Credit Terrorist

About time, I say:

The phone rings, and he answers with a soft voice. It's just a friend, and soon he hangs up. He's waiting for a particular type of phone call—one from a representative of a debt collection agency or a credit card company, whom he'll try to ensnare like a Venus fly trap. It's not unlikely that Cunningham's next call will be from a bill collector, since he's between jobs—except for being in the Army Reserve—and owes $100,000 in debts.

While most Americans with unpaid bills dread the collector's call, Cunningham sees them as lucrative opportunities. Many collection and credit card companies, intentionally or not, violate little-known consumer rights laws, and Cunningham's favorite pastime is catching them doing so and then suing them. In fact, it's a profitable side job.

Call it ironic, but the only house on the block that appears to be the foreclosed end to some sad financial story is in fact the home of one of the debt collection industry's emerging and persistent threats. Cunningham calls himself a private attorney general—someone who files private lawsuits in the public interest. Debt collectors call him a credit terrorist.

Patrick Lunsford, who edits InsideARM, a trade magazine for the debt collection industry, knows the term. "There is a sub-group out there that does actually advise people on how to bait [collectors]," he says. "That's something that really gets under the skin of, well, obviously, collectors."

Cunningham beats the debt collectors at their own game. He turns their money-making practice into a financial liability. He is a regular guy who has become a radical enemy of the banking system.

In 2005, two foreclosures pushed Cunningham near financial ruin. Like many Americans, he fell enchanted by the siren's song of easy credit and borrowed more than $100,000 to bet on risky, high-yielding investments, such as stock in the now vilified sub-prime mortgage industry. Then, while stationed with the Army in El Paso, he attempted to become an absentee landlord and got zero-percent-down sub-prime mortgages to buy low-income four-plexes in Houston and Dallas. With the interest earned on his high-yielding stocks he was paying back his low-interest credit card debt; now, he was using the mortgages to borrow even more.

Then, the bottom fell out. Investors like Cunningham fell the fastest. He sold his Houston homes, but his Dallas properties were foreclosed on. The collection calls started. He was running scared.

Desperation took him online in a search of anything that could save him from his own $100,000 in bad choices. One afternoon while sitting on his couch in his El Paso home, he found a way to fight back. He stumbled across hundreds of other distraught consumers like himself on credit message boards, each with some different version of the same story of bad choices and greed. And, he found a new way to deal with his debt: He could hide behind the law.

His new online friends pointed him to a number of federal and state statutes protecting consumers like him against overly aggressive and abusive debt collectors and a credit system stacked against the little guy. If you knew your rights, he learned on the message boards, you were very likely to catch a collector violating them. Then you could sue.

Cunningham armed himself with this knowledge, and the next time a debt collector called, the trap was set.

It didn't take long. Cunningham had canceled a home alarm service with ADT Security after two months, and the company had billed him a $450 early termination fee, which he disputed. ADT sent his account to Equinox Financial Management Solutions, a third-party debt collector. The collection agency sent him a letter asking that he call back immediately. He dialed, armed with a voice recorder.

"Can you garnish my wages if I don't pay?" he asked.

"Yes," the voice on the other end of the line said.

"Can you put a lien on my house?"

"Yes."

Wrong answers. Turns out, Texas consumer rights laws are some of the most consumer-friendly in the country. And according to a federal consumer protection law, the Fair Debt Collection Practices Act (FDCPA), debt collectors are prohibited from threatening legal action that would violate state laws. In this case, garnishing wages or putting a lien on Cunningham's house would violate the Texas Debt Collection Act.

Cunningham knew he had a good enough case to file a lawsuit against the debt collection agency, and for his first lawsuit, he decided to enlist the help of a lawyer. Two months later, he had a check in his hand for $1,000.

"It's like discovering fire," says Cunningham, thumbing through the stack of lawsuit papers on his table.

He immediately started devouring as much information as he could about the three chief federal laws that protect consumers from collectors: the Fair Debt Collection Practices Act, the Fair Credit Reporting Act (FCRA) and the Telephone Consumer Protection Act (TCPA). In the next four years, Cunningham accused debt collectors of misrepresenting the amount he owed (an FDCPA violation that entitles a consumer to collect up to $1,000). He sued over prerecorded and auto-dialed calls to his cellular phone (a TCPA violation worth up to $1,500 per call). He also filed complaints that agencies failed to investigate his claims that his credit file contains inaccurate information, a breach of the Fair Credit Reporting Act worth up to $1,000 per violation. All told, he filed 15 other lawsuits in federal court without the help of a lawyer, earning himself settlements totaling more than $20,000.

"Most people hear about the abuses that debt collectors do, but you just didn't hear about the second part of it, where people sue the collectors," he says.

Cunningham is one of thousands of hounded debtors who are trading in their paralyzing fears and learning to stand up for themselves. Americans as a whole owe some $2.5 trillion in consumer debt, according to the Federal Reserve, a figure that doesn't include home mortgages. Nearly four in five Americans have credit cards and half carry a balance, according to the Obama administration.

...Debtors, either because they feel morally obligated or because they don't know their options, get backed into a corner by their creditors and believe they have to repay their debts, he says. Not so with Cunningham. "I don't have to do anything but stay black and die," he says, a small, smug smile on his lips.

...Cunningham had no problem spending all the money anyone would loan him, but he needed to pay off some of the accrued debt to maintain his credit score. He knew his military loan did not get reported to any of the three major credit bureaus, Equifax, Experian and TransUnion. So, by paying off his credit card debt with money from that loan, he artificially maintained his credit score and continued to be approved for high credit. Sounds fishy, but Cunningham didn't feel that he was taking advantage of the system, at least not anymore than the next guy or the brokers and bankers at the time.

"It's their system," says Cunningham. "I didn't make the rules. I'm just learning what the rules are."

...The Dallas properties were foreclosed, and his obsessively maintained credit score seemed wrecked. Cunningham returned to the online credit board for help. This time, however, he wasn't looking to add an artificial shine to his credit score, he was looking for a way out of the ashes. Cunningham discovered a whole other world of consumer-generated knowledge. This was a rogue group of disgruntled consumers who were trying to save themselves and their credit by filing lawsuits when the collection industry screwed up the mechanics of debt reporting and collection. What he found was an instrument not of repair or reconciliation, but of vengeance.

"All the conventional wisdom, all the right people say, 'Pay your bills on time and work with your creditors,'" Cunningham says, recalling his thoughts at the time. Yet he had discovered a new set of people who posted their credit reports on line and their successful lawsuits, showing how much money they won in settlements that simultaneously removed a bad debt from their credit report. "I said, 'Maybe there's another way.' Again, just revolution. I never even thought about it."

The knowledge on these boards originated from consumers testing the boundaries of the credit system through their own experiences. The nature of this information, from the beginning, was a mixture of anarchistic tendencies, vengeance and greed. Now the wisdom of the boards has been distilled into an e-book published in January. Debtsmanship was written by Steven Katz, a former New York debt collector turned consumer advocate, who now lives in Phoenix. In 2005, Katz founded a message board called "Debtorboards," with the slogan "Sue your creditor and win!"

Katz doesn't believe that people are morally obligated to pay back their debts. That notion was invented by debt collectors as a way to beat people into submission, he says. "Bill collectors would love for you to send them a check and then explain to your kids because you have the moral obligation to pay your debt they're not eating this week," he says. "But they don't see the moral obligation to feed your children or yourself.

"People are brainwashed to think that paying a credit card is more important than paying for the necessities of life," Katz says. "If you're in a position where you have to make a choice, my argument is food, clothing and shelter come first... Nobody ever went to hell for not paying a debt."

"Fight back" is the take-away message from a visit to Debtorboards, which is intended to help consumers who wish to file lawsuits without the help of lawyers. Debtorboards outlines steps consumers can take to deal with bothersome debt collectors. For example, if a debt collector is only bothering you, you could send them a letter or sue them. However, if you're so far in debt that you see no way out but bankruptcy, then you can check out the board's "frustrating the skip tracer" technique. There, you'll find tips on how to run and hide from a collector.

...Up until now, everything was about making easy money for Cunningham. Now, it's about justice—or at least what he sees as justice.

"When you or I make a mistake, they say, 'Hey, tough nuts, be smarter next time, you know, bad luck, didn't work out for ya," he says. "When the fat cats on Wall Street make a mistake, they say, 'Oh, national emergency! We've got to bail these guys out."

Since nobody has showed up to bail Cunningham out, he's decided some of the $100,000 debt he once amassed will never get paid back.

"I already paid them off," he says. "The government took my money without asking me and gave it to the banks. And since I owe the banks money, but they already got my money from the government, I say we're even."