FRE 803(B)(6) and How Can Consumer Prevail in Debt Collection Litigation

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 court order. Every year, collection agencies are inundating 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 purchased the accounts for a fraction of the cost, they are pursuing consumers for the full debt amount. Invariably, they win in court because uninformed consumers do not attempt to fight the claim. They are also unaware that collection agencies are relying, improperly, on Federal Rule of Evidence (FRE) 803(b)(6) to introduce evidence in support of their claim.

First, let's clarify that there are different stages in the process of debt collection. For example, when a consumer stops making payment, the original creditor may initially rely on its internal collection department or may contract with a third-party agency to collect 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 obtaining any more payments. It will then make a business decision to close the account and write off the remaining debt balance. When a "charge off" is recorded, the company can claim a tax loss on the unpaid balance and the customer will see a negative notation appear on its credit report, regardless of whether the debt is later paid off or not. Accounts that have been closed are sold to "debt buyers" for a fraction of their value. In fact, it is not rare for collection accounts to be bought and resold multiple times. One must realize that at that point, consumers no longer have any contractual obligation toward the original creditor (who no longer owes the bad debt). However, they are now left to deal with collection agencies.

Of course, "debt purchasers" will go to great lengths to pursue payments. If they believe that customers have funds, they may start legal proceedings to obtain a judgment and a court order for wages garnishment. Be aware that agencies need proof that they properly served consumers. Proper service notifies consumers that a claim has been filed against them so that they can defend it in court. Failure to properly serve consumers will result in a judgment that can later be voided.

Too many times, consumers ignore a legal complaint because they are either scared or do not have the means to hire counsel. And so, they fail to take action, hoping the problem will go away. This is the worst approach consumers can take because collection agencies will automatically win the judgment. So, an answer to a complaint always needs be filled out in a timely manner. As defendants to a lawsuit, consumers should not admit any allegations made in the complaint but instead should request proof of what is being alleged, especially proof that the collection agency now owes the account. After all, consumers never entered into any contractual agreement with the collection agencies. They often don't know which companies have purchased their account, let alone the fact that their account was even purchased in the first place. In addition, as mentioned before, accounts are often sold multiple times; and sometimes documentary evidence of debt assignment may have been lost. This fact alone is sometimes sufficient for collection agencies to drop the lawsuit.

If the case goes to court, consumers should not fear that the burden will be placed on them to answer incriminating questions. Indeed, in our legal system, the party who initiates the lawsuit has to prove its case first. Essentially, the collection agencies need to establish that they are now the party to whom customers owe the debt. So in theory, they would need to present evidence that the original creditor sold them the account, or, if the account was purchased and sold multiple times, evidence of the entire chain of debt assignments. Although business records are hearsay, they can be admitted as evidence - as an exception to the hearsay rule under FRE 803(b)(6) - on the condition that a record custodian employed by the company comes to court, identifies the documents and testifies from them. However, be advised that a record custodian can only testify from records generated by his or her place of employment, and not from those generated by another business entity. Is this important? Absolutely, because it means that the record custodian that will be present in the courtroom cannot testify from documents that have been prepared by the original creditor or the previous collection agencies. When the custodian is not allowed to introduce, as evidence of debt assignment, documents prepared by the original creditor, she cannot prove that the collection agency owes the account.