Should you send in small payments on big debts to stay “in good standing?”

Short Answer: NO.

I got a call recently from a lady who had a solidly defensible debt collection case.  She had been sued by an alleged assignee of an old creditor.  The account was appearing on her credit report as being due and owing for over $7,000.  She had limited resources, having recently been out of work for a while, so she couldn’t afford to pay the whole balance, or even make any settlement offer that would come close to settling the account in full.  So she sent in $200 to keep the account “in good standing.”  That’s what their collectors told her to do.  She had hoped that this would improve the account’s status on her credit report.

Unfortunately, she was wrong.  This “good faith” payment did nothing to fix her credit report.  She still owed $6,800, she was still over 90 days past due, and the account was still a big fat negative mark against her credit.

And even worse, making a payment on an old debt has two bad legal consequences: it can restart the statute of limitations on the debt, and it can be seen as an admission that the money is owed and the amount is correct.  A lot of debt collectors cannot prove that they have the right to collect a previous creditor’s debt, so if your jurisdiction considers a payment as an admission that the collector (and not the original creditor) is owed, then you’ve just proven half of their case.

So if a collector calls you and asks for a “good faith” or “good standing” payment on an overdue credit account, you may be tempted to send them a few bucks just to get them off your back.  DON’T DO IT.  You should NEVER send money to a debt collector unless you have a written settlement agreement with clear payment terms that you can afford.  If you send them money with no strings attached, it will not fix the problem; it will not get them off your back (like seagulls or alligators, they’ll just come back for more once they get hungry again); it will not repair your credit.

What if there was a quick and easy way to tell if a car dealer was shady before you even set foot on their lot?

Well, there is.  Just look at the windows of the vehicles and see if there are any prices listed.  Or you can look at the dealer’s website and see if prices are listed there.  If it is a good dealer, they’ll have prices listed somewhere.  If their website says “Call for price” look somewhere else.  If you go to the dealership and there is no price written anywhere on the vehicle, then leave.

Why?  Because an automobile dealer that won’t list a price wants to leave that most crucial contract term open until the deal is done.  This allows them to promise you one price, interest rate, or monthly payment, and then deliver another in the paperwork.

Here’s how it works.

Say you go to a dealership.  You find a car you like.  You ask about the price.  The salesman tells you some bullshit about how great of a car it is and then says they’ll “give it to you for $8,000.”  And the payment will be $300/month.  So you agree.  You sit in their office for 4 hours while they “draw up the paperwork” (which literally takes about 30 seconds because all they do is print a form from their computer program that fills it out for them).  Then your salesman walks out with a big smile on his face and says “congratulations, you’re approved” as if you’re the new father of a healthy baby.  You sit down to sign the mountain of paperwork that they’ve printed out, and lo and behold, the “CASH PRICE” listed on the Truth in Lending Disclosures is $9,500 – way more than the $8000 they’d promised.  What happened?

After they got you to verbally agree on a deal, they prepared your contract terms and sent the proposed contract (and your credit report) to several finance companies hoping to sell your contract to someone else.  Dealers want to get paid up front, so they sell the contract and its massive APR to a finance company, who then pays them a discounted lump sum for the right to receive the rest of your monthly payments.  If they don’t get offered as much money as they want, they’ll jack up the price of the car to make the loan more attractive to the finance companies.  So if the dealer honored his commitment to sell you that car for $8,000 at 15% APR, that finance company may pay him $7,000.  But by jacking up the price to $9,500 at 18% APR, the dealer gets $8,000 from the finance company.  And you get screwed. This is a violation of the Truth in Lending Act and most false advertising laws.  This whole scheme requires that you never have any evidence that the original price was higher.

Note that just because a dealership has prices listed doesn’t mean they’re guaranteed honest.  There are plenty of ways to defraud a customer without price switching, and dealers with clearly written prices screw people all the time.  But

Debt Collectors Should Be Able to Prove You Owe Them.

It isn’t enough just to list an account number and some flashy letterhead.  They should be able to prove that you owe them money.  And not just that you owe them something, but that you owe them what they’re asking for.  To me, this is just common sense.  If some random homeless guy walks up to you on the street and demands $200, would you pay him?  Of course not.  What if he says that he’s collecting for a Chase credit card that you used to have, would you pay him then?  Of course not.

So why would you treat a debt collector any differently?  Because they have fancy letterhead?  Because they use scary and official-sounding language?  Because they threaten to take you to court?  Remember, the stronger your case is, the less you need threats.  If they’re using serious language and threats, it is because they’re standing in a position of weakness.  Because they’re trying to scare you.

Now maybe you do owe Midland Funding or Asset Acceptance the $2700 they’re demanding.  Maybe you don’t.  But you definitely shouldn’t pay anyone money without knowing the answer to that question for sure.

Under the FDCPA, you have the right to request proof of a debt within 30 days of that collector making contact with you.  If you request proof (or “validation” as the Act calls it), they can’t collect from you until they’ve shown you some evidence.  Demand proof.  See if they’re legit.  If you didn’t borrow money from them, then they need to be able to tell you exactly why you should pay them and not the people you borrowed money from.  What if you pay a junk debt buyer all of your savings, only to get sued by the real creditor a week later?  Wouldn’t that be a disaster?  Well, if they’re asking you for money, the least they can do is prove that they have the right to be bothering you.

I don’t really think I deserve it, because there are a lot of better lawyers doing better work for better people than me. But I was flattered to take it.

Pro Bono practice is one of the most important things for lawyers to keep in mind. The prevailing image of lawyers as portrayed by various media nowadays is one of corporate greed, slick contortion of justice, and crass commercialism. But there is more to us than that.

https://www.ftc.gov/news-events/press-releases/2015/03/ftc-multiple-law-enforcement-partners-announce-crackdown

In a rare move against car dealers, the FTC has cracked down on several dealerships suspected of violating various laws, including the Truth in Lending Act.

One of the dealerships subject to the crackdown was actually in Alabama.  Jim Burke Nissan was accused of putting out false advertisements that violated teh Truth in Lending Act.  You can read the FTC’s Complaint here.

Of course, none of the affected car dealers admitted any wrongdoing, and the FTC, rather than lay the hammer down on them in court, entered into consent orders whereby the dealerships agreed to follow the law for the next five years.

I don’t really know what public benefit there is from a settlement that doesn’t put money in consumers’ pockets, but I guess it’s good to know that our tax dollars are going somewhere.

New Car Lemon Law in Alabama

It can happen to you: you test drive a car and everything seems fine, so you pay your down payment and sign a contract and drive your new vehicle home.  The next day it breaks down on you.  You’ve been sold a Lemon.  What do you do?

First, let’s clarify something really important: the actual “Lemon Law” only applies to new vehicles.  If you bought a used car and it turns out to be a piece of junk, you MAY have a claim for breach of warranty, fraud, or breach of contract, but you don’t have Lemon Law rights.

Alabama’s Lemon Law is Ala. Code 8-20A-1, et seq.  And what the lemon law essentially says is this: if you buy a new vehicle that has mechanical problems, you don’t have to spend years driving an unsafe car while they try to fix it.  If you’ve given them a reasonable opportunity to fix the vehicle and it still doesn’t work, then they have to give you a new vehicle OR a full refund.

More specifically, the law says that a vehicle which does not conform to the express warranties of the manufacturer must be fixed if you notify them of the defect within a year of buying the vehicle OR before it gets 12,000 miles on it, whichever is first.

So here’s how you exercise those rights.

1. Notify the Manufacturer and Dealer.

First, if you have a new vehicle with a major defect, you need to notify the manufacturer.  Most warranties require you to take the vehicle to an authorized dealer for repairs.

If they fix it, great.  If not, then you should give them a second chance to fix it.

2. Give them some time to fix it (but not too much time!)

If they’ve made 3 repair attempts and it still isn’t fixed, then the law presumes the vehicle is a lemon.

If the vehicle has been in the shop for more than 30 days (if you add up all the repair attempts), then the law presumes it is a lemon.

Once you’ve given them either 3 tries or 30 days of shop time to fix the vehicle and it the defect still exists, it is time to exercise your lemon law rights.

3. Send a Certified Mail Demand for Repair to the Manufacturer

Yes, even after they’ve had 3 tries and 30 days to fix the vehicle, you have to give the Manufacturer (NOT the dealer!) one last chance to fix it.  It is a lot like Little Bunny Foo-Foo.  They have 7 days to write you back with a recommended repair facility.

4.  Give them one last chance.

They have 14 days to fix it in their last chance at repair.  If they don’t then they have to give you a new vehicle.

5.  Demand a New Vehicle or Full Refund.

If their last chance didn’t fix it, they have to give you a new vehicle of similar model or a full refund.  The refund has to include all taxes, finance charges, and other fees.

6.  Sue the Manufacturer.

If they refuse to give you a new vehicle or full refund, then you can take them to court to force them to give you a new vehicle, compensate you for all damages, and pay your attorney’s fees.

BEWARE THE 2 year/24,000 mile deadline!

Finally, you need to know that steps 1 through 5 have to occur within 2 years of you obtaining the vehicle or 24,000 miles on the odometer.  If it is a defect that can lay hidden for a few months before resurfacing, then you have to be very persistent in demanding your repairs.  DO NOT WAIT.  If something is wrong, take action immediately and don’t try and see how long you can live with it.