Author Topic: Why a JDB is NOT a Factoring Company  (Read 28629 times)

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stargazer0725

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Re: Why a JDB is NOT a Factoring Company
« Reply #45 on: July 27, 2006 06:50:09 PM »
We've already received answers to our production requests, however I haven't seen them yet - although my attorney assures me that they sent over garbage.  I appreciate the argument Flyingifr, but I haven't brought the CRA into the suit as of yet (I'm trying to close on a house and am leery of having the credit history made unavailable).  So I'm dealing strictly with the JDB's (who have admitted in affidavit form to receiving the ACDV's with my specific disputes from the CRA).

Since I'm not targeting the CRA right now, how about the following argument….

The FCRA mandates the following:

  • A Creditor is required by the FCRA to “charge-off” bad debt within 180 days from the date of delinquency.
  • Only one Creditor can report the consumer’s account/payment history at any given time.

When a factoring company purchases a debt from a creditor, the factoring company pays off the debt to the original creditor (at a discount) and then becomes the Creditor of record.  At which point, the factoring company earns the right to collect on the debt and can elect to report payment history to the credit bureaus in the stead of the original creditor.  The factoring company would then also take on the responsibility to “charge-off” any bad debt within 180 days from the date of first delinquency - as they have taken on the right to report as a Creditor, they must comply with the reporting requirements of a Creditor.

Current CDIA guidelines allow the following scenarios which are contradictory to the requirements of the FCRA:

  • Credit accounts can be posted by both an original creditor and a defaulted-debt purchaser, which allows for the appearance of two separate defaulted accounts for the same debt.
  • A defaulted-debt purchaser can report a debt as 120+ days past due for the running of the 7-year reporting period and never list the account as "charged-off", which appears as a debt that was defaulted just 4 months ago and carries a heavier weight on a consumer’s credit score than a debt that was defaulted 6 years prior.

Since a consumer can not have duplicate accounts appearing on a credit report for the same debt, unless one account appears as a “collection account”, the following scenarios must be followed to insure maximum accuracy of a consumer’s credit report.

  • If the original creditor has retained the right to report credit history about the consumer, then the defaulted debt-purchaser must report as a collection account.
  • If the debt purchaser has retained the right to report a credit account, then the original creditor must not report, and the defaulted-debt purchaser must show the debt as “charged-off” after 180 days – not currently 120+ days past due for the full 7-year period.

Any opinions?
« Last Edit: July 27, 2006 07:09:35 PM by stargazer0725 »

CrzyAmerican

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Re: Why a JDB is NOT a Factoring Company
« Reply #46 on: July 27, 2006 07:35:55 PM »
Can you site the sections of the CDIA and FCRA that back you up?

I havent read the CDIA.

stargazer0725

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Re: Why a JDB is NOT a Factoring Company
« Reply #47 on: July 27, 2006 09:16:06 PM »
Can you site the sections of the CDIA and FCRA that back you up?

I havent read the CDIA.

CDIA:  Section 10, Pages 1-6 describe in detail how a Third Party Collector / Debt Purchaser / Factoring Company are to report.

FCRA:  1681c(1) mandates that the 7 year reporting period starts at charge-off date (or date no later than 180 days past the delinquency)

And actually, I meant to separate the 2nd requirement out...the FCRA doesn't stipulate that only one Creditor can report an account as far as I can tell.  However, it is common practice that once your CURRENT debt is sold to a subsequent lender, the first lender has to remove their account so the 2nd lender can take over.  i.e You can't have 2 listings for the same car loan.

Mischievous Smurfy

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Re: Why a JDB is NOT a Factoring Company
« Reply #48 on: August 17, 2006 11:22:27 PM »
In reference to the "We were only following orders" exception they keep attempting to invoke -

The courts can/have and do draw inferenced between consumer protection laws.  There are several FDCPA cases where CAs have attempted unsuccessfully to invoke a non existent exemption for "mistakes of law".  The courts ruled that they were liable even for "mistakes of law"

Wouldn't the same thing hold true here?  and CDIA isn't even law

but even I have fallen into something I think is irrelevant..  there is NO excape under FCRA even if they relied on CDIA.

If you can show that they are not in fact a factoring company they are liable, regardless of what the CDIA says.
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joelotto

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Re: Why a JDB is NOT a Factoring Company
« Reply #49 on: July 07, 2007 07:54:43 AM »
I read that there are many violations for reporting as a Factoring Company.

15 USC §1692e(2)(A) by misrepresenting the amount of the debt and by incorrectly characterizing the account as belonging to a “factoring company”.

15 USC §1692e(8) by communicating credit information which is known or which should be known to be false by reporting the account as a “factoring company” account and by reporting the account status as “open”

15 USC §1692e(10) by using false representation or deceptive means to collect or attempt to collect any debt by reporting the account as a “factoring company” account

15 USC §1692e(12) by alleging that the account was a “factoring company” account resulting in the false representation or implication that accounts have been turned over to innocent purchasers for value.

15 USC §1692f by using unfair or unconscionable means to collect or attempt to collect any debt by reporting the account as a “factoring company” account to deceive current and potential creditors and to negatively impact Plaintiff’s credit scores


ambrosiapixie

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Re: Why a JDB is NOT a Factoring Company
« Reply #50 on: September 19, 2007 09:43:15 PM »
All I do know regarding companies reporting as a factoring company is this....

A non-secured credit card cannot be factored.... ever. 

I cannot remember the caselaw to back this, I just moved and have boxes everywhere.  But I do know that I fought and won vs. LVNV due to an alleged debt to Citibank that they had purchased.  They reported as factoring company with CO notations each month.  According to a provision in the UCC, non-secured credit cards (not loans) cannot be factored whether they are in good standing or charged off.

E. Normis Debtor

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Re: Why a JDB is NOT a Factoring Company
« Reply #51 on: September 20, 2007 12:34:38 AM »
I cannot remember the caselaw to back this....  But I do know that I fought and won vs. LVNV
How can you not remember you v. LVNV?
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LUEser

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Re: Why a JDB is NOT a Factoring Company
« Reply #52 on: September 29, 2008 07:48:12 AM »
Just for clarification on joelotto's post.

The 1692 violations are all FDCPA violations

What the debate was raging on here was over the FCRA 1681 requirments and the factoring company debacle. 

It's sad we don't get caselaw on this as the JDBs settle so often or the pro se litigant gets dismissed on technicalities.
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HardSix

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Re: Why a JDB is NOT a Factoring Company
« Reply #53 on: November 05, 2008 07:33:37 PM »
I found this in CREDIT REPORTING RESOURCE GUIDE |
Copyright 2006 © Consumer Data Industry Association, Inc.


Third Party Collection Agency/
Debt Purchaser/Factoring Company
Reporting
GENERAL REPORTING GUIDELINES
A Third Party Collection Agency is a company or individual who specializes in collecting
outstanding debts for other businesses or individuals. A Debt Purchaser/Factoring
Company is a company or individual who purchases accounts with the intent of collecting
debts owed.
• Report data in the standard Metro 2 Format, including the Header Record.
• Report at least on a monthly basis.
• Report the complete name, address and social security number of the legally liable
consumer(s).
• The first time you report to the consumer reporting agencies, report your entire file.
On subsequent updates, report the entire file, or at a minimum, newly opened
accounts, paid accounts, and accounts which have had changes since the previous
reporting period.
• Report paid in full collection accounts before purging the accounts from your internal
collection system.
• Do not delete paid in full collection accounts.
• Acceptable reasons for deleting accounts are:
— Accounts which have been canceled and returned to creditor.
— Accounts which have been forwarded or sold to another entity.
— Accounts reported in error.
— Accounts which have been confirmed as fraudulent.
• All parties reporting credit information must comply with the Fair Credit Reporting Act
(FCRA), Fair Debt Collection Practices Act (FDCPA), any applicable state laws and
regulatory authorities.
• The Date of First Delinquency is used to comply with FCRA sections 605 and 623
(obsolescence period). See page 10-4 of this document for detailed reporting
requirements.
THIRD PARTY COLLECTION AGENCY/DEBT PURCHASER/FACTORING
COMPANY REPORTING GUIDELINES
CREDIT REPORTING RESOURCE GUIDE | 10-2
Copyright 2006 © Consumer Data Industry Association
• The Creditor Classification 02 must be reported in the K1 Segment to identify medical
debts to assist in complying with the FCRA sections 605 and 623.
• In the Identification Number field, report the internal code that identifies the third
party collection agency/debt purchaser/factoring company where information is
verified.
• All parties reporting credit information must respond to consumer inquiries.
Note: The guidelines in this document are specific to your industry and should
be used in conjunction with the specifications in the Metro 2 Format.
Refer to the Metro 2 Format for detailed information on segments and
field information.

Looks like CRAs don't read UCC or any other rules on factoring account companies.

Mischievous Smurfy

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Re: Why a JDB is NOT a Factoring Company
« Reply #54 on: July 06, 2009 04:14:32 AM »
Ok perhaps this argument has been made ... forgive me if it has.  This just occurred to me so I'm throwing it out for discusson.

Could it be that we are all digging to deep here...  we keep talking about what real factoring companies do in order to argue that a JDB is not a factor.. er<? 

Could it be as simple as this? ...    JDBs only purchase defaulted debt .... factoring companies rarely if ever purchase defaulted debt....
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Rottweiler

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Re: Why a JDB is NOT a Factoring Company
« Reply #55 on: July 06, 2009 05:02:00 AM »
  Could it be as simple as this? ...    JDBs only purchase defaulted debt .... factoring companies rarely if ever purchase defaulted debt....

I.) Not so: 

1.) Many of the large JDBs also do factoring in the traditional sense (purchase "good" receivables for a small discount and then service them themselves). This situation--where it exists--can leave the question open as to whether the particular debt in question was purchased under such a factoring contract (and still "performing" as of the purchase date) or whether the debt was written off as a "loss" (in default) prior to purchase. 

2.) As for whether a not-secured credit card can ever be factored?  A credit card is a receivable and can be factored like any other receivable as long as it is factored while it remains a performing asset; I see no reason it cannot.

IMHO, a credit card can also be reported as a factoring account IF it qualifies even if the main line of business for the debt buyer is defaulted, charged-off collection accounts.  Nothing in that quoted section of the CDIA prohibits this.  In fact, that section actually supports what Uncle Normie so often states if this definition is taken at face value:

Quote
GENERAL REPORTING GUIDELINES
A Third Party Collection Agency is a company or individual who specializes in collecting outstanding debts for other businesses or individuals. A Debt Purchaser/Factoring Company is a company or individual who purchases accounts with the intent of collecting debts owed.

There is no distinction between the "traditional" factorer and a JDB in this definition.  The distinction here is between the contingency CA (collects on assignment but does not take title to the debts) and any third-party company who does take title to the collection accounts.

II.) Note that the CDIA is at variance with the FDCPA here: 

1.) As far as the FDCPA is concerned, if the debt is in default and is assigned for collection by the creditor to a third-party agency, the debt is a collection account and is covered by the law regardless of whether the CA holds legal title to the debt or not. 

2.)  This is where the distinction between the "traditional" factorer and the JDB comes into play:  The factored debt is NOT in default when purchased/assigned to the factorer and therefore the FDCPA treats such a factorer as if they were the OC. 

3.)  IMHO, this is the argument that should be used: 

If a debt buyer reports as a factoring company?  They had better be able to prove that the debt was bought as a "performing" debt to be able to report as a factoring company.  If they can't and they do report as a factoring company account instead of collection account?  They are then misrepresenting the status of the debt and are violating FDCPA, §807(2)(A) by falsely representing "... the character, amount, or legal status of any debt".

This is also where the violation of the FCRA comes in since such a misreporting means that the TL is NOT as complete and accurate as possible.  You could say that the FDCPA "back doors" this violation since the CDIA would seem to preclude it.
« Last Edit: July 06, 2009 05:04:37 AM by Rottweiler »
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Mischievous Smurfy

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Re: Why a JDB is NOT a Factoring Company
« Reply #56 on: July 06, 2009 07:28:32 AM »
My only comment is that the CDIA is not law...  not to mention decidedly in favor of big business .. not the consumer.

I firmly believe that eventually the "faketoring" companies will be nailed .....  as you said ... it implies that the debt was performing and now "suddenly" since they purchased it the debt is not performing.  Sortof backdoor re-aging if you will.

I like arguement 3 ... backdoors it as a violation just like "faketoring" is a backdoor re-aging.
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E. Normis Debtor

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Re: Why a JDB is NOT a Factoring Company
« Reply #57 on: July 13, 2009 01:14:19 AM »
If a popsicle isn't really ice cream, then why does the Ice Cream Man sell them?

I always get a kick out of reading this thread.  Factor: Everyone here seems to re-define factor or factoring as a "traditional factoring." And, as one who purchases "current" receivables.  Doing so without so much as providing a single supporting regulation, authority, citation, etc.

Today I looked up the definition of "factoring" in all 8 editions of Black's Law Dictionary.

I was intrigued by the 1st edition definition of a "factor":  A factor is an agent who, in the pursuit of an independant calling, is employed by another to sell property for him, and is vested by the latter with the possession or control of the property, or authorized payment therefor from the purchaser.

Black's current definition of "factoring" is: An asset restructuring arrangement that involves the buying of accounts receivable at a discount. The price is discounted because the factor assumes the risk of delay in collection and loss on the accounts receivable.

I then read a few dozen recent cases, both state and federal, involving "factoring".  Roughly 50% of those cases involved the purchase of accounts that were either delinquent at the time of purchase, or were sold merely to facilitate collection.

If anything, recent case law suggests a defintion more in line with the sale of receivables, rather than the purchasing of receivables.   

As a side note, Websters dictionary defines a factor as: One who acts or transacts business for another.

I can find no authority, anywhere, that suggests factoring,"traditional" or otherwise, only involves the purchase of "current" receivables.

Please enlighten me.
« Last Edit: July 13, 2009 01:27:11 AM by E. Normis Debtor »
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Re: Why a JDB is NOT a Factoring Company
« Reply #58 on: July 13, 2009 02:29:29 AM »
Today I looked up the definition of "factoring" in all 8 editions of Black's Law Dictionary.

I was intrigued by the 1st edition definition of a "factor":  A factor is an agent who, in the pursuit of an independant calling, is employed by another to sell property for him, and is vested by the latter with the possession or control of the property, or authorized payment therefor from the purchaser.

Black's current definition of "factoring" is: An asset restructuring arrangement that involves the buying of accounts receivable at a discount. The price is discounted because the factor assumes the risk of delay in collection and loss on the accounts receivable.

Let's look at what Black's says:

On the one hand, they define "factoring" as "A factor is an agent who...is employed by another to sell property for him, and is vested by the latter with the possession or control of the property..." 
That definition says nothing about servicing the property if we are to note what comes later (factor as middleman).  Rather, the definition here would be better summarized by "middleman" or "wholesaler" of goods; accounts receivable is property/goods, no less or more than, let's say, a house or car.

However,  "classic" factors--who buy performing accounts receivable for cash at a discount--when dealing with accounts receivable, normally DO service the property they acquire.  Reselling appears to be a minor part of the "classic" factoring operation.

Yes, I concede this is also true of the JDB, but with a difference:  The JDB is collecting upon an asset that is of poor quality and the factors we have in mind don't touch those receivables.

Now, if the JDB in question is a debt broker?  In that case, this definition does apply directly since they are acting as a "middleman" and don't service those accounts but acquire them strictly for resale.


Quote
I then read a few dozen recent cases, both state and federal, involving "factoring".  Roughly 50% of those cases involved the purchase of accounts that were either delinquent at the time of purchase, or were sold merely to facilitate collection.

Factors do sometimes buy delinquent accounts, even those we refer to here as "traditional", I grant you that.  However, if such a "traditional" factor does buy those accounts, they have analyzed the portfolio and have decided that those accounts can become productive; contract default does not necessarily lead to incurable delinquency.  In this case, the OC's selling them to facilitate collection is simply a "time equals money" situation where they simply have determined they cannot take the time to get the money so they let the factor take the risk.

However, in the case of the JDB?  These accounts are almost always incurable defaults (the OC has written them off as a "loss", either voluntarily or FDIC Rule 5000, depending on the type of debt and the creditor).  The "discount" in this case is not "small", the purchase price is because of the high risk of loss on investment (even resale is problematic). 

These accounts also are in collections and have been for some time and the OC did not think they would ever perform; most factorers would agree that those accounts likely won't perform once they are formally declared a "loss".  Hence they won't touch them. 

The JDB--at any level--will take the gamble and collect on them themselves for an extended period of time since their up-front investment is so low and the likelihood of payoff in the long run quite high. In other words, most JDBs are not primarily resellers and pass on their "duds" only after they have "bled them dry"...goods that are "blood out of a stone" quality to begin with.

Quote
If anything, recent case law suggests a defintion more in line with the sale of receivables, than the purchasing of receivables.

Considering that most JDBs don't sell debt as their main line of business, how in the heck can they list all their accounts as "factoring accounts" by that definition? 

I sure hope that case law you have not taken the time to cite here can support your contention that a collection account, currently being "worked" by a JDB, can be reported as a "factoring account".  After all, if they are "working" the account, it's highly unlikely they are selling it at that time and if SALE of receivables is the operative definition of "factoring".... 

Definition of "accounts receivable factoring":

http://biztaxlaw.about.com/od/glossaryf/g/factoring.htm

Quote
Factoring, or accounts receivables factoring is the selling of the business's accounts receivable to a factoring company. The factoring company (factor) pays the business a percentage of the value of the accounts receivable and deducts a fee for the cost of collections. Then the factor collects the receivables. One way to look at factoring is that a business is outsourcing its receivables collections process.

Does this look like Uncle Normie has us over a barrel?  Maybe not:  Note the missing element critical to a JDB:  This definition implies that the invoices are "producing" and that the OC, rather than run their own collection department or assign debt to a contingency collector, sells the receivables for immediate cash.

A JDB buys receivables that have been declared a "loss" by the OC; nothing in the above definition includes these accounts.  In fact, read the next quote:

http://sbinformation.about.com/od/creditloans/a/accountreceivab.htm

Quote
Accounts receivable financing is the selling of outstanding invoices or receivables at a discount to a finance or factoring company that assumes the risk on the receivables and provides quick cash to your business. The amount of value assigned to the account depends on the age of a receivable. A more current invoice will pay more. Any accounts receivable over 90 days typically are not financed.

The reason is here:  http://www.12manage.com/description_accounts_receivable_factoring.html

Quote
In factoring, the most important risk assessment is in determining the creditworthiness of the debtors, not the seller.

Note that limitation:  Any account overdue more than 90 days are typically not financed.  Yet, what do JDBs (debt buyers) purchase?  Accounts that, if they are ONLY 90 days old, are "prime" accounts...accounts that are likely to not yet be in the "pipeline".  Yes, the definition does go on to say factors collect on the receivables they do buy, which are the least-risky collection accounts available and ones that, in fact, may be current accounts that never have seen the collection floor.  All the factor does here is act as an outsourced "business office" for collectible receivables only.

JDBs are third-parties which specialize in collecting accounts that have become a liability ("loss") that the sellers don't want. The reason is that, by definition, the debtors tied to the accounts the JDBs purchase are NOT "creditworthy"; no "factor" worth a darn would risk their own funds buying these accounts.

Perhaps Uncle Normie's thoughts and arguments really are not dealing with factoring at all but a financing method known as "accounts receivable financing":

http://www.hjventures.com/factoring/accounts-receivable-financing.html

Quote
[A]form of financing which uses accounts receivable as collateral for a loan. Accounts receivable financing is different than factoring in that the party providing the financing does not own the invoice and is not responsible for collecting the debt.

Also think this way:  Note the word "invoice" that comes up so often.  JDBs buy data files in bulk, not individual invoices.  It seems it would be a stretch to call such massive data files "invoices"; the "bill of sale" between OC and buyer, a separate item, is an invoice, but not between the debtors and the parties to the sale.

If they were?  Well, there would go one of our best defenses, wouldn't it?


« Last Edit: July 13, 2009 02:31:39 AM by Rottweiler »
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E. Normis Debtor

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Re: Why a JDB is NOT a Factoring Company
« Reply #59 on: July 13, 2009 02:51:40 AM »
Thanks for the advertising links rotty.  Care to cite any authority?
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