Volume 25

WWZZZ: Zombie Debt, the Zlaket Rules, and Regulation Z

by John F. Serafine

Even casual observers of film know how to stop a monster attack. A wooden stake through the heart will kill a vampire.1 Silver bullets slay werewolves.2 Double tap to destroy a zombie.3 In the movies, protagonists familiar with these tactics might save themselves and loved ones. In the theater of litigation, technical legal knowledge that helps defeat zombie debt gives attorneys a real-life opportunity to rescue cash-strapped consumers, many of whom are consigned to cycles of debt and poverty.4

Big banks issue most major credit cards5 and will spend years trying to collect from consumers who do not pay their credit card debt.6 If banks fail to collect, they sell the debt for pennies on the dollar to debt buyers.7 Debt buyers then sue consumers for outstanding balances8 that average around three thousand dollars.9 Debt buyers win many of these cases because consumers never respond to the lawsuits.10 The consequences can be devastating for consumers because of garnishments, court costs, attorney fees, and interest on judgments obtained.11

In Arizona, debt buyer plaintiffs prevail in droves over consumer defendants that ignore their lawsuits.12 One justice of the peace revealed that he processed sixty default judgments for debt buyers from his home in the space of about four hours on a Sunday afternoon.13 When consumers do answer the bell, debt buyers still chalk up wins in breach of contract cases without having to admit into evidence actual credit card contracts at either summary judgment 14 or trial.15 Debt buyers skate by with monthly billing statements.16

Consumers should net better litigation results in light of evidentiary, procedural, and regulatory requirements. Pursuant to the best evidence rule (or “BER”),17 an applicable credit card agreement, i.e., the version of the agreement in existence at the time of the card’s most recent use,18 must be produced by a debt buyer at summary judgment and trial unless the agreement is proven to be lost or destroyed.19 Rules of civil procedure in some states, like the Zlaket Rules in Arizona, mandate that a debt buyer search early for the applicable credit card agreement.20 Credit card agreements collected pursuant to Regulation Z21 have been posted to the internet for years.22 Interplay among these requirements should make an applicable credit card agreement a sine qua non in any debt buyer breach of contract case.

Credit card agreements, however, are more bane than boon for debt buyers because many contain pre-dispute arbitration clauses23 and choice of law provisions24 detrimental to collections cases. Under an agreement that requires private arbitration, the cost of collection can climb to four thousand dollars because of arbitrator fees.25 This outlay of cash may not be recoverable from the consumer like it would be in court26 so debt buyers will, in many cases, “do the math and elect not to pursue the arbitration based on a simple cost-benefit analysis.” 27 Somewhat surprisingly, the state law chosen to govern a credit card agreement will often have a shorter limitations period than that of a forum state.28

Alas, many consumers do not keep their credit card contracts29 and most are unable to advance tenable legal positions on their own.30 Consumers seldom have lawyers.31 They either cannot afford an attorney or cannot find an attorney to take their case.32 “As a result, consumer debtors, who lack any knowledge of their legal rights, must resort to appearing pro se and stumble through complex procedural and substantive legal issues that even some trained attorneys do not fully understand.”33

On the bright side, consumers achieve far better outcomes in the small number of cases in which they do have representation.34 Thus, these are not losing battles. Because legal aid programs turn away more than half of the eligible people who seek assistance,35 this article reminds attorneys of their ethical obligation to the poor36 and encourages them to consider a volunteer role with a legal aid organization.37 This article also augments an arsenal of legal discourse available to consumers and their prospective attorneys.38

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2. See STEPHEN KING’S SILVER BULLET (Paramount Pictures Corp. 1985).

3. ZOMBIELAND (Columbia Pictures Indus. 2009).

4. See Aimee Constantineau, Comment, Fair for Whom? Debt Collection Lawsuits in St. Louis Violate the Procedural Due Process Rights of Low Income Communities, 66 AM. U. L. REV. 479, 486–87 (2016) (“The combination of predatory debt collection, garnishment practices, and an inability to repay debts has led to a cycle of poverty . . . that, for many, is unending, unalterable, and unforgiving.”); see also Michael J. Bologna, States Take Different Paths with Junk Debt Industry, BLOOMBERG BNA (Mar. 2, 2016), https://www.bna.com/states-different-paths-n57982068002/.

5. FED. TRADE COMM’N, THE STRUCTURE AND PRACTICES OF THE DEBT BUYING INDUSTRY 13 (2013), https://www.ftc.gov/sites/default/files/documents/reports/structure-and-practices-debt-buying-industry/debtbuyingreport.pdf [hereinafter DEBT BUYING REPORT].

6. See FED. TRADE COMM’N, COLLECTING CONSUMER DEBTS: THE CHALLENGES OF CHANGE: A WORKSHOP REPORT 2–3 (2009), https://www.ftc.gov/sites/default/files/documents/reports/collecting-consumer-debts-challenges-change-federal-trade-commission-workshop-report/dcwr.pdf [hereinafter COLLECTING CONSUMER DEBTS REPORT].

7. See DEBT BUYING REPORT, supra note 5, at 23 (finding that debt buyers paid an average of four cents for each dollar of debt); see also Dalié Jiménez, Dirty Debts Sold Dirt Cheap, 52 HARV. J. ON LEGIS. 41, 42 (2015) (stating that debt buyers pay pennies—or even fractions of pennies—on the dollar).

8. Peter A. Holland, Notes from the Trenches: Current Trends in Consumer Junk Debt Buyer Litigation, 49 MD. B.J. 18, 20 (2016).

9. See Peter A. Holland, Junk Justice: A Statistical Analysis of 4,400 Lawsuits Filed by Debt Buyers, 26 LOY. CONSUMER L. REV. 179, 205 (2014) (finding that the average amount of principal claimed in state district court lawsuits was $2,993.73).

10. See id. at 210 (finding that debt buyers obtained money judgments 73 percent of the time against Maryland consumers who did not respond after being served lawsuits).

11. Peggy Maisel & Natalie Roman, The Consumer Indebtedness Crisis: Law School Clinics as Laboratories for Generating Effective Legal Responses, 18 CLINICAL L. REV. 133, 140 n.24 (2011).

12. See CHRIS ALBIN-LACKEY, HUMAN RIGHTS WATCH, RUBBER STAMP JUSTICE: US COURTS, DEBT BUYING CORPORATIONS, AND THE POOR 3–4 (2016), https://www.hrw.org/sites/default/files/ report_pdf/us0116_web.pdf.

13. Id. at 39 n.100.

14. Acarta, LLC v. Partridge, No. 1 CA-CV 14-0467, 2015 WL 5438105, at *1 (Ariz. Ct. App. Sept. 15, 2015).

15. Midland Funding LLC v. Amelga, No. 1 CA-CV 15-0510, 2016 WL 6123437, at *1 (Ariz. Ct. App. Oct. 20, 2016).

16. Id. at *2; Portfolio Recovery Assocs., LLC v. Robertson, No. 1 CA-CV 15-0066, 2016 WL 1168251, at *2 (Ariz. Ct. App. Mar. 24, 2016) (“These billing statements are sufficient to prove a contractual relationship existed between Citibank and [the consumer].”); Acarta, 2015 WL 5438105, at *3 n.3.

17. ARIZ. R. EVID. 1002.

18. Unifund, CCR, LLC v. Elyse, 382 P.3d 1090, 1093 (Wash. Ct. App. 2016).

19. See ARIZ. R. EVID. 1004(a).

20. See ARIZ. R. CIV. P. 26.1(c)(2).

21. 12 C.F.R. § 1026.58 (2017).

22. See 15 U.S.C.A. § 1632(d) (2009 & Supp. 2017).

23. See Peter B. Rutledge & Christopher R. Drahozal, Contract and Choice, 2013 BYU L. REV. 1, 18 (2013) (finding that 48 percent of credit card loans were subject to pre-dispute arbitration clauses at the end of 2010).

24. See David A. Hoffman, Whither Bespoke Procedure?, 2014 U. ILL. L. REV. 389, 410 (2014) (finding a choice of law provision in 79 percent of credit card agreements maintained at a federal government database in 2012).

25. James H. Lawson, Turning the Tables on Debt Buyers—Using Arbitration as a Defense to a Collection Lawsuit, LAWSON AT LAW, PLLC (Sept. 17, 2016), http://www.kyconsumerlaw.com/category -2/1375; accord Rutledge & Drahozal, supra note 23, at 43 (“Typically, when a party files a claim in arbitration, it must pay at least some of the administrative fees upfront and put down a deposit to cover the arbitrator’s fees.”). “By comparison, the public court system is subsidized by the taxpayers, so that parties do not bear anywhere near the full cost of the process.” Stephen J. Ware, The Case for Enforcing Adhesive Arbitration Agreements—with Particular Consideration of Class Actions and Arbitration Fees, 5 J. AM. ARB. 251, 285 (2006).

26. Lawson, supra note 25.

27. Id.

28. See Developments and Ideas for the Practice of Consumer Law, The Debt Buyer Issue, 27 NCLC REPORTS: DEBT COLLECTION & REPOSSESSIONS EDITION 1 (2008), reprinted in 12 J. CONSUMER & COM. LAW 115, 116 (2009) [hereinafter NCLC REPORT].


30. See Victoria J. Haneman, The Ethical Exploitation of the Unrepresented Consumer, 73 MO. L. REV. 707, 730 (2008) (stating that a consumer, in regard to time-barred debt, “is unlikely to unravel the complexities of burden-shifting and affirmative defenses within the short ‘raise it or waive it’ timeframe”).

31. LR Credit 21 LLC v. Paryshkura, 914 N.Y.S.2d 614, 615 (Dist. Ct. 2010) (“In consumer debt matters, in particular, the defendant rarely has the benefit of a lawyer’s help.”); Amy E. Duncan, Kyle W. Siegel & Chelsea E. Gaudin, Debt Buyers’ Abuse of Louisiana Courts Creates Problems for Consumers, 63 LA. B.J. 335, 335 (2016) (finding that 91 percent of defendants in a Louisiana parish were unrepresented when sued on a debt); Ellen Harnick, Lisa Stifler & Safa Sajadi, CTR. FOR RESPONSIBLE LENDING, DEBT BUYERS HOUND COLORADANS IN COURT FOR DEBTS THEY MAY NOT OWE 7 (2016), http://www.responsiblelending.org/sites/default/files/nodes/files/research-publication/colorado_debt_buy ing.pdf (“A review of 375 [debt buyer] cases randomly selected from Colorado county courts turned up exactly none in which the consumer had a lawyer.”); April Kuehnhoff & Cherie Ching, NAT’L CONSUMER LAW CTR., DEFUSING DEBT: A SURVEY OF DEBT-RELATED CIVIL LEGAL AID PROGRAMS IN THE UNITED STATES 1 n.9 (2016), https://www.nclc.org/images/pdf/debt_collection/debt-defense-survey-2016.pdf (listing studies that show 91 to 99 percent of consumers have no legal representation when sued on a debt).

32. Peter A. Holland, The One Hundred Billion Dollar Problem in Small Claims Court: Robo-Signing and Lack of Proof in Debt Buyer Cases, 6 J. BUS. & TECH. L. 259, 266 (2011).

33. Id.

34. See Holland, supra note 9, at 223 (finding that “the less than 2% of defendants who had a lawyer achieved a dismissal rate of about 70%”).

35. Kuehnhoff & Ching, supra note 31, at 1.

36. See ARIZ. R. PROF’L CONDUCT 42, ER 6.1 (suggesting that lawyers voluntarily render public interest legal service).

37. See infra notes 431–33 and accompanying text.

38. ROBIN LEONARD, SOLVE YOUR MONEY TROUBLES (15th ed. 2015); JONATHAN SHELDON, CAROLYN L. CARTER & CHI CHI WU, COLLECTION ACTIONS: DEFENDING CONSUMERS AND THEIR ASSETS (3d ed. 2014); Peter A. Holland, Defending Junk-Debt-Buyer Lawsuits, 46 CLEARINGHOUSE REV. 12 (2012); Clinton Rooney, Defense of Assigned Consumer Debts, 43 CLEARINGHOUSE REV. 542 (2010); NCLC REPORT, supra note 28.