Alabama State Flag

Alabama collection lawsuits are up almost 4 times according to court documents for the U.S. District Court for North Alabama. Many of these cases are related to collection agencies collecting from the wrong person, and certain companies seem to have a very high rate of suits.

Unifund tops the list with 26 suits filed in the last 12 months in North Alabama alone. Behind them is California’s Midland Credit Management with 22 suits in the last year. Here is an excerpt from the article in the Birmingham News:

California-based collection agent Midland Credit Management was sued by a woman living in Limestone County.

The problem? The woman was getting regular phone calls from Midland Credit’s bill collectors. Among the messages left by the collectors, according to the suit: “Trash like you need to pay your bills and stop ignoring them.”

The real problem was that the woman didn’t owe $1,492 to a furniture dealer for a debt allegedly incurred in 2003. Midland Credit Management was never able to substantiate the debt with receipts or signed credit agreements or other documentation, despite repeated requests, the suit said.

A spokesman for Midland Credit’s parent company, San Diego-based Encore Capital Group, said the corporation doesn’t comment on collections lawsuits. The case, like many, was settled under confidential terms.

Of course it was settled under “confidential terms.” That’s the standard method of operation for many of these collection agencies. Consistently and systematically break the collection laws that are there to protect consumers and settle any lawsuits that come up as fast and quietly as possible. Then, the lawyers representing consumers get 75% of the settlement money. Unethical collection agencies just view these lawsuits as a cost of doing business. Until there is greater enforcement from state agencies or the FTC, consumers will continue to suffer from collection harassment, while lawyers and collection agencies reap the profits.

**Read the full Birmingham News Story**

In a very disturbing case, the 7th Circuit has ruled in favor of debt buyers by upholding a lower court decision that MCM Capital Group did not violate the Fair Debt Collections Practices Act (FDCPA).   In Wahl vs. Midland Credit Management, the court decided that by referencing the total amount of debt purchased as the “principle” amount the debt buyer did not violate FDCPA’s requirement that interest and principle be itemized.

The basic story is that Ms. Wahl charged less than $70 to a BP credit card in the 80′s.  Due to a stroke, she was unable to pay the balance, so interest and fees started accruing at about $40 per month.  After Ms. Wahl’s $70 in gas debt had grown to $1,149 in debt, BP decided to sell the debt to a debt buyer.  The debt buyer then began adding it’s own interest, but reported the $1,149 as the “principle” balance and it’s own interest as the interest.

So, what the court affirmed is that if a debt buyer purchases the debt, they are under no obligation to provide the consumer with any information on how a $70 debt turned into $1,149 and can in fact report that debt as the principle balance.

From the 7th Circuit Court’s Decision:

The starting or original amount owed, she would say, was what she actually charged on the BP card. It follows that none of the interest, whether tacked on by BP or Midland, is part of the “principal balance.” And since Midland included the BP interest within the “principal balance” figure, it uttered a falsehood. But this logic ignores Midland’s role in the process entirely. The interest charged by BP was very much part of the principal balance in Midland’s eyes.
Midland obtained the entire BP debt,3 including interest, so the starting or original amount owed, as far as it was concerned, was indeed $1,149.09.

Regardless of the legal merits, this is certainly a very bad decision for the consumer or debtor.  Basically, a creditor can rack up all kinds of usurious fees and interest, in this case over $1000 for $70 borrowed, and then sell the balance to a debt buyer.  At that point, the debt buyer has no obligation to demonstrate how $70 turned into $1,149 and can refer to $1,149 as “principle.”

This sounds like a great decision for payday lenders operating illegally out of Costa Rica or Grenada, banks hiding behind “fees” to charge usurious rates and collection agencies that want to pursue old inflated debts.

PR: wait… I: wait… L: wait… LD: wait… I: wait… wait… Rank: wait… Traffic: wait… Price: wait… C: wait…