A debtor’s assault on the quality of documentation used by a debt collector to obtain a state court judgment against him in a credit card collection action was held by a Tennessee federal court to be sufficient to state a claim that the debt collector, by filing the state court action, had violated the Fair Debt Collection Practices Act.

The January 25 decision in Simmons v. Portfolio Recovery Associates, LLC provides yet another example of how collection-related documentation used by the non-mortgage consumer lending industry is increasingly coming under fire. While the case involved FDCPA claims against a debt collector, its analysis could be followed by courts considering claims made under state debt collection laws that mirror the FDCPA prohibitions against creditors collecting their own debts.

The debtor alleged the debt collector had falsely represented the character, amount, or legal status of the debt in violation of the FDCPA in two ways: (1) as a result of its intentional business decision not to obtain a copy of the written contract or other documentation evidencing the debt prior to filing the state court action, and (2) by submitting an affidavit in support of the action executed by an individual who had no personal knowledge of the statements made in the affidavit, did not review any records of the card issuer, and did not make any other efforts to determine if the debtor actually owed the amounts claimed.

The debtor also alleged that the debt collector routinely used “virtually identical form affidavits alleging facts not in [its] possession due to lack of proper information” and, by engaging in a pattern or practice of filing lawsuits using false affidavits, had violated the FDCPA through the use of “unfair or unconscionable means” in attempting to collect a debt.

In denying the debt collector’s motion to dismiss the debtor’s complaint, U.S. District Judge Thomas A. Varlan of the Eastern District of Tennessee distinguished appellate and district court decisions holding that allegations that a debt collector had filed a collection action without the knowledge or means of proving the debt’s validity were not, standing alone, sufficient to state an FDCPA violation.

Judge Varlan noted that, unlike the claims in prior cases, the complaint in Simmons included allegations that the debt collector made false representations or used deceptive means to collect the debt. Most significantly, even though the judge acknowledged that the debtor had “not pointed to any specific statements in the affidavit about [his] account or the debt that [he] allege[d] to be factually false,” the judge nevertheless found the debtor’s allegations of falsity and a pattern and practice sufficient to survive a motion to dismiss.

In light of the criticism that has been directed at mortgage foreclosure documentation, it is not surprising there is growing scrutiny by governmental agencies and consumer groups of collection-related documentation used in non-mortgage lending.

Ballard Spahr has created the Collection Documentation Task Force to assist clients with the rapidly developing spread of documentation-related challenges, from the mortgage foreclosure process to the collection of credit card, student loan, and other types of consumer debts. Composed of lawyers from Ballard Spahr’s Consumer Financial Services Group, the task force brings together litigators with experience defending mortgage lenders in documentation-related lawsuits nationwide and regulatory lawyers with deep knowledge of the Office of the Comptroller of the Currency’s national bank foreclosure review process.

Ballard Spahr’s Consumer Financial Services 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.)  The group also has vast experience in defending FDCPA lawsuits. Lawyers in the group regularly consult with clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws and have vast experience in defending FDCPA lawsuits.

The group produces the CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe, use the link provided to the right. For more information, please contact Practice Leader Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com; Practice Leader Jeremy T. Rosenblum, 215.864.8505 or rosenblum@ballardspahr.com; Martin C. Bryce, Jr., 215.864.8238 or bryce@ballardspahr.com; John L. Culhane, Jr., 215.864.8535 or culhane@ballardspahr.com; Barbara S. Mishkin, 215.864.8528 or mishkinb@ballardspahr.com;  or Christopher J. Willis, 678.420.9436 or willisc@ballardspahr.com.


 

 

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