homelessness as a collection tool.   Many landlords will not rent to a potential tenant who owes money to a former landlord. Phoenix knows this and uses it to extract money from consumers.

            This would be unfair by itself but Phoenix frequently makes errors.

            Phoenix has been sued in federal court for alleged violations of the Fair Debt Collection Practices Act. Phoenix has been sued for attempting to collect money not owed, adding prohibited fees, or failing to make required disclosures. In December 2019, a federal court ruled that Phoenix’s letters to consumers violated the FDCPA by failing to make required disclosures and was misleading as to the amount of the debt.

            I can help you effectively use your rights on state and federal law to make sure Phoenix Recovery Group is reporting only accurate information on your credit report.

            Don’t let an inflated, inaccurate, or wrongful debt keep you from safe and decent housing.

Misrepresenting the amount of a debt

The best Fair Debt Collection Practices Act (“FDCPA”) cases are simple. And one of the simplest type of cases is a debt collector collecting the wrong amount. In legalese, a debt collector who tries to collect the wrong amount is “misrepresenting the amount of the debt.” This violates 15 U.S.C. 1692e(2)(a) of the FDCPA. That section states:

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(2) The false representation of—

(A) the character, amount, or legal status of any debt[.]

     Misrepresentation of the character or legal status of a debt can be complicated to prove. Misrepresenting the amount of a debt is much easier.

            If a debt collector tries to collect more than is owed, they have misrepresented the amount. If they try to collect too little, they have misrepresented the amount. If they try to collect two different amounts for the same debt, it is likely at least one amount is misrepresented.

            It is obvious why it is unlawful to collect too much but why is collecting too little wrong as well? Here is an example:

            Debt Collector Dave tells Consumer Cathy she owes $400 even though he knows she allegedly owes $1000. She scrapes together all her money and pays $400. Dave then says he has made a mistake and Cathy still owes $600. Cathy would justifiably feel she has been conned.

            Debt collectors need to be accurate each time they try to collect money. Consumers cannot make informed decisions without accurate information. The FDCPA allows consumers to sue debt collectors who fail to meet their obligations under the law.

Landlords must mitigiate damages.

            One of the most common violations of law I see regarding collection of debts related to apartments is a landlord’s failure to mitigate damages. Chapter 91.006 of the Texas Property Code imposes this duty on landlords:

Sec. 91.006.  LANDLORD’S DUTY TO MITIGATE DAMAGES.  (a)  A landlord has a duty to mitigate damages if a tenant abandons the leased premises in violation of the lease.

(b)  A provision of a lease that purports to waive a right or to exempt a landlord from a liability or duty under this section is void.

If a tenant breaks the lease and vacates the rental before the end of the lease, the landlord has to make reasonable efforts to find a replacement tenant. The rents the replacement tenant pays, during the term of the breached lease, are deducted from the amount the original tenant owes.

Here is an example: Amy’s mom gets sick. Amy moves out of her rental, even though she just re-signed a year lease, to take care of her. It takes the landlord six weeks to find a replacement tenant who pays the same rent as Amy. The landlord may not try to collect double rent from both Amy and the replacement tenant.

It can get complicated determining what is “reasonable” and how much  of the damages of a breaching tenant can be mitigated. But when I see a landlord trying to collect 12 months of rent, it is a giant red flag.

A landlord who doesn’t mitigate damages violates the law. A landlord who attempts to collect double rent is violating the Texas Debt Collection Act. A debt collector who attempts to collect double rent is violating the Fair Debt Collections Practices Act.

Terminating a residential lease after burst pipes

The February 2021 cold weather caused frozen pipes to burst in many rented residences. If the damage caused the rental to be “totally unusable for residential purposes”, the tenant may terminate the lease under Chapter 92.054(b) of the Texas Property Code.

Chapter 92.054(b) states:

If after a casualty loss the rental premises are as a practical matter totally unusable for residential purposes and if the casualty loss is not caused by the negligence or fault of the tenant, a member of the tenant’s family, or a guest or invitee of the tenant, either the landlord or the tenant may terminate the lease by giving written notice to the other any time before repairs are completed. If the lease is terminated, the tenant is entitled only to a pro rata refund of rent from the date the tenant moves out and to a refund of any security deposit otherwise required by law.

            This is important for tenants as the landlord may lawfully delay repairs until they receive a payout from their insurance. However, the notice of termination must be in writing. Tenants should send the notice using the Postal Service’s certified mail, return receipt requested (green card) and 1st class mail. They should also keep a copy of the notice and proof of delivery. An easy way to keep a copy safe is to email it to yourself. The tenant may need to prove the lease was terminated lawfully years later.

            If a landlord tries to collect additional rent after a tenant terminates a lease under this law, the landlord may be violating the Texas Debt Collection Act. A debt collector who tries to collect rent that isn’t owed may be violating the Fair Debt Collection Practices Act.

How to pull your credit report (and save it as a PDF)

Step 1: Go to annualcreditreport.com.

Step 2: Click on this button:

Step 3: Fill out form with your information.

Step 4: Click on this button:

Step 5: Select all three bureaus by checking the boxes like this:

Step 6: Click on the next button.

Step 7: Answer the security questions and click the continue button.

Step 8: For Equifax, click the download report button.

Step 8: For TransUnion, click the Save as PDF link.

Step 8: For Experian, click the Print Your Report link.

Step 8b: After clicking the Print Your Report link, a new window will open. Click the Print Report button.

Step 8c: After clicking the Print Report button, a new window will open. Click “Adobe PDF” or “Save as PDF” under “Destination”. Then click “Print”.

What to do if you might be evicted in Texas.

If you can pay your rent, you should. But sometimes that isn’t an option or your landlord wants to evict you for reasons other than nonpayment of rent.

        You need to make plans NOW. Failing to plan is planning to fail. If you do get evicted, where will your kids stay? What about your pets? Do you have  a secure place to store your belongings?

        First, pack. It always takes longer to pack than anticipated. If you must leave on short notice, you’ll be glad to you packed early. The last thing you want is to have to leave stuff behind because you couldn’t move it in time. If things work out, you can always unpack.

        Second, resources are available but they are limited. Start making phone calls now. Volunteer Legal Services of Central Texas is a good place to start. Austin Tenants Council provides assistance understanding the eviction process.

        Third, communicate with your landlord. They probably won’t work with you but they might.

        Forth, you’re not evicted until a judge says so. There is no “self-help” residential eviction in Texas. Consider vacating the residence and surrendering possession back to the landlord before the hearing.

        Sixth, attend the eviction hearings. You’re unlikely to win but you’ll get the information regarding deadlines directly from the judge. If you have vacated the residence, be sure to let the judge know at the hearing.

        Seventh, if you are evicted, leave the place in good order. Take a bunch of photos and videos of the residence. Upload the videos to Google Drive or other file storage. If you need the pictures in two years to show you didn’t trash the place, it won’t do you any good if you threw away that phone and didn’t back them up.

        Eighth, notify your landlord in writing of your forwarding address so you can receive any refund of your housing deposit, if any. You must notify the landlord in writing to trigger your right to a refund under Texas law. Most likely, your deposit will used to pay back rent or other charges. But you should still let your landlord know your forwarding address so they can send you the bill for any additional money they want paid.

        Ninth, many larger landlords will turn delinquent rent over to debt collectors. Having a debt collector report you owe a former landlord money may make it difficult for you to find housing. Check your credit report frequently. You can view your credit report weekly for free through April 1, 2021.