You may have heard of or even know someone who has had their wages garnished by a collection agency; and you may wonder, “Can they even do this?” The answer is yes, but not without a brief request. Each year, collection agencies flood the courts with thousands of lawsuits filed against debtors. This situation is somewhat unfortunate for consumers for two reasons. One, delinquent accounts find their way to collection agencies because the original creditors have already given up hope of getting paid and have decided to abandon them. Two, although collection agencies have purchased the accounts for a fraction of the cost, they are going after consumers for the full amount of the debt. Invariably, they win in court because uninformed consumers do not attempt to fight the claim. They also don’t know that collection agencies inappropriately rely on Federal Rule of Evidence (FRE) 803(b)(6) to present evidence in support of their claim.
First, let’s clarify that there are different stages in the debt collection process. For example, when a consumer defaults on a payment, the original creditor may initially rely on its internal collection department or may contract with an outside agency to collect the payment on its behalf. In both cases, the original creditor still owes the bad debt. There comes a time, however, when the company will lose hope of getting more payments. You will then make a business decision to close the account and pay off the remaining debt balance. When a “charge-off” is recorded, the business can claim a tax loss on the unpaid balance, and the customer will see a negative notation appear on their credit report, regardless of whether or not the debt is paid off later. Accounts that have been closed are sold to “debt buyers” for a fraction of their value. In fact, it is not uncommon for collection accounts to be bought and resold multiple times. One must realize that at that point, consumers no longer have any contractual obligation to the original creditor (who no longer owes the bad debt). However, now they are left to deal with collection agencies.
Of course, “debt buyers” will do everything they can to make the payments. If they believe clients have funds, they can initiate legal proceedings to obtain a judgment and court order to garnish wages. Keep in mind that agencies need proof that they served consumers correctly. The right service notifies consumers that a claim has been filed against them so they can defend it in court. The lack of adequate attention to consumers will lead to a sentence that can later be annulled.
Many times, consumers ignore a legal complaint because they are afraid or do not have the means to hire an attorney. And so, they take no action, hoping that the problem will go away. This is the worst approach consumers can take because the collection agencies will automatically win the lawsuit. Therefore, a response to a complaint must always be completed in a timely manner. As defendants in a lawsuit, consumers should not admit to any allegations made in the lawsuit, but should ask for proof of what is alleged, especially proof that the collection agency now owes the account. After all, consumers have never entered into any contractual agreement with collection agencies. They often don’t know which companies bought your account, let alone the fact that your account was bought in the first place. Also, as mentioned above, accounts are often sold multiple times; and, sometimes, it is possible that the documentary evidence of the assignment of the debt has been lost. This fact alone is sometimes enough for collection agencies to drop the lawsuit.
If the case goes to court, consumers need not fear that the burden will fall on them to answer incriminating questions. In fact, in our legal system, the party who starts the lawsuit has to prove their case first. Essentially, collection agencies need to establish that they are now the party to whom customers owe the debt. So, in theory, they would have to present evidence that the original creditor sold them the account or, if the account was bought and sold multiple times, evidence of the entire chain of debt assignments. While business records are hearsay, they may be admitted into evidence, as an exception to the hearsay rule under FRE 803(b)(6), provided that a records custodian employed by the business appears in court, identify the documents and testify. from them. Please note, however, that a custodian of records can only testify from records generated by your place of employment, and not those generated by another business entity. Is this important? Absolutely, because it means that the custodian of records that will be present in the courtroom cannot testify from documents that have been prepared by the original creditor or previous collection agencies. When the custodian is not allowed to present the documents prepared by the original creditor as proof of the assignment of the debt, they cannot prove that the collection agency owes the account.
Although the collection industry is well aware of the limitations of this rule, consumers are sadly not.