Trouble Continues for Credit Card Collection Actions

Recent decisions in New Jersey and Maine demonstrate the growing burden courts are placing on creditors and debt buyers in credit card debt collection actions.

In LVNV Funding, LLC v. Colvell, the New Jersey Superior Court ruled that, to win on a summary judgment motion, a party suing on a credit card account must provide the same proof that is required for a default judgment. In its decision issued on July 12, 2011, the court found that New Jersey court rules do not allow entry of summary judgment for that party without proof of the previous balance, all transactions and credits, the periodic rates, the balance on which the finance charge was computed, any other charges, the cycle closing date, and the new balance (all from the periodic statement for the last billing cycle).

The court reversed the trial court’s grant of summary judgment for the collection agency that had purchased the account at issue because the agency’s computer-generated report submitted in support of its motion had no transaction information, had no billing cycle information, and showed the periodic and annual percentage rates as zero.

Asserting the need for “strict adherence” to court rules, the Maine Supreme Court also cited insufficient evidence as the basis for its decision in Cach, LLC v. Kulas vacating the district court’s grant of summary judgment for the buyer of a credit card account.

The Cach, LLC, decision, issued on June 23, 2011, held that the affidavit of a bank officer who stated that the bank had sold the account to the debt buyer was insufficient to establish the buyer’s account ownership for purposes of summary judgment. According to the court, to establish ownership, copies of the bank’s “computerized and hard copy books and records” on which the affiant’s statement was based had to be attached to the affidavit. It also held that the amount owed on the account was not established for purposes of summary judgment by the “Debtor’s File Balance Report” prepared by the debt buyer’s attorney. Although the report showed the account balance as of a specific date and the amount of per diem interest, the court held it could not be considered for purposes of summary judgment because it was not accompanied by an affidavit supporting its authenticity or establishing that it was prepared by a person with personal knowledge of the credit card account.

Reprinted with permission from Ballard Spahr LLP

For information about the hurdles for credit card collection actions in other states, see our prior legal alert on Delaware’s new pleading and documentation requirements for credit card collection actions, which took effect on July 1, 2011, and our prior legal alert with reference to a recent Pennsylvania case addressing what evidence is admissible in such actions. In light of the efforts by federal and state regulators and plaintiffs’ lawyers to challenge foreclosures based on allegations that documentation was inadequate to establish ownership of the underlying mortgage loans, it is not surprising that credit cards and other types of loans are now receiving similar attention. Credit card issuers, other lenders, and debt buyers should review their procedures and supporting documents for collection actions to ensure that they conform completely with state laws. Ballard Spahr’s Consumer Financial Services Group has substantial experience in doing these types of reviews.

The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). In addition to regularly counseling clients engaged in consumer debt collection on compliance with the Fair Debt Collection Practices Act and state debt collection laws, Ballard Spahr lawyers have extensive experience in defending all manner of debt collection lawsuits.