Sue Up or Shut Up!

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Few words can throw a chill up the American spine as fast as the phrase, "or I'll sue." As in, "Pay up, or I'll sue." Even if you suspect that the threat's a crock, the real and imagined horrors of a briefcase-bully will send many of us wheedling for absolution just to stay out of court. We're cowards that way, shy about calling the bluff of those litigious little creeps who itch for a legal showdown over every petty spat.

So think of Elizabeth Brown as a hero for our times.

Brown, 35, lives near Philadelphia. Two years ago, she was in a serious slump. She had just gotten divorced, her parents had recently died, and she was supporting her 14-year-old daughter alone. There was also this credit card bill. It wasn't much, maybe a few hundred bucks, but it fell into the non-priority pile and was soon forgotten. Not the smartest move on Brown's part, but you can imagine how it would happen.

Then came the letter from Card Service Center, a debt collection firm. It said Brown had to pay $1,874 within five days, and her "refusal to cooperate could result in a legal suit being filed for collection of the account." That meant, the letter added, presumably for clarity, "forwarding this account to our attorney."

In other words, "or I'll sue." Brown did not believe she owed that much, but it was the threat to take her to court that prompted her call to the debt collectors. She told them that she couldn't pay right then, and they were, shall we say, unsympathetic. So they sent more letters, and made phone calls at odd hours.

But the one thing they didn't do was sue, which emboldened Brown to show the letters to a lawyer. One thing led to another, and last June she found herself before the U.S. Court of Appeals in Philadelphia as the lead plaintiff in a class-action lawsuit against the collection agency. Her lawyer, Cary Flitter, argued that, because the agency never intended to sue, only to scare her and some 13,000 others who had received similar letters in Pennsylvania, it had engaged in a "deceptive" practice prohibited by federal law. A U.S. district court had already dismissed this argument, pointing out that the letter said merely that nonpayment "could result in a legal suit, "which was certainly true, so Flitter was swimming upstream. But on Sept. 29, the appeals court reversed the district court, and told Brown she had a case.

Take that, litigious little creeps.

Now, before you get all excited and stop paying your bills, let's talk about how the court reached its decision. In 1977, debt collectors who swore over the phone, pounded on doors, or impersonated cops to extract payments were "a widespread and serious national problem," according to Congress. So it passed the Fair Debt Collection Practices Act, which prohibited abuse by collection firms (not creditors) in seeking payment of personal (not commercial) debts. Congress stressed that it wasn't protecting deadbeats, at the time the approximately 4% of debtors who just refused to pay their bills, but the "vast majority" of people who, "due to an unforeseen event," couldn't pay.

One of the abuses that the act specifically barred was any "threat to take action ... that is not intended to be taken," a provision that clearly covered an empty threat to sue. But in Brown's case, the district court said the word "could" meant that Brown hadn't received a threat, only a statement that legal action "was possible," sort of a heads-up that other courts seemed to find acceptable.

The appeals court, though, took the novel but not unheard-of position that the law required it to think of Brown as essentially an idiot, or in legal terms, "the least sophisticated debtor." Viewed this way, Brown could easily have understood the letter as a threat to sue. She now gets the chance to prove her claim that the Card Service Center almost never sues and, therefore, the letter was deceptive. If she wins, she and other members of the class can recoup whatever losses they actually suffered (compensation for a job lost, say, or a mortgage application rejected because of the letter) plus attorneys' fees, and the agency can be fined $1,000 for each letter received. The service center is probably left with the defense that it really would have taken legal action.

All things considered, it's nice to know that debt collectors can't threaten to sue you unless they mean it. But how do you know whether they mean it? Flitter offers some tips: If the debt is under $1,000, the letter is from an out-of-state lawyer, or the debt is too old (more than four years, in most states), then they're probably bluffing.

Knowing that doesn't get you off the hook for the debt, of course. But I suppose it has at least one advantage: You can tell the debt collector to back off or you'll sue. And unlike him, you don't even have to mean it.