Why judges need to scrutinize debt buyers' evidence more closely (and how to do it)

One prominent defense against a debt buyer collection lawsuit is to challenge the admissibility of the debt buyer's evidence. Credit card billing statements and other account documents are generally considered hearsay under the rules of evidence. Although there is an exception for business records, a debt buyer must first provide specific testimony--from someone with personal knowledge--that demonstrates that the business records are accurate and reliable. Debt buyers are very good at providing the precise testimony required to trigger the business records exception. But admissibility shouldn't be about whether a debt buyer has recited verbatim the requirements of the exception. These requirements have been cheapened to the point of meaninglessness by debt buyers' boilerplate affidavits that are robo-signed by low-level employees who don't know the first thing about the legal concepts that they are testifying to. Rather, admissibility should be about whether the evidence is actually reliable.

Although a few judges focus exclusively on whether the debt buyer has met the technical requirements of the hearsay exception, in my experience the overall reliability of the evidence is the primary concern of most judges. Fortunately for debt buyers, many judges (not unreasonably, perhaps) believe that credit card billing statements are inherently reliable and are therefore willing to overlook technical deficiencies in a debt buyer's evidentiary foundation. I'm not blind to the other challenges that judges face when handling collection cases. In many contested cases, the consumer doesn't have an attorney and may not even challenge the admissibility of the debt buyers' evidence. When the consumer does raise the issue on his own, it's often in a poorly researched and incomprehensible brief obtained from a questionable source on the internet. Judges probably can't raise the reliability issue sua sponte, because then they risk veering from impartial decision-maker into the consumer's advocate. I also understand that budget challenges have placed enormous pressure on judges to get cases off their docket. An busy trial judge can be forgiven for holding her nose and granting a debt buyer's summary judgment motion, despite its evidentiary shortcomings, rather than scheduling a $2,500 collection case for a trial.] But alarming evidence has recently surfaced that suggests that these judges' perception of the inherent reliability of credit card statements might be misplaced.

A March 2012 story by American Banker reported that

JPMorgan Chase & Co. took procedural shortcuts and used faulty account records in suing tens of thousands of delinquent credit card borrowers for at least two years, current and former employees say.

In a similar story on Bank of America, AB discovered that

In the "as is" documents Bank of America has drawn up for [sales to debt buyers], it warned that it would initially provide no records to support the amounts it said are owed and might be unable to produce them. It also stated that some of the claims it sold might already have been extinguished in bankruptcy court. B of A has additionally cautioned that it might be selling loans whose balances are "approximate" or that consumers have already paid back in full.

Read the American Banker stories for yourself. They offer detailed, on-the-record information the provides a glimpse into the profit-at-all-costs mentality that plagues some banks' legal collection departments. At the very least, there is enough in the stories to cast serious doubt on the reliability of the banks' records. And debt buyers rely heavily on the perceived reliability of the banks' records because they don't have any way to independently verify records that they didn't create.

So what's the solution? Courts and legislators should resist the temptation to create a more comprehensive list of factors a debt buyer must establish to admit business records into evidence. It's far too easy for debt buyers to create another self-serving, boilerplate affidavit to meet any new requirements and have them robo-signed by the thousands. Instead, debt buyers should be required to provide specific testimony about why the records are accurate and reliable. This needs to be more than a vague and unverifiable statement that the debt buyer is familiar with the records, has reviewed them, and that they're accurate. To truly evaluate reliability--especially in light of the troubling allegations uncovered by American Banker--courts need much more specific testimony. What type of software is used? How often is it audited? When was the last audit? What was the error rate? What is the industry standard for acceptable error rate? This testimony should come from someone with actual knowledge of these systems--not a robo-signer who claims to have such knowledge--and the affiant should explain in detail how they came to possess such knowledge.

Sure, this heightened reliability analysis may slow down the freight train that is legal debt collection. But debt buyers, and the banks that they buy debt from, have earned the additional scrutiny after cutting corners with relative impunity for so long.