A recent decision by the Tennessee Court of Appeals illustrates the documentation-related challenges faced by creditors and debt buyers in credit card collection actions.
In its April 30, 2012, opinion in LVNV Funding, LLC v. Mastaw, the appellate court held that the buyer of a credit card account cannot rely on affidavits of an “authorized representative” of the debt buyer and its parent corporation to establish in a collection action that the defendant owed a debt or the amount owed.
The buyer had purchased the account from its parent corporation, which, in turn, had purchased the account from a bank that was either the card issuer or had purchased the account from the issuer. With the debt buyer’s trial witness having conceded that she had no personal knowledge of the information in the affidavits, the appellate court found that the affidavits could be properly admitted as evidence only under the business records exception to the hearsay rule. That exception allows the admission of records made and maintained in the regular course of business.
As described by the appellate court, the affidavits did not identify or attach any specific records that included the debtor’s identity or his account number but sought to establish that information based on references to unspecified records that were described as maintained by the debt buyer as part of its normal business records. In addition, the affidavits claimed such unspecified records were “represented” to include information provided by the original creditor without identifying who made such representation. They also did not explain the affiant’s relationship to the parent company or the basis for her designation as “authorized representative” of the debt buyer and parent company.
As a result of these deficiencies, the court found that the affidavits failed to “incorporate by reference or otherwise summarize or interpret documents that are prepared in the normal course of regularly conducted business activity.” Instead, the court treated the affidavits solely as documents prepared specifically for use in litigation and ruled that the trial court erred in admitting them into evidence. Finding the debt buyer’s remaining evidence insufficient to establish its claim, the appellate court reversed the trial court’s entry of judgment in the debt buyer’s favor.
To assist clients in responding proactively to the current rash of documentation-related challenges being faced by the debt collection industry and creditors attempting to collect their own debts, Ballard Spahr’s Consumer Financial Services Group recently formed a Collection Documentation Task Force. The task force conducts extensive audits of collection procedures and counsels on best documentation practices. It brings together litigators in the group with experience defending mortgage lenders and other consumer lenders in documentation-related lawsuits nationwide and regulatory lawyers in the group with deep knowledge of the Office of the Comptroller of the Currency’s national bank foreclosure review process and federal and state debt collection laws.
As summarized in a prior legal alert, the Consumer Financial Protection Bureau has issued a proposal to supervise certain debt collectors and debt buyers as “larger participants.” The CFPB will soon be examining debt collectors and debt buyers who qualify as “larger participants” or who act as service providers to entities supervised by the CFPB, such as payday and private student loan lenders. We are currently conducting compliance reviews for debt collectors and debt buyers in anticipation of their first CFPB examinations.
Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).