Court Ruling Increases Requirements for Debt Collection Lawsuits

A recent state appellate court ruling requiring debt purchasers to provide documented proof of account ownership as part of its evidence to bring a lawsuit against a debtor foreshadows changes for debt buyers’ and collectors’ use of the court system, according to one ARM legal expert.

On February 1, the Second Division of the Illinois First District Appellate Court ruled that collection agencies filing a lawsuit to collect a claim on a debt buyer’s behalf must include copies of all previous owners, the date of assignment to those owners, and the amount paid by the debt buyer.

Typically, collection attorneys are allowed to submit to the courts a list of delinquent accounts with some identifying consumer information and amounts owed to initiate a lawsuit. But in Unifund CCCR Partners v. Mohammad Shah, the three-judge panel unanimously agreed that Illinois law requires more than an affidavit of the debt’s chain of title to prove assignment. Justice Maureen E. Conner wrote that state law requires that an affidavit must accompany copies of each assignment to ensure that the person suing someone has the legal right to do so.

Collection attorney Ronald Canter, of The Law Offices of Ronald S. Canter, LLC in Rockville, Md., said the court’s decision reflects a growing trend of requiring debt collection professionals to provide more paperwork if they want to sue debtors.

“There is reason to believe that the trial courts in Illinois will follow this decision and require debt buyers who sue on purchased accounts in their own name to include the full documented chain of title, a statement of consideration paid for the debt, and an account exhibit that includes a specific reference to the assignment and/or bill of sale,” Canter said.

The Federal Trade Commission issued a report last year that called the legal debt collection system “broken”, and encouraged states to take the lead in rectifying the perceived problems.  Given the FTC’s stance and political interest in protecting consumers in the wake of the housing mortgage debacle, Canter said “spread sheet accounting is no longer going to be accepted. That’s where the trend is moving both for legislators, regulars and in court decisions.”

Mark Parsells, executive chairman of Global Debt Registry, LLC, agreed.  He said some federal and state regulars have met with the Delaware-based debt titling company to educate themselves about available solutions to track and verify consumer debt.

“We’ve met with various regulators at their request and they’ve asked us to explain the solutions,” Parsells said. “They like the solutions and particularly like the fact that our records provide an accurate chain of title at the account level every time the account is transferred.”

But Canter fears that the ruling adds an extra burden on debt buyers and collection agencies doing business because the extra paperwork will increase the cost of the paper and collections. Even scarier, he said, is that debt buyers may have to reveal what they paid for the debt as a condition for suing.

“The public filing of price information disadvantages the debt buyer whose competitors can find out what price the debt buyer/plaintiff paid for their accounts based on a review of court filings,” Canter said. “Public notice of the price also will add ammunition to consumer advocates who constantly complain about accounts sold for pennies on the dollar.”

Some collection agencies and debt buyers may be tempted to fight the changes. But Canter said now is the time for the industry to change and adapt because more courts, legislators and regulars are likely to require the information because it’s available.

“There will have to be an effort to make this information available in a cost effective way…for it to be sold with the account or accessed with the account,” he said.