[S]tipulated attorneys’ fees are no part of the original debt; [and] the right to them does not accrue until the payee incurs the liability, and then only to the extent of the reasonable value of the attorneys’ services actually performed or to be performed, which must be proved. . . . The full amount for which the maker is liable on such stipulations is not really due when suit is brought, for the services of the attorney are not then fully performed.

Therefore, if a collection letter include legal fees then that collection letter violates the FDCPA.

Part of what I do is defend these cases. Why? Because so often the plaintiff is a debt buyer and the defendant, a consumer, in unable to determine (a) who they owed the money to; (b) if they are responsible for payment of the debt; (c) whether the account was rightfully sold; and (d) whether the debt is valid.

The newest tactic is arbitration, when a credit card issuer submits the claim to “binding arbitration.” The consumer wakes up one day to find that there has been a finding of liability, and runs to a lawyer to file for bankruptcy.

Often a bankruptcy filing is justified, but sometimes it isn’t. Even if bankruptcy is the proper avenue, it’s important for the lawyer to review the pre-petition judgments to make sure that no violations of the debtor’s state and/or federal rights have occurred.

If the lawyers fails to do so then the right of recovery - which may be significant - are lost forever due to non-scheduling on the bankruptcy papers.

I submit to you the case of MBNA America Bank, N.A. v. Nelson, 15 Misc.3d 1148(A), Slip Copy, 2007 WL 1704618 (N.Y.City Civ.Ct, 2007).

MBNA America Bank, N.A. brought an action in Richmond County Civil Court to confirm, pursuant to CPLR § 7510, an arbitration award issued in the amount of $9,459.70. In suport of the action MBNA provided an affidavit from an employee, a copy of the “Credit Agreement Additional Terms and Conditions,” indicating that the agreement was subject to arbitration, a copy of the “Notice of Arbitration,” proof of service of process by a process server of the arbitration claim, a copy of the code of procedure for the National Arbitration Forum, and a copy of a signed arbitration award.

The Court refused to confirm the arbitration award because the petition brought by MBNA lacked all of the following: Allegation and proof of the Petitioner’s legal status, and whether it is authorized to do business in New York, in accordance with New York law; Complete copy of the actual retail credit contract, including any subsequent amendments, alleged to have been entered into between the Petitioner and the Respondent; Affidavit establishing Respondent received notice of the alleged agreement, including any subsequent amendments; Objective proof that the alleged agreement, and any amendments, issued by Petitioner are binding on Respondent; Allegation and proof that the arbitration award was affirmed; Submission of the calculations used by the arbitrator to arrive at the final award, the specific claims submitted by Petitioner for arbitration and the claims ruled upon by the arbitrator; Current and complete non-military affidavit.

So what happens now? I’d say that the consumer may want to speak with a lawyer about his or her rights against MBNA and their lawyers, Wolpoff & Abramson, L.L.P. in bringing what is clearly a bogus case.

Lone Star is a leading U.S. private equity firm that last year purchased B-Line LLC, a prime offender in the world of filing faulty proofs of claim.

A debt buyer that merely purchases or acquires defaulted debt but does not engage in collection activities itself does not require a license from the Department. Administrative Code § 20-489 defines a debt collection agency as “a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another.”

The Department of Consumer Affairs also reiterated the statement that attorneys and law firms are not exempt from licensing requirements but but that a “debt collection agency” does not include “any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client.” New York City Administrative Code § 20-489 (a) (5) (emphasis added). Thus, the Code’s exemption applies to those attorneys whose practice is limited to legal activities such as the filing and prosecution of lawsuits to reduce debts to judgments. The narrow exception does not, however, cover attorneys or law firms that regularly engage in activities traditionally associated with debt collection such as sending demand letters (dunning notices) or making collection telephone calls to consumers. Such attorneys and law firms are “debt collection agencies” under the New York City Administrative Code and must be licensed by the Department.

What does this mean to you, the consumer bankruptcy lawyer? In protecting your clients by sending out letters of representation to debt collectors (a practice that every consumer bankruptcy lawyer should follow) you should always remember that debt buyers may be considered debt collectors. So, too, are law firms that collect consumer debts. If a law firm send collection letters to your New York City client then that firm must be licensed by New York City as a debt collector; a failure to obtain a license may be yet another cause of action under the Fair Debt Collection Practices Act or state law.

If you would like a copy of the letters of representation that I send out to debt collectors, please e-mail me. And if you’d like to discuss how I can help you maximize the protection your clients get under the Bankruptcy Code or a variety of other federal and state laws, just let me know.