Massachusetts attorneys should be aware of two new rules which impose new burdens on them and their creditor clients in seeking default judgments for credit card debt. The rules, which go into effect on January 19, 2019, apply only to consumer revolving credit agreements not secured by real property. They do not cover personal loans (unless they are revolving loans), auto loans and other retail installment loans, medical debt, overdrawn accounts or bad check cases.
For reference, see Mass. R. Civ. P. Rule 8.1, “Special Requirements For Certain Consumer Debts” and Mass. R. Civ. P. Rule 55.1 “Special Requirements For Defaults And Default Judgments For Certain Consumer Debts.” Per Rule 8.1(a).
Massachusetts has already enacted laws regulating debt collectors, and also has an unfair debt collection statute. The state’s debt collection regulations apply to both third-and first party collections. Rules 8.1 and 55.1 bring Massachusetts’ suite of debt collection regulations into line with many others by regulating the entry of default judgments on credit cards. (See, e.g. North Carolina Code 58-70-150 et seq.: California Civil Code 1788.50 et seq.; New York 23 NYCRR 1, and New York Civil Rules Section 208.14-a.)
The new requirements
Rules 8.1(c)-(e) require affidavits attesting to:
- the identity of the original creditor,
- the amount and date of the defendant’s last payment, the date of charge off,
- post-charge-off interest and fees (if any),
- a chronological listing of the names of all prior owners of the debt and the date of each transfer of ownership of the debt, beginning with the original creditor,
- and each bill of sale, assignment, or other document evidencing the transfer of ownership of the debt, beginning with the original creditor.
Documentation must include a specific reference to the defendant or the defendant’s account number. Rule 8.1(f) requires a ‘certification’ as to the choice of law provision (if any) applicable to the debt, the statute establishing the limitations period, and a statement that the applicable limitations period has not expired.
In order to obtain a default, Rule 55.1(b)(1) requires the creditor’s counsel (or the creditor, if pro se) to file an affidavit stating that counsel has personally reviewed the documentation served and filed under Rule 8.1, the documentation meets the requirements of Rule 8.1, and the Rule 8.1 documentation entitles the creditor to a default judgment.
Under Rule 55.1(c), no default judgment may enter unless the clerk finds the plaintiffs complied with Rule 8.1 and 55.1(b)(1). Rule 55.1(d) requires the plaintiff to serve the defendant with the request for entry of default along with a certificate of service, and the plaintiff must re-verify the defendant’s address pursuant to Rule 8.1(e) if need be.
Needless to say, the above requirements are a substantial expansion of Rule 8(a)’s “…short and plain statement of the claim…” for credit card cases and impose substantial new burdens on credit card plaintiffs and their counsel, especially those seeking payment for obligations they did not originate. Additional work may also be required of clerks and courts in default cases that previously required little effort, which could delay the entry of default judgments.
However, while the clerk will now be required to make a determination of compliance with Rule 8.1, the rule allows that “… the clerk is not required to review the various items that must be filed with the complaint under Rule 8.1, but may rely upon the Rule 55(b)(1) affidavit.” Similarly, Rule 55.1(c), which deals with entry of default judgments, permits the clerk “…the option to rely on the plaintiff’s Rule 55.1(b)(1) affidavit in the determination whether there has been compliance with Rule 8.1….”and “…relieves the clerk or court from independently having to review the filings required by Rule 8.1(c)-(f).”
Presumably, allowing courts and clerks the option of reviewing the new affidavits in detail allows for a streamlined process of entry of default judgment in credit card cases. Nevertheless, variations among district courts and judges, some taking the option to review the various affidavits carefully, others relying on counsel’s Rule 55.1(b)(1) affidavit, may lead to inconsistent outcomes for plaintiffs.
If the plaintiff has not complied with the requirements, the clerk notifies the parties that the court will dismiss the complaint within 30 days unless the plaintiff shows cause why the complaint should not be dismissed. The defendant is entitled to notice of any hearing. The court or clerk is not required to specify the defect warranting dismissal.
Assuming counsel can wrest from the clerk the particular defect warranting dismissal, this mechanism for correcting defective affidavits may not, in practice, be more efficient than dismissing the complaint and refiling with corrected affidavits. Otherwise, upon receipt of a Rule 55.1(b)(2) notice of dismissal, counsel would have to weigh the time necessary to determine the defect, obtain from the client any corrective materials, prepare the appropriate papers for correcting the defect, and appear in court to argue in what is essentially an uncontested case. Dismissal and refiling might likely be more efficient.
If counsel is unable to informally obtain from the clerk why the case must be dismissed, she must schedule a show cause hearing and attempt to “…persuade a judge that there is cause justifying non-compliance …provided that cause for non-compliance is consistent with the purposes of the rule.” There is no provision in the new rules for amended or corrective affidavits.
While default judgments are always subject to later attack under Rules 55(c) and 60(b), the volume of information required by the new Rule 8.1 affidavits would seem to present a much larger target for aggrieved judgment debtors seeking to vacate default judgments. The new requirements are extensive and detailed, and there is no provision allowing that affidavits may substantially, rather than strictly, comply. A defective affidavit might furnish a credit card debtor with a meritorious defense under Rule 55(c) and it is possible that any defect might satisfy the catchall Rule 60(6), “… any other reason justifying relief from the operation of the judgment.”
Massachusetts 940 CMR 7.00; the elephant in the room
The real elephant in the room for creditors’ counsel is the liability provisions in both the Massachusetts Attorney General’s Fair Debt Collection Regulations, 940 CMR 7.00, and the federal Fair Debt Collection practices Act (FDCPA). Under 940 CMR 7.07(2), “…any knowingly false or misleading representation in any communication as to the character, extent or amount of the debt, or as to its status in any legal proceeding…” is an unfair and deceptive act, and the Massachusetts regulations apply not just to debt collectors but to all counsel and creditors. And of course, debt collector counsel can be held strictly liable to the debtor under the FDCPA. These regulations were always an issue for creditors’ counsel but since the new rules require a much greater volume of information, and specifically require counsel, under Rule 55.1(b)(1), to certify the accuracy of that information, the possibility for liability is much greater.
Clearly, all affirmations in all affidavits required by these rules should be carefully considered by the creditor and counsel.