In a victory for consumers, entities that purchase debts owed to credit card companies must now provide Maryland courts with documentation spelling out that they are legally entitled to the money they seek, under a rule the state’s top court adopted last week.
The Court of Appeals approved the rule at the request of the Maryland Collection Agency Licensing Board and the consumer advocacy group Public Justice Center. The board and center expressed concern that thousands of questionable debt-collection claims are filed annually in district court and won by default when the alleged debtors fail to respond to notifications that a claim had been filed against them.
The board and PJC, which represents indigent debtors, say the current rules favor debt collectors by requiring that they provide the district court with documents that merely state an alleged debtor’s liability, including the amount of the claim and interest owed.
The new, stricter rules — which go into effect Jan. 1 — will require consumer-debt collectors to submit to the district court documentation detailing that they are the true owners of the debt and that the debt, which will have to be itemized, is in fact owed to the company.
“Up until now, there’s been very little understanding of the [debt-collection] industry by consumers or the courts,” said attorney Jonathan Harris of the Baltimore-based PJC, which urged the high court to adopt the new rule. The new rule “is simply bringing up the standard of proof required of a debt collector to that of any other party suing under a breach of contract action.”
Assistant Maryland Attorney General W. Thomas Lawrie said the new rules will discourage questionable debt-collection claims in the district courts, which now handle “tens of thousands” of collection claims annually.
“This [new rule] puts the consumers and the creditors on more equal footing as far as the judicial system goes,” said Lawrie, who represents the licensing board. “It’s a fair approach to trying to address the issue. There was definitely an inequity.”
The new rule’s requirement that debt collectors provide greater proof of ownership might be a difficult obstacle for many of them due to the frequency with which consumer debt is sold, Lawrie added. The company seeking to collect is often the fifth or sixth company to have purchased rights to the money owed on the credit card, he added.
By that time, the money owed might have been paid to or forgiven by a previous owner of the debt.
To ensure the company in court is entitled to the debt, the new rules require the firm to present a chronological listing of the names of all prior owners of the debt, the date of each ownership transfer and an authenticated copy of each bill of sale to each of the owners.
The company must also provide either a document signed by the alleged debtor that provides evidence of the debt or opening of the credit card account; a bill reflecting purchases, payment or other actual use of the credit card by the alleged debtor; or a printout or other documentation from the original creditor showing purchases, payments or other actual use of the credit card by the alleged debtor.
In addition, the company must itemize the debt it is claiming, including interest, finance charges, service charges and late fees. The company must also include a list of all Maryland collection agency licenses it holds, including the license number and date of issue.
The Maryland Judiciary’s Standing Committee on Rules of Practice and Procedure explained the need for the new rule in a letter to the Court of Appeals prior to its approval.
“Both nationally and in Maryland, there have been a multitude of cases in which the ultimate owner of the account sues the person it believes to be the debtor, knowing from experience that the defendant often does not file a notice of intention to defend or appear for trial,” the committee wrote.
“The problem, which has been well-documented by judges, the few attorneys who represent debtors and the [state] Commissioner of Financial Regulation, is that the plaintiff often has insufficient reliable documentation regarding the debt or the debtor and, had the debtor challenged the action, he or she would have prevailed,” the committee added. “In many instances, when a challenge is presented, the case is dismissed or judgment is denied. In thousands of instances, however, there is no challenge, and judgment is entered on affidavit.”
The scope of the debt-collection claims in Maryland district courts came to the fore in January 2010, after the debt collection law firm Mann Bracken LLP announced it was going out of business.
Following the announcement, Chief District Judge Ben C. Clyburn dismissed without prejudice the firm’s open debt-collection cases, which numbered in the tens of thousands.