The Tennessee Court of Appeals has issued a decision that highlights the problems facing credit card debt collectors in a post-robosigning world (see here and here). The decision reaffirms what should be a simple principle in a debt-collection lawsuit. The burden is on the debt collector to show it owns the debt and to show the consumer is liable for the amount the debt collector asserts. The debt collector's say-so is not enough.
In LVNV Funding, the consumer had opened a Sears Gold Mastercard account in 1985 and was being sued for a balance that was a little more than $15,000. He had not used the account since 2001 and thought it had been settled in 2005.
One might first think Sears was the plaintiff. It was not. Sears had sold the account to Citibank, but Citibank was not the plaintiff either as it had sold the account to Sherman Financial Group. The plaintiff was LVNV Funding, a subsidiary of Sherman Financial to which the account had been assigned.
What should have happened is that the account history should have been transferred along with each sale of the account. It is not exactly clear what did happen but nothing more than a bare list of account names and balances was apparently transferred. The custodian of records for LVNV Funding testified that she was familiar with LVNV's business records, and that $15,000 was the amount due based on what was told to LVNV.
Of course, testimony about what someone else said is hearsay. LVNV sought to admit its custodian testimony under the business records exception to the hearsay rule. Judge Kirby, writing for the Tennessee Court of Appeals, correctly pointed out one major flaw with LVNV's positon. Its custodian may be familiar with its business records, but she was not familiar with the business records of Sears or Citibank. The business records exception does not create a documentary record where one does not exist. The result was that LVNV's suit failed for lack of evidence.
The case is interesting not because it is extraordinary but because it is typical. The documentation problems identified in LVNV Funding are pervasive throughout the debt collection industry. Because not every court is careful and because not every consumer has good representation, credit card debts undoubtedly are being collected without adequate evidence the debt is due and owing. (Having had to personally deal with a $50 credit card bill from Sears back in 1990, it would take a lot more than their say-so to persuade me that a debt was actually owed.)
And, if courts correctly apply the law, there are millions of dollars in credit card debts that are practicably uncollectible due to lack of documentation. Attorneys who work in the area always tell me these problems are well known within the industry, but I wonder how well known they are outside the industry.
