Pennsylvania Court of Appeals affirms dismissal of debt buyer lawsuit

February 17, 2011 by Todd Murray · Leave a Comment 

One of the main defenses available to consumers when defending a debt buyer lawsuit is to argue that the debt buyer’s evidence is inadmissible hearsay. Most people understand that hearsay is not admissible in court. Simply defined, hearsay is any statement–oral or written–that was made outside of the courtroom. So, for example, credit card billing statements or a credit card contract, which were created outside of court, are considered hearsay.

There is an exception to the general hearsay rule that allows business records to be admitted into evidence, despite being created outside of court. But there’s a catch. Before the court will admit the business records, the party offering them has introduce testimony that the records were created in the ordinary course of business by someone with personal knowledge of the event in question. The reason for this requirement is to create a safeguard that ensures that the business records are authentic.

Providing the required foundational testimony is pretty straightforward for the original creditor to do. Capital One, for example, should have no problem producing a witness testify about the process it uses to create its billing statements. But what happens when the lawsuit is brought by a debt buyer? It’s unlikely that the debt buyer as any knowledge of Capital One’s business practices. And without the required testimony, the business records hearsay exception shouldn’t apply and the court should not consider the billing statements or contract as evidence. Without this evidence, the debt buyer can’t prove its case and the consumer should win.

At least that’s the theory. The problem for consumers is that there’s very little existing case law about this issue because it’s not often that garden-variety debt collection cases end up being appealed. And without black and white appellate case law in front of them, most trial judges are going to have a hard time ignoring a stack of billing statements. So I definitely took notice when a Pennsylvania appeals court recently upheld the dismissal of a debt buyer’s collection lawsuit. The Pennsylvania court held that the credit card agreement and account history could not be admitted under the business records exception to the hearsay rule because the debt buyer could not testify that the credit card account records were made contemporaneously and in the regular course of the issuing bank’s business. Without this testimony, there was no way for the Court to know that the evidence was authentic, which, you know, is pretty important. Because it couldn’t provide any admissible evidence to prove its claim, the Court held that the debt buyer could not prevail as a matter of law.

It would be nice if this type of decision became a trend, rather than a rare occurrence.

If you live in Minnesota and want help answering a debt collection lawsuit, feel free to contact me by using the contact form in the upper right corner of this page. I offer a number of flexible representation options, so even if you can only afford to pay a few hundred dollars, I might be able to help you.

Debt Buyer Dismissed | Consumer Law & Policy Blog | February 15, 2011

Photo: http://www.flickr.com/photos/adactio/2018086675/sizes/l/

How to respond to a debt collector’s request for admissions

January 25, 2011 by Todd Murray · Leave a Comment 

A favorite litigation tactic used by debt collectors is to serve an unsuspecting consumer with requests for admission. These are typically a series of statements that you are asked to admit or deny. In other forms of litigation, admissions are typically used to figure out what facts are disputed in the case. But debt collectors don’t use requests for admission to learn more about what facts you dispute. In fact, they could probably care less about your answers to the admissions and would prefer that you didn’t answer them at all.

284894404_cef7f3e0471Why? Because if you don’t answer the admissions within 30 days, every statement in them is then considered to be true. So debt collectors structure them in a way that if you don’t answer, you’ve admitted each element of their case. And debt collectors are well-aware that the majority of people will not answer the admissions because they don’t understand the serious consequences of not doing so.

This is just another example of debt collectors using a court rule for something other than its intended purpose. I’ve seen debt collectors ask judges to rule in their favor based only on the consumer’s failure to respond to the requests for admission. They didn’t produce any billing statements, applications, terms and conditions–any evidence. And though I suspect that most judges know exactly what the debt collector is up to, their hands are tied to a certain degree by the court rules.

So the lesson here is to respond to every request for admission within 30 days. You only have to admit the statement if you know for a fact that its true. For example, if the statement asks you to admit having a credit card with a specific 16-digit account number, unless you know for sure that is your account number, you can probably deny the request. Of course, if you have copies of your billing statements with that account number on them, you’ll probably have to admit that request.

If you live in Minnesota and want help responding to a debt collector’s discovery requests, feel free to contact me by using the contact form in the upper right corner of this page. I offer a number of flexible representation options, so even if you can only afford to pay a few hundred dollars, I might be able to help you.

(photo: David Micheal Morris)

Federal Judge allows a RICO case against debt collector, debt buyer, and process server to proceed

January 13, 2011 by Todd Murray · Leave a Comment 

The Racketeer Influenced Corrupt Organization act–or RICO–is a federal law most famously used to prosecute members of the Mafia and other organized crime groups. But a judge in the Southern District of New York recently allowed a consumer-class action lawsuit, based in part on RICO claims, to proceed against a debt collection law firm, its debt buyer client, and a process serving company.

According to this Daily Finance story, the lawsuit alleges that the defendants’ business model is as follows: (1) buy debt with little documentation that the debt is accurate; (2) file lawsuits claiming personal knowledge of the debt but using robo-signed affidavits instead; (3) deliberately fail to tell the “debtor” that the lawsuit is pending (a practice called “sewer service”); (4) get a “default” judgment against the debtor when she fails to show up in court to defend herself; and (5) enforce the judgment, including by freezing the debtor’s bank account.

Points 1, 2, 4, and 5 are the basic formula used by debt buyers and their attorneys across the country. Where this case differs is the added allegation of an organized “sewer service” scheme. In his ruling, Judge Denny Chin ruled that there was enough evidence that the three defendants colluded to effect sewer service on unsuspecting consumers to bring the defendants under the RICO definition of a criminal enterprise.

A Lawsuit That Dirty Debt Collectors Should Be Worried About | Daily Finance | 1/4/11 (via Consumerist)

Photo: http://www.flickr.com/photos/yarwood/58256586/

Answering a debt collection lawsuit? Don’t make unnecessary admissions.

December 28, 2010 by Todd Murray · Leave a Comment 

Last July, Minnesota made some much-needed changes to the language on its summons. The summons, of course, is the notice that comes with the lawsuit that tells the defendant how long he has to respond. The new summons is written in plain-English and very clearly explains that the defendant must answer the lawsuit within 20 days of service or a default judgment will be entered.

Since the state rolled it out, I’ve often wondered what effect the new summons language would have on debt collection cases. It’s well-known that the majority of debt collection lawsuits result in a default judgment because consumers don’t respond. Would the clear explanation provided by the new summons result in more consumers answering the lawsuit?

According to at least one debt collection attorney that I’ve talked to, more consumers are now answering the complaint, but not in a way that helps them defend against the lawsuit. This collection attorney told me that since the new summons went into use, his firm is receiving a bunch of “answers” from consumers that are really just letters admitting that the person owes the debt with an explanation about why he can’t afford to pay.

I suppose it’s better to send some sort of written response than to ignore the lawsuit entirely, but when you admit that you owe the debt in your answer, you’re making a big mistake. Even if you believe that you owe the money, you’re entitled to deny the allegations and force the creditor to prove its case in front of a judge. And if you’re being sued by a debt-buyer, there are many possible defenses, even if the underlying debt appears to be valid.

If you’ve been served with a collection lawsuit, your best bet is to talk to a good consumer lawyer immediately. Although there are a number of forms available on the internet to help you answer a lawsuit (my form is located here), simply filling out a boilerplate form is no substitute for discussing your case with an attorney. If you don’t fill out the form correctly–either because you make unnecessary admissions or fail to list all of your defenses–you’re setting yourself up for failure. A good consumer lawyer can help you identify the issues and defenses for your case and can also help you avoid some common mistakes that consumers make when they handle the answer themselves.

If you live in Minnesota and want help answering a debt collection lawsuit, feel free to contact me by using the contact form in the upper right corner of this page. I offer a number of flexible representation options, so even if you can only afford to pay a few hundred dollars, I might be able to help you.

Photo: http://www.flickr.com/photos/[email protected]/284894404/

Mass-produced collection lawsuits overwhelming New York courts

July 14, 2010 by Todd Murray · Leave a Comment 

When I saw the headline for this recent New York Times story, I assumed it was just another story about the massive increase in debt collection lawsuits in a down economy. There have been dozens of similar stories in numerous media outlets over the last couple of years. But the article does contain a startling revelation:

As millions of Americans have fallen behind on paying their bills, debt collection law firms have been clogging courtrooms with lawsuits seeking repayment. Few have been as prolific as Cohen & Slamowitz, a Woodbury, N.Y., firm that has specialized in debt collection for nearly two decades. The firm has been filing roughly 80,000 lawsuits a year. With just 14 lawyers on staff, that works out to more than 5,700 cases per lawyer.

These figures are astounding for a couple of reasons. First, the collection industry–which consists of hundreds of law firms, including many that file a similar number of lawsuits as Cohen & Slamowitz–repeatedly accuses consumer lawyers of being overly litigious. The Times’ data exposes the obvious hypocrisy of this accusation.

And then there’s this: if you take the Times’ math a little further, each of the 14 lawyers at Cohen & Slamowitz are filing just under 500 lawsuits each month. And I’m willing to bet that Mr. Cohen and Mr. Slamowitz, as the founding partners of the firm, are not doing the mundane work of signing debt collection lawsuits. The senior partners at the collection law firm I used to work at certainly didn’t. So the 500 lawsuits per-lawyer-per-month estimate is probably an understatement.

Why is this such a big deal? First, mass-producing so many lawsuits will inevitably result in mistakes–such as suing the wrong person or demanding the wrong amount of money. Second, and perhaps more importantly, both the FDCPA and most states’ rules of civil procedure seem to require that lawyers ensure that the lawsuits they are filing are accurate and based on competent evidence. The FDCPA calls this “meaningful review”. Based on the absurdly high number of lawsuits they’re filing each month, it’s hard to imagine a Cohen & Slamowitz lawyer doing very much meaningful review.

Although the Times’ story features one New York judge that has held the debt collectors to the existing standard of meaningful review, the majority of courts seem willing to look the other way. So it’s unlikely that we’ll see a reduction in mass-produced lawsuits anytime soon.

If you live in Minnesota and want help answering a debt collection lawsuit, feel free to contact me by using the contact form in the upper right corner of this page. I offer a number of flexible representation options, so even if you can only afford to pay a few hundred dollars, I might be able to help you.

Automated Debt-Collection Lawsuits Engulf Courts | New York Times | July 12, 2010