Topic: Why a JDB is NOT a Factoring Company

[Flyingifr]

Some Junk Debt Buyers (JDB's) are calling their accounts "Factored" debts and listing them as "open accounts". I believe both these statements are incorrect and deliberately misleading and are FDCPA/FCRA violations. To understand why    let's explore what a Factoring Company is and how it operates    and why a JDB is not a Factoring Company:

First    the issue of Factoring. A Factoring company purchases accounts recievable    just like a JDB. The significant difference is that a Factor purchases NEW receivables    often within days of the sale. That way    the Original Creditor (OC) has new money to quickly reinvest in their business. The factor typically pays over 90% of the face value of the invoice. In this sense    the invoice is sold at a slight discount. The debtor is notified by both the Original Creditor (OC) and the Factor that the Factor will receive payment. Often    a company will routinely sell all its invoices to a Factor on a regular basis. The Factor keeps each invoice separate in its books and may have many accounts originated by the same OC representing many invoices owed by the same debtor at any time. Typically the Factor will not purchase an invoice until it has written confirmation from the debtor that the merchandise evidenced by the invoice has been satisfactorally received.

The Junk Debt Buyer shares only a couple of these factors in its operations    and even then only with significant differences. The JDB also purchases accounts receivable - but long after the account was created and long after the OC (and often a long list of Collection Agencies) has unsuccessfully attempted collection. The JDB typically purchases accounts only after charge off. The OC typically will not sell current accounts to a JDB    and repeat customers of the OC will not end up with multiple accounts with a JDB    like they may have with a Factor. The JDB rarely pays over 5 cents on the dollar. While the Factor purchases accounts invoice-by-invoice    the JDB purchases portfolios with face values (debts plus interest plus fees) in the millions of dollars at a time. Many times the debtor is not notified by either the OC or the JDB of the transfer until long after the sale of the account    if ever.

Factors are NOT subject to FDCPA since the debt was not in default when the acquired it. JDB's ARE subject to FDCPA for just that reason - the debt WAS in default when they purchased it. It would not have been "Junk Debt" if it wasn't in default.

Now    on to the "open account" issue: Since the JDB acquired a charged off debt in default    it is a certainty that the OC had closed the defaulted account to future charges. Since the JDB is not re-opening the account to future charges    the account in the hands of a DB cannot be an "open account"    since an "open account" is an account that is "open" to future charges.

In summary    a JDB calling itself a Factoring Company and calling a debt a "Factored Debt" is a misrepresentation of the company itself (a FDCPA violation) and a misrepresentation of the nature of the debt (both a FDCPA violation and a FCRA violation when reported as a Factored Account toa CRA). A JDB calling an account as "open" is a FCRA violation because the account is NOT "open" in any commercially reasonable understanding of the term "open account"    which is a FCRA violation.

[sbetsy]

So, how would one get them to change the factoring company listing? What are the legal remifications of doing so?

[Flyingifr]

So, how would one get them to change the factoring company listing? What are the legal remifications of doing so?

It is a violation of FDCPA to deliberately mis-represent the amount or character ofa debt. Since  a JDB placing a TL ina  CRA file is an attempt to pressure a consumer into payment it is an attempt to collect a debt under false and misleading pretense.

A suit should get the TL corrected or removed.

[E. Normis Debtor]

I'm not 100% convinced that a JDB can't factor a receivable simply because it's past due.  Particularly when the past due status is revealed to them in good faith before they purchase it. But, we'll save that discussion for another time as I need to research some UCC case law further.

Here's my question.

For this scenario, assume all aspects of the account are reported correctly, but it states it has been purchased by a factoring company.

The JDB is Asset, who in addition to purchasing charged off receivables, also does traditional factoring of current receivables according to their SEC filings. Do you consider that a violation since they are indeed also a traditional factor? Basis?

[Rottweiler]

Normie:

Whether Asset is a factor or not in a particular case would depend on the status of the account when they bought it.  All this means is that the status of the account may end up having to be proven when the dispute gets to Court, ptobably in Discovery.  I doubt very much that Asset's traditional factoring division would provide them a legal "shield" for their bad debt business as well.

And, factoring requires the accounts not be  in  default when purchased.  The "good faith" provision is to cover the factor legally if they should acquire accounts they reasonably , and in good faith, presume that are all in good standing, but it turns out some are not.  If they KNOW that the accounts  so acquired are defaulted, charged-off bad debt, the purchaser of such accounts cannot claim an exemption to FDCPA coverage on the basis of the "good faith" provisions of law.

[E. Normis Debtor]

Asset has no divisions. It operates as a single corporate entity, and its SEC filings indicate that includes traditional factoring.

The discussion is aimed to whether or not they are a factoring company, not that an individual receivable was factored.

Edit: To change the term account to receivable.

[specialk281]

If a company by definition is both a Factoring as well as a JDB; IMO it would be misleading if they reported as Factoring to a JDB account, since the status of a Factoring Company is not in default they are in fact misrepresenting by making it appear that they have own the account prior to default.

[stargazer0725]

E. Normis:

Would it clarify the situation to stipulate that they aren't just classifying themselves as a Factoring Company, they're also classifying the account as a factored account when they say the following:

Type of Loan = Factoring Company Account (debt purchaser)

It appears that they are addressing this specific account, not generalities about the company.  Which is like comparing apples to....well, the entire fruit orchard.

Have you discovered any great news for consumers in the UCC case law records?  I could really use them in my case against a JDB.

[E. Normis Debtor]

I find no reason they can't refer to themselves as a factoring company. They buy non-recourse receivables that are past due. There is no law that I'm aware of that requires a factoring company only engage in buying current receivables. Unless there is a security interest involved, I don't see that portion of the UCC applicable.

[Rottweiler]

I find no reason they can't refer to themselves as a factoring company. They buy non-recourse receivables that are past due. There is no law that I'm aware of that requires a factoring company only engage in buying current receivables. Unless there is a security interest involved, I don't see that portion of the UCC applicable.

Past-due accounts and charged-off accounts are two different things.  A past-due account can be restored to current status by payment.  The charged-off one, even if it is paid in full subsequent to that, cannot.  JDBs by definition purchase defaulted, charged-off accounts.  Just because a company may also handle factored receivables does not mean that everything is a factoring account.  The debt purchaser would have to prove the account status at the time of purchase.  No factorer worth a darn would purchase accounts receivable in bulk and evidenced only by a data stream.  True factorers examine the books, and each and every account they buy before they buy them.  Yes, some may be past due at that point; the factor buys those accounts only if the chances are very good the account can be made current.  If they are charged-off already, by definition, again, this cannot happen.  A factor would reject any such account.

The factor also gets, as part of the deal, ALL of the documentation associated with the accounts, right down to the tiniest scrap of paper in the file. If they need to sue later, the evidence is there and is acceptable to the court.  The JDB does not; any documentation they get is suspect at best; they almost never can get what they need to meet a true evidentiary standard.  If they could, then the JDB would not need to do the "tricks" they do to try to get default judgments, which is the only way they can count on winning.  Why do you think that JDBs usually drop the suit if the alleged debtor makes half an effort to fight back?

[E. Normis Debtor]

What regulations, state, federal, or otherwise, can you provide that govern factoring companies in that they are prohibited from purchasing charged-off receivables?

Charge-off is an accounting principle which removes an account from a balance sheet as an asset, and bears no relationship to its assignment rights any more than a simply past due account.  If a charge-off is subsequently paid in full or part, it becomes an asset again the same as a past due account, but in the form of income.

And, I would disagree with your statement that JDB cannot obtain documentation. Most choose not to because there is generally an associated cost.  When someone is in the market for a junk car to fix up and turn a profit on, they don't typically pay to have the engine rebuilt before taking possession.

It seems logical that with the millions of accounts that are reported this way by the likes of Asset et al, we should have had a successful class action by now, doesn't it?

[Rottweiler]

Just because nobody has bothered to actually take a class action to trial and succeed on this does not mean that you are right. The example you give, A$$et,  is a nasty litigator, who will stoop to vicious tricks and legally questionable moves that could stop even a class-action attorney or law firm in their tracks!

Have you ever researched into how factors work?  They never buy accounts sight unseen; if they buy on a regular basis from a company, that happens only after the company has proven that their receivables are good. Another thing:  There would be a full, enduring recourse provision in any competent factorer's contract.
If a "bad" account gets by the pre-screening, they can return it to the originator.  And, do; the ones a factor sues for are those that go bad after they have completed the sale and have actually serviced the accounts themselves.

JDBs almost never have that form of relief--recourse-- available to them.  When they do have it in the sale contract, it is a limited recourse provision that is normally only available the first time a portfolio is sold, and even that is very time-limited, ending as little as 30 days after the sale.  Neither are their data streams usually "vetted" ("cleansed") to isolate out the accounts that are still likely to be collected upon; there would be a lot fewer uncollectible accunts being chased down if that were the case. 

There is a good reason the "good" defaulted, charged-off accounts don't end up in debt buyers' hands all that often:  Those accounts are removed by the OC, or the OC sues on them themselves.  Even a first purchaser JDB or debt broker gets the accounts that the OC has determined are not worth holding onto or suing upon.  In other words, they get trash, garbage, and just plain junk.  Not that one cannot "pick" through the "garbage" and get something out of it, any garbage hauler--or curb picker--knows that, and their JDB counterparts do, too.  However, ones such as A$$et would not be one of those JDBs, since the price they would have to pay for the portfolio is higher than they are willing to pay to get it.  A$$et and their ilk are notorious for buying stuff cheap, which would be after at least one JDB has already "skimmed" the "cream" accounts. And, the proof is no longer accessible or available at any price.

[E. Normis Debtor]

Have you ever researched into how factors work?  They never buy accounts sight unseen

Asset does 

Actually, if you read their most recent 10Q filing you'll gleen an insight into the fact they can easily be considered a factor.

http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0000950124-06-002630&Type=HTML

And spare me the lesson on how factors work.

[Rottweiler]

Have you ever researched into how factors work?  They never buy accounts sight unseen

Asset does 

Actually, if you read their most recent 10Q filing you'll gleen an insight into the fact they can easily be considered a factor.

http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0000950124-06-002630&Type=HTML

And spare me the lesson on how factors work.

It does not necessarily mean the particular account they are collecting on is a factored account.  Or that because some of the accounts are factoring accounts means they all must be considered as such...they are not.  They need the documentation at hand to show that, and produce it on demand.  Reporting it as such when they know they cannot prove it is only asks for trouble.

Best to report the account kind accurately:  If it is a factoring account, they should have the documentation to show it.  If it's a collection account, that's how it should be listed. If they do otherwise, it is a deceptive practice and inaccurate reporting, which are both actionable.

[Flyingifr]

Norm -

This excerpt from their 10Q alone would disqualify them as a Factoring Company:

Nature of Operations
     Asset Acceptance Capital Corp. and its subsidiaries (collectively referred to as the “Company”) are engaged in the purchase and collection of defaulted and charged-off accounts receivable portfolios. These receivables are acquired from consumer credit originators, primarily credit card issuers, consumer finance companies, retail merchants, telecommunications and other utility providers as well as from resellers and other holders of consumer debt. As part of the collection process, the Company occasionally sells receivables from these portfolios to unaffiliated companies.
     The Company also finances the sales of consumer product retailers located primarily in Michigan and Ohio.

Remember - it's not what you call yourself that applies here - it's what you really are.

And if the above doesn't show they are not  factoring Company, then this should:

Purchased receivables are receivables that have been charged-off as uncollectible by the originating organization and typically have been subject to previous collection efforts. The Company acquires the rights to the unrecovered balances owed by individual debtors through such purchases. The receivable portfolios are purchased at a substantial discount (usually discounted 95% to 99%) from their face values and are initially recorded at the Company’s cost to acquire the portfolio. Financing for the purchases is primarily provided by the Company’s cash generated from operations and the Company’s line of credit.