The Secret World of Bad Paper – Debt Collection

IMG_0524Virtually every American adult has some form of debt. The economic crash of 2008 exposed the grand mistakes made by millions of people in getting way over their heads by borrowing too much money. In the years since that time and before, the business of collecting money owed, mostly to banks, has gotten incredibly shady.

The basics of debt collection seem simple enough. However, the money trail gets complicated with every twist and turn of the debt. When a consumer stops paying their debt or loan, a bank “charges off” the account after 180 days of non-payment and records it as a loss. This applies to all kinds of debt, such as credit cards, medical and auto loans and even gym fees and utility bills. The bank or lender then sells the debt in bulk to debt collectors. Sometimes this work is handled by lawyers, but billions of dollars’ worth of debt is purchased by other, often unscrupulous debt collectors. “Top” debt buyers bought nearly 90 million accounts at a face value of more than $140 billion from 2006 to 2009.

The voluminous accounts of debtors are traded from one debt collector to another until paid or abandoned. A single debt can be traded over a dozen times; meaning from the original creditor, the debt was sold to many other entities, diminishing in value with every new turn of the “paper.” “Fresh paper” is what comes directly from the banks. At some point, the debt is considered “bad paper” because it’s potential for collection has become slim-to-none. That’s when the experts – not the attorneys – come in to scoop up the leftovers, which can yield billions in collecting on “bad paper.” This is a “lawless marketplace” where actual criminals finesse each deal to get paid pennies on the dollar. One such expert is Brandon Wilson, a debt collector whose personal story is outlined in a new book entitled, “Bad Paper; Chasing Debt From Wall Street to the Underworld” by Jake Halpern. Bad Paper has pulled back the dark curtain of secrecy behind the “underworld” of debt collection.

Brandon says that he buys “crap,” which is the kind of debt that is so old or otherwise considered uncollectable by other debt collectors that no one else wants it to hustle. He calls himself the “King of Crap,” usually purchasing nothing more than spreadsheets, which indicate the debtor’s name, contact information and balance of the debt. That’s it; that’s all he needs. The FTC conducted a study of large debt buyers, finding that only about 6% of the time, the debtor’s account comes with an account statement. He and others like him, find the debtors through skip-tracing. Once located, the debtor is classified based on the chances of them paying. Most people actually want to pay their debts. If efforts by the debt collectors are resisted, they typically resort to aggressive and illegal means of collection, such as threatening lawsuits, which they cannot do.

While a house or a car cannot be bought two or three times simultaneously, a single debt can be held by more than one collector. This is because debts, in the form of basic information on a spreadsheet, can be stolen. One example is outlined in Mr. Halpern’s book; that of a Marine named Theresa, who made payments to a debt collector, who never legitimately owned the debt.
So, when the actual owner of her debt called her for payment, a confrontation ensued between the two debt collectors.

This raises the question of why and how a consumer debt, which has been bundled and traded multiple times, should pay what the collectors say is owed. First, the debtor cannot be sure whether or not the debt claimed is legitimate. It should also be noted that there is no legal reason to pay a debt over the statute of limitations period. However, debts stay on a consumer’s credit report for 7 years. Some debtors simply feel a moral obligation to pay whatever debt they are accused of owing. Other times, debtors are bullied by debt collectors and/or they just want the incessant calls to stop.

The system of consumer debt is chaotic: there is no central registry or regulatory agency, no attorney general and no better business bureau; there are simply no agencies that can control this market.

With respect to the law, a debt collector cannot threaten legal action if he or she is not an attorney. If the debt is beyond the statute of limitations (3-6 years, depending on State), it cannot be collected in court. The Fair Debt Collection Practices Act (15 U.S.C. § 1692) may be helpful to consumer debtors, but there are not enough agencies to ensure a safe marketplace for the buying, selling and collecting of debt.

The Consumer Financial Protection Bureau (CFPB), led by Elizabeth Warren, may create new rules to protect consumers from wrongdoing in this area. But, the GOP is targeting this agency for failure. Currently, consumers are not adequately protected by predatory lenders. Ringing in the nearly 10,000 collection agencies in the United States will not likely be possible and, therefore, offer assistance to the vast majority of consumers, who are prey to illegal collections practices. About 42% of collection companies have a small number of employees and can easily do business under the radar of any agency scrutiny.

In its first lawsuit, the CFPB accused a Georgia-based law firm of violating federal consumer protection laws. The suit claims that hundreds – perhaps thousands – of consumer defendants owe no money or less than what is claimed. It is also claimed that lawyers of the firm usually spend less than one minute reviewing each complaint. Perhaps that is how the firm filed over 350,000 lawsuits on behalf of credit card collection companies. Since most of these defendants do not show up in court, the firm collects on piles of default judgments. Interestingly, the CFPB says that it can sue law firms simply for operating as debt-collection businesses and not legal advisers.

In short, the debt collection business is the Wild West of a legal or quasi-legal forum. It is simply out of control and operating in what one expert, armed-robber-turned-successful entrepreneur, Brandon Wilson calls an “underworld.”

Sources:, “Fresh Air” 10/9/14; New York Times Magazine, “Paper Boys” 8/14;, 9/26/14; The Wall Street Journal Online Law Blog 8/4/14.

Biographical information: Mona Conway has been a business law and commercial litigation attorney on Long Island for over 10 years. Ms. Conway is a State and Federal Court litigator with the boutique firm of Conway Business Law Group, P.C.

Are Email Confidentiality Notices Just Plain Stupid?

Confidentiality notices, often automatically pasted at the end of email correspondence are annoying, aren’t they? More annoying still are those trails of emails sent back and forth when the parties hit “reply” a few times and a brief email chat becomes a 10-page string loaded with repetitive boilerplate notices. Here’s the one that I use, which looks similar to or exactly like the ones sent by many other attorneys:

CONFIDENTIALITY NOTICE: This facsimile/e-mail message is intended only for the person or entity to which it is addressed and may contain CONFIDENTIAL or

PRIVILEGED material. Any unauthorized review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please contact the sender and destroy all copies of the original message. If you are the intended recipient but do not wish to receive communications through this medium, please so advise the sender immediately.

Does this obnoxious prophylactic effort actually protect anyone’s confidentiality, or is it just plain stupid? Some commentators suggest as much. (See, Jeffrey Goldberg, 8/14/03 [“counting the ways” in which email confidentiality notices are “stupid.”]). The reasons for why attaching a confidentiality notice to emails may be considered a waste of effort and space at least and a serious mistake at worst include: (1) it gives an ambiguous directive; (2) it projects a contradictory intent; (3) it has no legal effect; and (4) it can eviscerate any legal effect that it might otherwise have.

The ambiguous directive of the confidentiality notice says that the “unauthorized” recipient is prohibited from reviewing or distributing the email message, while also directing that take action by contacting the sender and destroying the message. How do I know that I am not the intended recipient unless I review the message? Since the message was, in fact, addressed to me (because that’s how I got it), then aren’t I the de facto intended recipient? How do I know that I’m not supposed to review the message until after I have read it and then found the notice at the end of the message? And, who are you, Sender, to tell me what is prohibited; what authority do you have to tell me what to do with the emails sent to my address?

Very often, confidentiality notices at the end of email messages directly contradict the intent of the sender. This is the case if, for example, the information contained in the email is a press release or corporate memo, directing the recipient to disseminate its contents to other employees. And what does “may contain confidential or privileged material” mean? Is it or isn’t it confidential? How am I supposed to know what portions of the message are or are not confidential or privileged? Recently, I took on a lawsuit where it turned out that my new legal adversary was an old friend. My friend/new adversary sent me an email, stating that he was glad to have me as his adversary so that we could make head-way on some protracted issues in the case and, in the same email, made friendly inquiries about me and my family. At the end of the email was a confidentiality notice. Common sense told me that nothing in that particular email could be deemed confidential. Nor did any privilege exist, no matter what the email contained.

Nearly all of my legal adversaries send me emails with a confidentiality notice at the end of their emails. The problem for them is that there is no way their messages are kept confidential. In fact, we, as attorneys, are looking for those emails which contain incriminating admissions and/or contradictory statements that can be used against our adversaries. Such correspondence is used in court all the time as evidence to support legal positions and, if the court papers are filed online as in Federal Court proceedings, these communications are available to anyone who wishes to see them.

So, there are some prime examples of why confidentiality notices at the end of emails are totally useless. Now, here’s why they are simply a bad idea: First, it can lull the sender into a false sense of security by the very harshness of the message’s tone and implied legal implication of “prohibition.” A confidentiality notice has no inherent legal effect. Second, if used routinely, they can make all of your email communications non-confidential. If you make all of your email communications confidential, when it is clear that you do not have a “reasonable expectation of confidentiality” for every message you write, then you are not making specific efforts to protect certain information, as distinguished from all information. You must intend to protect certain information as confidential.

Only when such notices are used carefully and sparingly do they have a chance to actually protect confidential information transmitted by email. The basic legal standard is a “reasonable expectation of confidentiality,” which does not exist by the mere force of the words in the notice; such an expectation must be accompanied by another reason for having such an expectation.

To simplify, your author suggests that you keep the following in mind when you want to attempt to keep information confidential. Common sense should tell you that you cannot force someone to keep your secrets just by demanding that they do. There must be some outside agreement or requirement that your secrets will be kept by a particular recipient. Therefore, the confidentiality notice is like a reminder or a back-up of sorts, indicating that you are proceeding under a previously-established agreement between you, the sender, and another party, who is the recipient; it reaffirms your commitment to keep your secrets secretive.

Think Before You “Cease and Desist” Somebody

Author: Mona Conway

Intellectual property attorneys have at least one standard form in their protective arsenals against infringement: the “cease and desist” letter. For the novice business owner or individual receiving such correspondence, this can be quite worrisome. The reason is that such letters do not tend to merely state, “Knock it off, Buddy,” they threaten litigation (usually of the federal kind) and contain statutory citations, which appear to be cryptically forceful. And they surely are packed with a punch. Many federal intellectual property statutes allow for coveted remedies such as attorney’s fees, costs, treble and punitive damages. Perhaps unlike your run-of-the-mill cease and desist letter, the ones served to prevent intellectual property infringement are to be taken most seriously.

But, what if the infringement is actually a good thing for the intellectual property holder? What if the infringer’s actions actually resulted in a benefit to the holder of some intellectual property right?

Here is a case in point. Long Island Newsday created a clever ad for the iPad, which, as luck would have, went “viral” on YouTube. The ad says that Newsday’s iPad app is better than the paper in all kinds of ways, except for one. The video then depicts a man attempting to swat a fly with the device (instead of a newspaper), which, of course, shatters into a million pieces. The 30-second clip received 600,000 views in just days and was well on its way to receiving even more attention, when the ad was abruptly pulled. Apparently, all that good, free publicity was not worth seeing the iPad smashed to bits. Some call this decision by Apple one of the biggest business blunders of 2010.

Now, what if the infringement is just too ridiculous to be taken seriously? Can sending a cease and desist letter be bad for business in addition to being a tremendous waste of time and legal fees? Here is a case in point. Last year, attorneys for the National Pork Board (NPB) sent a 12-page cease and desist letter to ThinkGeek, Inc. for using the slogan, “Unicorn – the new white meat” on its website, The “infringer” launched the fake product on April Fool’s Day (um, as a joke). The NPB owns the mark “The Other White Meat.” ThinkGeek publically apologized, albeit sarcastically, by responding, “It was never our intention to cause a national crisis and misguide American citizens regarding the differences between the pig and the unicorn.” It seems that the April Fool’s stunt ended up making fools of the NPB when their letter became disclosed to public reaction. News agencies and bloggers have had a field day poking fun at the NPB’s way-too-serious reaction to the parody of their mark.

Finally, the Nestle matter should advise intellectual property attorneys to think carefully before sending out their cease and desist letters, because the backlash of such action could be much worse than the infringement. Greenpeace posted a graphic video on YouTube about how the food conglomerate, Nestle produces palm oil in a way that negatively impacts an endangered orangutan population. This is where the battle began. In response, Nestle had the video pulled for copyright issues. Greenpeace then fired-up its resolve and resources by using Facebook to get its message across to the public. Nestle then made a slew of what it admits to be “rude” remarks to its Facebook “fans,” which resulted in an onslaught of bad press. In the end, Nestle changed its source of palm oil, folding under the pressure of consumer outrage, which would not have been so forceful had it not been for Nestle’s determination to fight for its intellectual property rights.

Facebook Lamebook Trademark Infringement

A “Lame” Response From Facebook

About a year-and-a-half ago, two young graphic designers started their own website to parody the social networkings of subscribers. The two guys from Texas created “” to poke fun at content on Facebook which is considered funny, absurd and/or “lame.” All of Lamebook’s content is submitted by fans who have found pictures or posts on the social networking site of Facebook. The content is reviewed by Lamebook and posted to its site. Lamebook lets you peruse categories such as “Photos,” which tend to be awkward, strange or embarrassing photos posted by Facebook users; “typOHs!”, featuring amusing typographical errors found in Facebook postings; “WTFights” which displays the uglier interactions between Facebook subscribers; and “Douchebags and Douchebaguettes” which seems to highlight the lamest of the lame. Basically, Lamebook does with Facebook what the Comedy Central show “Tosh.O” does with YouTube; it features the best of the worst of what’s on the Web.

In March of this year, Lamebook heard from Facebook’s attorneys. Facebook’s counsel demanded that Lamebook cease and desist from using the Lamebook name, asserting that Lamebook infringes on Facebook’s trademark as well as dilutes it. Simply stated, the legal premise of “dilution of trademark” occurs when a trademark loses its distinctiveness due to another’s use of a similar mark; infringement occurs when a trademark is used by another in a manner which is likely to cause “consumer confusion.” In addition, Facebook demanded that Lamebook change the look of its website, although the rationale for this demand is unclear.

Lamebook thereafter retained counsel to defend Facebook’s allegations. Lamebook’s counsel attempted to resolve the matter with Facebook, primarily by explaining that the Lamebook mark is a parody of the Facebook mark, a form of expression protected by the First Amendment of the U.S. Constitution. But, Facebook wouldn’t budge. In July, Facebook attorneys sent a letter to Lamebook, threatening a lawsuit if Lamebook refused to (1) “abandon all applications to register marks containing the term ‘LAMEBOOK’”; (2) “permanently cease use of the LAMEBOOK mark or any mark with the BOOK suffix and agree not to register such marks”; and (3) “permanently cease use of Facebook trade dress.” (Emphasis added).

Facebook has not objected to the use of any content by Lamebook (Facebook has no rights to that); Facebook’s problem with Lamebook is the name and the logo. As an attorney who practices in the area of intellectual property, I understand Facebook’s obligation to protect its mark. It is axiomatic that a trademark which is not protected is lost. In other words, if you do not protect your mark, then you lose your mark. It is for this reason that every intellectual property attorney has a strongly worded, yet boilerplate sample “cease and desist” letter stored in their computer drive.
However, Facebook’s demands seem overreaching. Since Facebook has probably been parodied in every medium across the Globe thousands of times, Facebook’s attorneys must necessarily pick and choose which battles they will initiate for Facebook’s trademark protection. Their efforts to protect Facebook’s mark must be legitimate. If they are not legitimate, they are simply unfair, given the extraordinary resources of this colossal corporate entity.

According to Lamebook, whose site was created and is maintained for fun, “Facebook didn’t get the joke.” As a result, Lamebook claims that it is being picked on by “a multi-billion dollar behemoth” whose sheer bullying power is enough to shut down the website. Lamebook is so out-resourced by Facebook, that it has started a fund raising campaign to pay for its preemptive lawsuit against Facebook, which was filed on November 4, 2010 in a Texas Federal District Court. The suit seeks a declaratory judgment, allowing Lamebook to operate and maintain its website and to use the term “Lamebook” without fear of future liability. The Complaint outlines its adversary’s power, stating that Facebook has over 400 million monthly users of its website, making it one of the most heavily trafficked websites in the World.

Conway Business Law Group is a civil litigation firm that offers a comprehensive range of legal services to protect the legal rights and best interests of small business owners and individuals in Nassau and Suffolk Counties.

Facebook commenced a trademark infringement lawsuit against in August of this year. Teachbook is a social networking site for educators to assist each other with lesson plans for their students (you know; to be better teachers).