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 hearsay 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. 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.
I am the attorney for the defendant debtor in the above case, which was Commonwealth Financial Systems v. Larry Smith, 2011 Pa.Super. 30 (2011). The original objection to the admission was based upon the inability of the creditor to show regularity in the use of the original creditor's usage of their computer system, similar to the case of American Express v. Vinhnee (9th Cir. Bankruptcy Appellate Panel). The creditor debt buyer, Commonwealth's witness could say nothing about the original creditor, and only asserted that its system and theirs was "SAS-70" qualified, whatever that means. The witness, Danny Venditti (or Vendetti, VP at Commonwealth) testified that Commonwealth would not have bought it if it was not valid, or SAS-70 qualified, therefore bootstrapping his way into authenticity. The trial court had a good nose for "BS" remarking that the "limits of Venditti's knowledge are vast..." and disallowed the exhibits. Commonwealth argued that it should enjoy a presumption of regularity and admissibility because of the "rule of incorporation." This rule, it stated, says that if a debt buyer, or record receiver incorporates the purchased records into its business records, these purchased records become the "business records of the debt buyer," and are thus entitled to come into evidence under the business record exception to the hearsay rule. The Superior Court of PA did not buy this argument, stating that the Supreme Court has rejected the rule of incorporation in the State of PA. The Superior Court also rejected Commonwealth's arguments that "this is the way it is done in the industry," admonishing Commonwealth that it, and not Commonwealth, will decide how things are done in the Pennsylvania legal system. The Superior Court ended by telling Commonwealth that it was a "nice try, but no dice" (loosely paraphrasing). Any comments may be directed to me at l(remove this space)rubin (at) pennlawyer.com.
Posted by: Larry Rubin | Saturday, February 19, 2011 at 02:53 PM