Weasels on Both Sides

Most collection agencies and law firms that specialize in collections justify their efforts as the best way for lenders to follow consumer protection laws like the Truth in Lending Act and the Fair Credit and Recovery Act. But their efforts often appear more intimidating than helpful to the debtors. And there are collectors, debt counsellors and attorneys who make use of this impression.

The January 1999 New York state court decision Citibank (South Dakota) v. Lori J. DiNorma discussed some aggressive collections tactics and shady debt-reduction tactics.

DiNorma owed several thousand dollars to Citibank from credit cards that he’d used. The bank started aggressive collection actions, so he hired attorney Andrew Capoccia—who operated “debt reduction centers” throughout New York state.

Capoccia advertised to people with severe financial problems, luring them with promises of significant reductions in debt while avoiding bankruptcy.

Once enrolled in a debt reduction program, Capoccia’s clients were instructed to stop paying their debts and, instead, make monthly payments to an escrow account that Capoccia controlled. Before any debts were paid, Capoccia’s fees were deducted from this account. These fees generally accounted for what would have been several months of debt reduction payments by the client.

DiNorma followed these rules. And Citibank sued him. The court was quick to notice a trend:

This court has received no fewer than seven cases in which Mr. Capoccia represents the defendant and in which the plaintiff is Citibank. All seven relate virtually identical facts, a defendant’s default in meeting credit card obligations.…With minor variations in wording [the filings] are identical. The affirmative defenses are the alleged failure to state a cause of action, a claim that the credit card agreement is unconscionable, and a supposed failure to comply with [New York state law]. The two counterclaims are that Citibank violated the truth in lending act and that the agreement is not in plain language….

The court didn’t see much merit in Capoccia’s legal theories.

Citibank moved to dismiss the defenses and asked the court sanctions on Capoccia’s firm for frivolous defenses. But the bank’s lawyers didn’t seem any more professional than Capoccia. The court noted:

In attempting to bolster its sanctions argument, the bank has presented seven identical and identically voluminous sets of supporting papers, each a hodgepodge of earlier decisions by various courts, copies of pleadings by the Capoccia firm in other cases, and similar material, all intended—no doubt—to paint the Capoccia firm as engaging in a habitual course of unreasoned and unjustified obstructionism.

Not to be outdone, Capoccia’s firm responded with similarly repetitive papers, showing that it had obtained settlements on behalf of many of its clients and had at times prevailed in courts…as well as been criticized there.

Capoccia argued that the bank conned consumers into taking on obligations they didn’t understand and couldn’t pay. Then it hid behind lawyers. He requested sanctions against Citibank for bringing frivolous motions…for sanctions.

The court wasn’t impressed with all of the paper:

Conspicuously absent from the papers is any consideration of the facts of the various actions that are supposedly before the court. …The bank has drafted its papers not to prosecute the cases against these debtors, but to show that the Capoccia firm does nothing more than raise bogus defenses and counterclaims in order to frustrate and stall legitimate collection efforts, with an eye to wearing out creditors and obtaining settlements….

This may have been a cagey strategy for Capoccia; but his firm applied it in such a cookie-cutter way for all clients that it backfired on all of them.

One credit card default may resemble another, as mortgage foreclosures do; but the resolution of the individual problems will be different for each person. Beware of any credit repair outfit that makes sweeping promises about “situations like yours” before they’ve looked over your credit history.

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