On October 29, 2004, the court dismissed a class action that had been filed against Citibank, Toyota and several debt purchasing and collection services, alleging that Citibank and Toyota have engaged in a systematic and intentional violation of federal law by attempting to collect debts from customers who have filed for bankruptcy and thus received an automatic stay regarding their debts pending discharge. The borrowers asserted that Citibank and Toyota sell or transfer these debts to third parties, typically debt purchasing services, with full knowledge that bankruptcy proceedings have been initiated. The borrowers are sought compensatory damages, statutory damages, disgorgment of monies illegally received, punitive damages, attorney's fees and injunctive relief.

According to the borrowers, when the defendants received a notice of the pending bankruptcy proceeding of one of their customers, the customer's account is sold, transferred or assigned to companies that purchase debts, such as the defendant Sherman Financial Services, who in turn utilize one of their internal collection agencies to attempt to collect the debt. The attempts to collect the debts were in the form of letters and harassing phone calls. Even after being informed verbally that bankruptcy was pending, the attempts to collect allegedly persist.

The borrowers claimed that the defendants' conduct violates both the federal bankruptcy code and the federal Fair Debt Collection Practices Act. It is also alleged that this conduct amounts to a violation of the federal RICO act, which prohibits racketeering.