You may have heard of someone whose wages were garnished by a collection agency; and you may be wondering, “Can they even do this?” The answer is yes, but not without a court order. Each year, collection agencies flood courtrooms with thousands of lawsuits filed against debtors. This situation is somewhat unfortunate for consumers for two reasons. One, delinquent accounts reach collection agencies because the original creditors have already given up hope of obtaining payments and have decided to abandon them. Two, although collection agencies have bought the accounts for a fraction of the cost, they are looking for consumers for the full amount of the debt. Invariably, they win in court because uninformed consumers do not try to challenge the claim. They also don’t know that collection agencies are improperly relying on the 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 stops making the payment, the original creditor may initially rely on its internal collection department or may contract with an external agency to collect the payment on its behalf. In both cases, the original creditor still owes the bad debt. However, there comes a time 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 “write-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 the debt is later written off or not. Accounts that have been closed are sold to “debt buyers” for a fraction of their value. In fact, it is not uncommon for collector accounts to be bought and resold multiple times. One must realize that at that point, consumers no longer have any contractual obligation towards the original creditor (who no longer has the bad debt). However, now they must deal with the collection agencies.
Of course, the “debt buyers” will do their best to make the payments. If they believe clients have funds, they can initiate legal proceedings to obtain a judgment and a wage garnishment order. Keep in mind that agencies need proof that they provided adequate services to consumers. The right service notifies consumers that a claim has been filed against them so they can defend it in court. Failure to serve consumers properly will result in a judgment that can then be overturned.
Too many times, consumers ignore a legal complaint because they are scared or do not have the means to hire an attorney. And so they don’t take action, hoping the problem will go away. This is the worst approach consumers can take because collection agencies will automatically win the lawsuit. Therefore, the response to a complaint should 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 instead request evidence of what is alleged, especially evidence that the collection agency now owes the account. After all, consumers never entered into any contractual agreements with collection agencies. They often don’t know which companies bought their account, much less the fact that their account was bought in the first place. Also, as mentioned above, accounts are often sold multiple times; and sometimes documentary evidence of the assignment of the debt may have been lost. This fact alone is sometimes enough for collection agencies to drop the claim.
If the case goes to court, consumers need not fear that the burden of answering incriminating questions will be placed on them. In fact, in our legal system, the party initiating the lawsuit has to prove their case first. Essentially, collection agencies must establish that they are now the party that clients owe the debt to. So, in theory, they would need to present evidence that the original creditor sold the account to them or, if the account was bought and sold multiple times, evidence of the entire chain of debt allocations. Although business records are hearsay, they may be admitted as evidence, as an exception to the hearsay rule under FRE 803 (b) (6), provided that a records custodian employed by the company comes to court, identifies the documents and testify. from them. However, keep in mind that a records custodian can only testify to records generated by his or her workplace and not those generated by another business entity. Is this important? Absolutely, because it means that the records custodian who will be present in the courtroom cannot testify to documents that have been prepared by the original creditor or previous collection agencies. When the custodian is not allowed to present, as evidence of debt assignment, documents prepared by the original creditor, he cannot prove that the collection agency owes the account.
Although the collection industry is well aware of the limitations of this rule, consumers, sadly, are not.