What makes a debt collector take legal action?
It is actually a scoring process, just as the Fair Isaac Corporation (FICO) score for credit reports to assume the likelihood of a consumer being late. Back in the 80s and early 90s, FICO scoring was used to score the likelihood of the collectability of a debt by a consumer. So, when a collection agency or a collection law firm receives the account, the creditor has already determined that these are accounts that they are willing to litigate to some degree.
Typically, it starts with the balances under 1500 dollars. This example is based on Texas as statute of limitations differs for different states. In Texas, anything under 1500 dollars; litigations is rarely filed on those types of accounts, unless it is a dead buyer.
This is because the judges really frown in the JP courts, on small balance or small claims being filed for credit accounts. But in the District Court, the creditors will first review the balances on the account over 1500 dollars, then they will look at the credit score. They want to see where the consumers are credit wise. Does the consumer own a home? Do they own a car? If they do not own a home or a car, what is their age range? What is their income ratio? What is their income potential? Student loans? Education? Is there a degree? All of these variables are taken into consideration before a creditor will determine if they want to file a suit.
If four out of six to eight boxes check off, then the consumers find themselves in a position in which they can be litigated. And then, if they place a cease and desist on a creditor that has already put them in that threshold, they can almost guarantee themselves a 95% chance they are going to be litigated because when they serve a cease and desist, they have taken off their legs in terms of their collectability. The debt collectors cannot communicate with the consumer. And by law, that is the only way they can attempt to collect the debt is to communicate. Hence, a lawsuit is the only other option at this point.
A consumer with a traditionally high credit card debt, charge offs, a lot of chases, good income earner and late pays but with an average FICO score, and the mortgage inquiry comes in. then the consumer send a cease and desist letter which states no further contact. The likelihood of a lawsuit in that case is 99%. The debt collector will have no option but to communicate through the court system.
When a debtor is really high profile, with lots of past due charge offs or charge offs in the past from large limits, large balances, sophisticated consumer, probably a six figure earner with fairly recent debts. The debtor is definitely vulnerable to a lawsuit, but is eligible to serve a cease and desist order. If this happens, the debt collector will have to communicate via court.
LexisNexis plays a major role in this process as well, because now with a 75-page consumer report on an individual; things like assets which were ordinarily not seen before on credit reports are available now such as multiple automobiles, recreational vehicles, homes or mineral rights that may have been passed down through family lineage. Things like these are assets that are attachable through civil judgments in the state of Texas. Hence, that increases the collectability of the debt.
What happens when attorneys contact clients?
Clients have stated that they receive a notice of legal action if they do not pay; a standardized collection letter from law firms in different states; meaning a different state than which the client resides in. Attorneys also send out solicitation letters to the consumers, which means chances are that the consumer is being sued. Attorneys will not send out letters with cause, which means they know that the consumer is being sued by the debt collector. And in a scenario like that, once a consumer is sued, that needs to be a referral right out to the attorneys.
This is not usually a scare tactic used by the debt collectors. The scare tactics are the empty threats given by the debt collectors over the phone, which brings us to our next point.
Is giving an empty threat legal?
The lawsuits are real; the debt collector will be violating the FDCPA (Fair Debt Collection Practices Act) regulations if there is an empty threat to sue. If for example, the attorney is in Colorado and the client in Texas, and the client is receiving calls about a future lawsuit; the debt collector is basically walking into a lawsuit. The debt collector has the right to sue, whether they wait till the last date of the statute of limitations or not. Hence, it is only the matter of when they file.