Mike Horba, left, and Andrea Pellechia worked together to successfully fight attempts to collect credit-card debt she insisted she didn’t owe.

Benjie Sanders / Arizona Daily Star

Tucsonan Andrea Pellechia couldn’t have known when she started to receive phone calls demanding payment for unpaid credit- card debt that it would ignite a two-year court battle.

She figured the calls were a mistake, or even a scam.

“What do you mean I owe this money?” Pellechia thought. So she did what many people do — she ignored the calls.

But they persisted.

“I told them, ‘Don’t call us anymore,’ ” said Mike Horba, Pellechia’s boyfriend.

The calls did stop, but only to have letters demanding payment of the debt start to fill the mailbox.

That’s when Horba said he started to get worried.

Things got really serious when a process server showed up at the house with legal documents in hand.

Pellechia had crossed paths with Midland Funding, the company that purchased her supposed

multithousand-dollar debt from a GE Money Bank credit card, along with the unpaid debt of countless other people.

Midland Funding is a holding company for one of the country’s largest consumer-debt-purchasing companies, San Diego-based Encore Capital Group.

Like other debt buyers, the company buys millions of dollars’ worth of delinquent credit-card debt, then seeks to collect on the full original value plus interest. It’s that volume where they earn profits.

“During the year ended Dec. 31, 2012, we invested $562.3 million in portfolios, primarily of charged-off credit card, telecommunications and bankruptcy portfolios, with face values aggregating $18.5 billion, for an average purchase price of 3 percent of face value,” according to Encore Capital Group’s 2012 year-end U.S. Securities and Exchange Commission filings.

The statement notes that the company only seeks to collect on a portion of the debt it purchases. Those it does attempt to collect invariably end up in court.

“We generate a significant portion of our revenue by collecting on judgments that are granted by courts in lawsuits filed against consumers,” the SEC report reads.

After trying with phone calls and letters to collect, the company hires attorneys, who work on contingency, to start a legal process, meaning they have to win to get paid a share of the judgment.

By some estimates, Midland files more than 300,000 lawsuits each year. In Pima County alone, the company files cases on a near-daily basis — for 2012 it filed 335 cases in Pima County Superior Court, down from the 760 in 2011. So far this year, the company has filed 327 cases in Pima County.


At first, Horba and Pellechia refused to open the door for the process server who stood there with legal documents.

After a little research, Horba decided they should contact the process server and sign for the documents to find out why someone would go through such trouble to collect on a debt he and Pellechia felt certain was not owed.

When they finally got their hands on the letter, what they found astonished them.

A company had filed a claim against Pellechia for more than $4,600 in credit-card debt it claimed she had never paid.

The problem was, Pellechia said, she didn’t have credit-card debt and had never heard of the company.

“I didn’t owe this money,” Pellechia said.

Horba began to do some research, finding on the Internet ways to fight debt collections.

They answered the lawsuit with a 10-point refutation, citing, among other things, unjust enrichment, no proof of ownership of the supposed debt and not providing a copy of the signed contract Midland sought to collect on.

Horba and Pellechia then sent Midland’s attorneys a disclosure statement demanding a signed contract to prove Pellechia owed the debt, record of payments, the purchase price Midland paid for the supposed debt and other items to support the claim.

They figured that would end it. After all, how could this company neither Pellichia nor Horba had ever heard of collect on a debt without any proof?

“All of the sudden, they filed for a summary judgment,” Horba said, and worse yet, a Pima County justice of the peace awarded the judgment.

Pellechia decided to do what most people wouldn’t: She fought the ruling, but the fight came at a cost.

“This was nearly three years that I couldn’t put money in the bank because I was worried they would go after my wages,” Pellechia said.

She said she was fearful of any of her accounts showing assets because once a judge signs the default judgment, or in Pellechia’s case summary judgment, the creditor can move to forcibly collect on the debt.

“What they’re hoping for, and what works for them, is that these cases go into default,” said Floyd Bybee, a Phoenix-area attorney who has defended many clients against collections from debt buyers. Bybee estimates that as many as 80 percent of cases result in some sort of default judgment.

After the statutory amount of time has passed for a debtor to contest the judgment, the creditor can access a debtor’s credit reports, garnishee up to 25 percent of the person’s wages, drain all but $300 from bank accounts and even put liens against any real estate the purported debtor owns.

Pellechia and Horba filed a motion to reconsider in Pima County Superior Court, and their countless hours of research and persistence paid off.

In March, Pellechia received word that a Pima County Superior Court judge agreed with them and reversed the lower court ruling, saying the plaintiff didn’t adequately prove ownership of the supposed account.

As far as the couple know, the legal troubles they faced have passed, but Pellechia said she still doesn’t know how she got caught up in the debt-collection net.

The only outstanding matter they have to deal with now is making sure Pellechia doesn’t have any negative marks on her credit from the incident.


Federal regulations require banks and other depository institutions to “charge off” credit-card debt once it becomes 180 days past due.

The companies frequently bundle the debt into portfolios and later sell them to third parties at auctions or in prearranged deals. A Federal Trade Commission report estimated the average debt was purchased at 4 cents per dollar of the face value of the original debt. Often it is resold numerous times before a buyer finally moves to collect.

The debt-purchasing industry has been the subject of criticism and concern from consumer activists and government officials, with the reselling of debt among the issues because of the questionable trail of documentation and the bundles of debt move from one holder to another.

Because of this, debt buyers often have little more than a statement saying a person owes a debt, a copy of an unsigned credit-card contract and an amount.

“They should have to prove the debt is owed and it’s owed by them,” Bybee said.

Some debt buyers, lacking documentation, have been accused of submitting falsified documents in court. Other issues include efforts to collect debt that resulted from ID theft, or that had been settled through bankruptcy or was beyond the statute of limitations.

While some states have acted to increase the burden of proof needed to collect on supposed debts, Arizona lawmakers have gone in the other direction.

Last year, the Arizona Legislature passed a bill critics say lowered the burden of proof needed to collect on supposed credit-card debt. It allows collections in uncontested credit-card-debt cases to go forward with only an electronic record of a contract.

Billing statements or copies of original signed contracts are not required to show proof of an existing contract.

Proponents said it reflected the modern digital world where many people acquire goods and services through the Internet and not face-to-face interactions.

But John Skiba, a Phoenix-area attorney who specializes in defending people caught up in collections cases, said, “It kind of throws the rules of evidence out the window.”

Skiba and Bybee agree that much of the debt companies like Midland seek to collect is legitimate, but they’re concerned that innocent people can get caught up in a legal system with rules stacked against them.

Contact reporter Patrick McNamara at 573-4241 or pmcnamara@azstarnet.com. On Twitter @pm929.