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Affidavits Are Not a Substitute for Evidence of Debt Ownership

posted by Bob Lawless

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.


The Arizona legislature has a bill pending that,if passed, will include the following provision in Title 44, Arizona Revised Statutes:


A creditor may establish a presumption of the amount of the debt that is owed on a credit card account through a copy of the issuer's final billing statement or by the electronic data that is maintained by the issuer and that represents the amount owed."

(the full bill is found here: http://www.azleg.gov/legtext/50leg/2r/bills/hb2664p.pdf)

The legal issue that Bob elided is whether the account stated doctrine applies, and how does it work in any particular state.

The account stated doctrine holds that an account presented to a creditor is presumptively accurate if not disputed in an reasonable amount of time. The Arizona statute appears to be a statutory paraphrase and extension of this common-law doctrine.

To win on an account stated theory, the creditor (or assignee) would probably have to prove, at very least, that 1.) there was an agreement; 2.) the debtor received an account statement pursuant to this agreement, and 3.) the debtor did not dispute this statement within a reasonable time. At this point, the burden of proof would shift to the debtor. (In some states, the debtor could only argue mistake or fraud at this stage.)

This is still probably more evidence than the assignee could produce, although it might do better under the more creditor-friendly Arizona statute. But it is unlikely that an assignee in any state would be required to produce a complete statement history.

The "account stated" doctrine is a little bit like modern art: its shape is unclear and you can see what you want to see. The doctrine's original purpose was a professional setting like a doctor's office. After a patient had received a bill and not challenged it, the patient could not later deny the provision of services or the cost of the services. The idea was that it prevented the doctor from having to memorialize every patient relationship in a formal contract. Even then, it was just an evidentiary presumption.

The doctrine should not apply where there is a written contract and especially where that contract is in control of the plaintiff. In any event, it would not solve the problem in this case because there were no statements from the original lending relationship. The account stated doctrine does not suspend the rules of evidence to convert a bare assertion of indebtedness into liability.

I'm not sure Bob is right about the origins of the account stated doctrine, although it is certainly often used in the professional context. It shows up in ancient banking cases: Mechanics & Farmers Bank v. Smith, 19 Johns. Rep. 115, 122 (1821); Devaynes v. Noble, 1 Mer. 529, 537 [1816].

I agree that it is a mere evidentiary presumption, except in payment law, where it often has a preclusive effect. E.g. UCC 8-406, 4-406. In payment law, the rule seems to be that the account stated doctrine is preclusive if the customer can be expected to have access to the raw data needed to compose (or challenge) the account. Potts v. Lafayette Nat’l Bank of Brooklyn, 269 N.Y. 181, 189, 199 N.E. 50, 53 (1935).

I have no problem with applying the weaker evidentiary account stated doctrine to credit card statements. Remember, accounts are running totals--without the account stated doctrine, a bank would have to prove every transaction since the beginning of the account: something that effectively negates statutes of limitations. There is nothing wrong with expecting customers to challenge errors within a reasonable time, although the current legal standards in check law are absurdly short.

But as Bob points out, most assignees can't even meet this standard. In the end, I agree with him. They mostly deserve to lose.

See also Palisades Collection LLC v. Kalal, 781 N.W.2d 503 (Wis. App. 2010), holding that an employee of an assignee creditor cannot ordinarily authenticate the records of the assignee for purposes of the business records exception. I and other Wisconsin lawyers have used it extensively in defending credit card and foreclosure cases.

This problem is why I do not collect credit card debts. From what I have seen, the debt collection industry has been very lax -- for a very long time -- with the way they transfer accounts to buyers. The industry standard seems to be one sentence "assignments" and excel spreadsheets, with a promise to provide supporting "media" such as the contract and back records later if requested and upon payment of an additional fee. But even that media is just provided electronically without verification (I once asked a seller rep to execute a verification and warranty that the debts were owed and in the amount set forth on the spread sheet and he hung up on me).

Now that they are being called on it by alleged debtors, and the court's are willing to listen to them, the industry's response seem to focus on the wrong issue. The industry seems to believe that proving "title" to the debt is all that is necessary (a couple of services popped up recently to "register" debts and verify chains of title similar to public land records). But that does not solve the problem, as this court found -- the issue is evidence of an actual debt and the amount of that debt, not the secondary question of who owns the debt (if it exists).

Anyway, the real thing that stands out to me from this case is the amount of work that this purchaser put into collecting a relatively small debt in this case. It is atypical from what I have seen and, more importantly, is a quick route to the poorhouse. One bad case like this eats up a lot of collections from other accounts.


When the account is charged off, the original creditor, who created the "money" out of thin air, is paid in full by insurance they must carry on every loan. Then they get a tax write off, and then they sell the debt to these scumbag collectors for 4 or 5% of the original, but now extinguished, amount of debt. It is ALL FRAUD, from the beginning. Everything a bank does is fraud. Look at your mortgage, the first line is "for a loan I have received", and this is before you even sign it. Your signature creates the debt. END THE FED !

It's really up to the impartiality of the judges at the local level. In Chicago the lender always wins!

Good post. One countervailing factor is the ability of the lender to get the borrower into court or a deposition, where the borrower will have a hard time truthfully denying some level of indebtedness on the assigned account. Most debt collection mills don't take the time and trouble to do that, but if they chose to, they would make these authentication issues much less of an obstacle.

Interesting comments.I wonder if the debtor obtained any credit report on himself which is free each year for 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012 and if the original debt was listed showing a balance and whether he disputed the entry. Also if he received any collection notices before he was sued allowing for a dispute of the debt. However, and I have never addressed a specific comment personnaly but the post by Art and derogatory attacks have no place in any post. I take exception to the terms used and more importantly the total incorrect statements concerning banks getting insurance payments when an account is charged off, granting credit out of thin air and everything a bank does is fraud. Using the term "scum bag" may be acceptable to others but not me. Disagree or agree is fine but allowing border profanity as a post and ABI allowing it is disappointing to a member of ABI since 1987.

Just a point of clarification -- we are not affiliated with the American Bankruptcy Institute (ABI) although I believe they may link to our blog. The ABI has no control over the content here.

On the larger point, we only take down comments that are profane, personal attacks on an individual, or commercial spam. Except when these lines are crossed, the answer is more speech rather than less. Our active readers who participate in the discussion are an important part of what makes this site work. People can judge for themselves the value of particular comments, especially those that are little more than rants.

This is typical of the activities of junk debt buyers.

Essentially they buy old debts for virtually nothing and proceed to harangue the purported debtor into paying it. If you even answer them you are dealing with someone 4 or 5 degrees removed from the original creditor.

It's not really fair, is it?

I had a friend who was being pursued for such a debt in California (past the 4 year statute of limitations).

I told him to tell them to prove the debt. They did this by providing him with a screen print from their own computer. Hah.

They had no proof at all.

They sued him and I told him how to respond, they couldn't dismiss it quickly enough.

They had filed hundreds of lawsuits at the local court and were depending on defendants not showing up.

Hopefully with all this going on the judges will start asking them to prove up those debts that show up in their courts.

I'm not holding my breath.

I read the Tennessee decision. Tennessee has a 6 year SOL. I'm glad the guy appealed, I have to hand it to him for that. It's a good decision.

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