September 01, 2017

Default on Credit Card Debt: The Perfect Storm

Michael P. Hurley

Reprinted with permission from the Ohio State Bar Association’s Solo, Small Firms and General Practice News, Summer 2017 (30:2).

 

In the recent Ohio Supreme Court case Taylor v. First Resolution Investment Corporation, 148 Ohio St.3d 627, 2016-Ohio-3444, a treasure trove of information is available for attorneys representing debtors and debt-buying creditors.

 

In 2001 plaintiff Sandra J. Taylor Jarvis, an Ohio resident, applied for and obtained a credit card from an issuing bank in the state of Delaware. Taylor used the credit card and made payment via the mail to the Delaware bank. After Taylor defaulted on the card, the bank revoked Taylor’s credit card privileges on May 2, 2005. On or about January 31, 2006, the bank had “written off” Taylor’s account; however, the bank continued to issue statements to Taylor, and Taylor continued to make partial payments through June 28, 2006. In February 2008, the bank sold its rights to the Taylor account to a collection firm, which in turn resold it to defendant First Resolution Investment Corp (FRIC). FRIC had incomplete documentation on the terms of the credit card agreement. Also, notwithstanding the importance of the credit card agreement, no party was able to produce it at any stage of the legal proceedings.

FRIC hired the Cheek Law Offices to file a lawsuit to collect on the debt. Cheek filed a complaint on March 9, 2010, and filed a motion for default judgment less than two months later. Within a week of filing the motion for default judgment, the trial judge granted the motion and issued a default judgment, awarding FRIC everything it had asked for in its motion.

The Ohio Supreme Court stated, “Like clockwork, this case started out as a typical case in the world of debt buying.”

When Taylor found out about the judgment, she filed a successful motion to vacate the judgment and filed counterclaims against FRIC and Cheek. The Ohio Supreme Court stated, “By doing so, she has given this court the opportunity to address issues in her case that happen to be endemic to the whole debt-collection world and that impact Ohio courts.”

Justice Paul E. Pfeifer wrote:

This case began with a default on credit-card debt by an Ohio consumer. It reaches this court because that consumer alleged violations of the federal Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. 1692 et seq., and the Ohio Consumer Sales Practices Act (“OCSPA”), R.C. 1345.01 et seq., by the entities that purchased her debt and were involved in suing her to collect on it. Today, we determine several issues relevant to the application of the FDCPA and the OCSPA to the collection of purchased credit-card debt in Ohio. We hold that the underlying cause of action for default on the credit card in this case accrued in Delaware, the home state of the bank that issued the credit card and where the consumer’s payments were made, and that Delaware’s statute of limitations—through operation of Ohio’s borrowing statute—determines whether the collection action was timely filed. We further hold that the filing of a time-barred collection action may form the basis of a violation under both the FDCPA and the OCSPA. We also hold that a consumer can bring actionable claims under the FDCPA and the OCSPA based upon debt collectors’ representations made to courts in legal filings, specifically on a debt collector’s claim for interest that is unavailable to the debt collector by law. Finally, we hold that debt buyers collecting on credit-card debt and their attorneys are subject to the OCSPA.

Justice Pfeifer takes us on a meticulous journey through myriad legal issues facing debtors and debt buyers, to wit: FDCPA, OCSPA, statute of limitations, Ohio’s borrowing statute, jurisdiction, time of accrual of action, right to interest, amount of interest, attorney liability, consumer transactions, bona fide error defense, abuse of process, and more.

This case is a must read for any lawyer representing debtors, creditors, and debt buyers.

 

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Michael P. Hurley

 

 

Michael P. Hurley is a partner with Nelson Sweet & Hurley in Painesville, Ohio; he may be reached at mikeh@mailbag.net.