A recent New Jersey Appellate Court decision offers an extensive analysis of debt buyers’ use of prior creditors’ records to obtain judgment on purchased debt in New Jersey. The decision can be useful guidance in other jurisdictions.
In the consolidated opinion of New Century Financial v. Oughla; MSW Capital v. Zaidi, 2014 N.J. Super. Unpub LEXIS 448 (Mar 5, 2014, Docket A-6078-11T4, Docket A-6370-11T1), debt buyers sought to recover on charged-off credit card accounts. Both lawsuits were contested, but the trial courts entered judgments for both debt buyers.
The debtors appealed arguing that the debt buyers could not rely on prior creditors’ business records for the accounts.
One debt buyer had submitted a certification (similar to an affidavit, but is not notarized) from its custodian of records confirming the purchase of the credit card account and outlining the information electronically received with the purchase, such as the name of the debtor, the date the account was opened, the charge-off date and the balance due. Also provided by the debt buyer in support of its judgment were the bill of sale and assignment by which it acquired the debt, as well as prior assignments of the debt.[i] Lastly, the debt buyer produced an electronic copy of the final periodic statement from the original creditor showing the charge off balance.
After judgment was entered over the debtor’s objections, the debtor requested the court reconsider, arguing that the debt buyer failed to establish ownership of the debt or lay a proper foundation for the admission of the last periodic statement. The debt buyer responded by submitting a certification from its business development manager, attesting to his personal knowledge of the purchase of the credit card account as well as his personal knowledge of the records the debt buyer obtained as part of the purchase.
In the second case, the debt buyer also submitted a certification that confirmed its purchase of the account and attached 18 monthly billing statements showing the history of the account and the charged-off balance. The debt buyer also submitted a certification from its managing director attesting to his personal knowledge of the debt buyer’s books and records and the balance due. The consumer in the second case made arguments similar to those in the companion case, attacking the admissibility of the debt buyer’s evidence. The debt buyer responded with additional evidence explaining how it received and maintained the account records, the bill of sale and all assignments of the account as well as all the electronic information it received when it purchased the account.[ii]
Debt Buyers’ Affidavits Can Rely on the Business Records of their Assignees
The Appellate Division’s analysis focused on the proof of the assignments and the admissibility of the account statements.[iii] As for assignments, the court cited a wealth of case law supporting the holding that debt buyer affidavits of its purchase of the debts were sufficient proof of ownership. Furthermore, according to the Court, “third-party documents evidencing ownership, such as those represented by these assignments, are examples of business records of one business transferred on sale and incorporated in the purchaser’s records to document proof of ownership of the thing transferred.”
Further, the local New Jersey rule regarding the use of the affidavits in support of motions for summary judgment, which is similar to Fed R.C.P. 56(c), requires only that affiant state facts within his personal knowledge and identify the source of that knowledge. The affiant’s personal knowledge of the debt buyer’s records as well as the receipt and maintenance of those records by the debt buyer are sufficient. “So long as the proponent of the documents can satisfactorily attest to the circumstances under which it acquired the documents on which it relies, the documents should be admissible as business records,” the court held.
Adequate Chain of Title Needed to Admit Debt Buyers’ Records
One of the debt buyers satisfied these requirements to prove ownership of the debt, but the second, which had acquired its debt from an intervening purchaser, did not for the simple reason that the affidavit failed to link the transfer from the original creditor to New Century’s assignor, MHC receivables. That failure was fatal to proving the chain of title.
As to the admissibility of the account statement, the Court sided with the intent and purpose of the business record exception [iv] which was to “broaden admissibility of relevant evidence based on principles of necessity and trustworthiness.” Further, the court stated that “there is no requirement that the foundation witness possess any personal knowledge of the act or event recorded.”
FCBA and Regulation Z Support Accuracy of Purchased Records
Nevertheless, the court here took an important step forward on two fronts, embracing the use of computer generated documents as business records and the mechanisms of the Fair Credit Billing Act and Regulation Z [v] to serve as evidence of the accuracy of the credit card statements. As to the former, as long as the debt buyer’s affiant can attest to the familiarity of their record keeping system, computer generated or otherwise, and that they keep their records in the ordinary course of business, the hearsay exception is satisfied.
As to the later, the court noted that given the “elaborate regulatory context of the [FCBA], a logical inference can be drawn from a consumer’s failure to assert a billing error and the balance set forth in the periodic statement is true and correct.” The statements themselves, the court held, although created by a prior creditor, are “sufficient indicia of trustworthiness and reliability” and are admissible as debt buyers’ business records.
Some Advocates Continue to Disagree
The issue of documentation, especially in the litigation of debt buyer accounts, was a key component of the CFPB’s Advanced Notice of Proposed Rulemaking. Opposition to the use of affidavits (such as this argument by a group of attorneys general), disregard the centuries-old application of the business record exception and are based on hyperbole rather than the law. As the New Jersey appellate court noted, “We appreciate that the sums in these cases are often modest and defendants commonly self-represented, but that seems all the more reason to require that the plaintiffs’ proofs be presented in a clear and straightforward fashion.”
The court recognized that regardless of the nature of the case, the rules of evidence must be uniformly applied in all civil actions.
This post originally appeared on the Consumer Financial Services Blog, run by ARM defense firm Maurice & Needleman.
[i] There was however no assignment from the original creditor, Credit One, to the MHC Receviables, who was the servicer.
[ii] Original credit in Zaidi was WAMU, who was taken over by the FDIC and then purchased by Chase. Chase sold the account to Main Street Acquisition who in turn sold it to MSW Capital.
[iii] In support of their appeal, Defendants submitted the three most recent FTC studies involving the debt collection industry: Collecting Consumer Debts: The Challenges of Change (2009); Repairing a Broken System: Protecting Consumers in Debt Collection Litigation (2010); and The Structure and Practices of the Debt Buying Industry (2013). The Court gave these studies little weight, and found especially that the Debt Buyer Report had “no conclusions as to the prevalence of errors or inaccuracies in the information about the debts transferred”.
[iv] N.J.R.E. 803(c)(6) follows F.R.E 803(6)
[v] The Fair Credit Billing Act (FCBA), 15 USC 1601 et seq. is an amendment to the Truth and Lending Act. Regulation Z requires the creditor in open end credit accounts to furnish the consumer with monthly periodic statements as well as disclosures and information necessary in order for the consumer to dispute any charges on those statements.