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Statute of Limitation, CACH LLC, and the First Start Group: Debtors beware!

A colleague of mine has passed on a letter one of his client's received from an alleged collection agency called "First Start Group". The letter includes the following:

"WE ARE REQUIRED BYLAW TO GIVE YOU THE FOLLOWING INFORMATION ABOUT THIS DEBT. The legal time limit (statute of limitations) for suing you to collect this debt has expired. However, if somebody sues you anyway to try to make you pay this debt, court rules REQUIRE YOU to tell the court that the statute of limitations has expired to prevent the creditor from obtaining a judgment. EVEN though the statute of limitations has expired, you may CHOOSE to make payments. However, BE AWARE: if you make a payment, the creditor's right to sue you to make you pay the entire debt may START AGAIN."

This is an accurate, and a dangerous warning. If you receive this kind of letter, SAVE THE LETTER. Do not throw it away. Do NOT make any payments to this creditor. If you are sued by this creditor for this account, consult an attorney or, at a minimum, mail an "answer" right away to the attorney for the creditor, stating that you do not owe the money because the statute of limitations has expired. An "answer" must be in writing; it does no good to call the attorney or the court. If you do not mail a written answer within 20 days of being served legal payers in New York State (sometimes 30 days), the creditor can take a default judgment against you.

The creditor does not have to "take you to court". All the creditor has to do to get a judgment against you is served legal payers on you and wait until the deadline for you to answer has passed.

Now, for a little analysis of this particular letter from First Start Group. First of all, who, exactly, is First Start Group? Their website says they are a "collection agency hired by SquareTwo Financial and its subsidiaries to attempt to resolve your consumer or commercial debt." I have never heard of them, their website looks new (and rather sparse, illustrated with stock photos of smiling people), and there are no comments, good or bad, about them in an internet search. I assume that they are a very recent creation.

And who is SquareTwo Financial", which 'hired' them? According to their website: "CACH, LLC is a limited liability company 100% owned by SquareTwo Financial, and is engaged in the business of purchasing past-due accounts. CACH, LLC has purchased your account and is the current legal owner of your debt."

CACH is well known as a debt-buyer, an entity that purchases delinquent accounts from major banks for pennies on the dollar. They hope to make a profit by collecting on at least some of these accounts. So CACH has, for some reason, set up this 'collection agency' First Start Group. And First Start has sent the client of my colleague this very odd letter concerning the statute of limitations. What is that all about?

The statute of limitations is the law that says when a lawsuit must be started. In New York State, if a creditor wants to sue on a debt, the statute of limitations is six years; the creditor must start the lawsuit within six years after the account went into default. Other states have different statutes of limitation. For example, the statute in Delaware is only three years.

If the original creditor was based in another state, then the statute of limitations that would apply would be either the New York or the other state's statute, whichever is shorter. So if a Delaware bank wanted to sue a New York debtor on an account, they would have to follow Delaware's shorter statute of limitations.

The New York State Attorney General, Eric T. Schneiderman, went after two debt-buyers who were not following this rule, of applying the shorter statute of limitations. They settled, and the press release from Schneiderman's office, dated May 8, 2014, explains the situation in greater detail.

For major banks, and debt-buyers who purchase accounts from them, this is not a problem. A bank like Chase or Citibank is "located" in New York State and can rely on New York's statute of limitation. But for smaller banks with no physical location in New York, the rule about the shorter statute of limitations applies.

So the letter from First Start is basically warning debtors that the statute of limitations on the CACH account had expired, and that "someone" (like their employer, CACH) might possibly sue them anyway, and if that "someone" does sue them, the debtor needs to claim a statute of limitation defense in the lawsuit. This is suspicious that CACH would, apparently, set up a collection agency to warn debtors that the statute of limitations had expired and that CACH might sue them anyway.

As reported in a previous blog, new New York State court rules that go into effect next July will require creditors to report in their lawsuit papers the date of the last payment on the account, even if the account has been purchased by a debt-buyer (like CACH). This, presumably, is intended to alert the debtor, and maybe the Court, that the statute of limitations may have expired.

The statute of limitations is not a simple legal concept, and factors other than the passage of time can effect it. For example, the time period is suspended, or 'tolled', if the defendant is out of the country or during a bankruptcy. You should consult an attorney if you wish to be sure of the implication of the statute of limitations on your particular case.

If you live in the Greater Rochester NY area and are being sued by a creditor, and you wish some advise as to your options, please feel free to call me for a phone consultation, at no charge.

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