Pennsylvania Court Gives Zombie Bill Collector The Boot Over Use Of Crappy Paperwork To Collect Dubious Debt

Valparaiso University School of Law Associate Professor Alan White writes in Public Citizen's Consumer Law & Policy Blog:

• A Pennsylvania appeals court has affirmed the dismissal of a debt buyer lawsuit on an old credit card account, because the debt buyer could not prove the debt. The credit card agreement and account history could not be admitted under the business records exception to the heresay rule. 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.

• More importantly, the contract itself was not proven. The debt buyer offered a standard form cardholder agreement dated seven years after the consumer's account was allegedly opened. In addition, the interest rate charged by the debt buyer was higher than the "agreement" called for, and the "agreement" did not provide for the attorney's fees being sought.

• As many consumer attorneys know, the lack of evidence is endemic to the debt buying industry. Pools of delinquent accounts are often sold with "media not readily available", i.e. with no account histories or signed contracts. Given that signed cardholder agreements no longer exist, collection attorneys are often hard-pressed to produce anything that could be called a contract to support their claim.

• The Federal Trade Commission issued a report on related debt buyer practices last July, but offered only recommendations directed to state courts to discourage these practices.(1) It remains to be seen whether the CFPB will take regulatory and enforcement action under the Fair Debt Collection Practices Act, which after all, prohibits false representations of the validity or amount of a debt, including false statements that are reckless or negligent, i.e. debt buyers alleging amounts owed based on little more than a spreadsheet they purchased for 0.6 cents on the dollar.

• The Court's citation of Judge Boyko's decision dismissing foreclosure cases for similar want of proof illustrates the continuing erosion of the credibility and deference the banking industry once enjoyed with state courts. HT to Cary Flitter.

Source: Debt Buyer Dismissed.

For the court ruling, see Commonwealth Financial Systems, Inc. v. Smith, 2011 PA Super 30 (Pa. Super. February 14, 2011).

(1) For the FTC report, see Repairing A Broken System: Protecting Consumers in Debt Collection Litigation and Arbitration. zombie debt buyer