William Joseph Bearden is a J.D. Candidate, University of Missouri-Kansas City School of Law, 2017. I would like to thank Hannah Dalbey, Professor Julie Cheslik, and Professor Judy Popper for their editorial assistance. Thanks also to the attorneys and judges on whose insight and expertise this article is based. Finally, thanks to my parents and my wife for their never ending help and love.
The courts provide an important fallback venue for recovery of delinquent consumer debt accounts, but the current state of the litigation process as employed by debt buying plaintiffs, especially large corporate plaintiffs, can amount to a threat to the civil rights of debtor-defendants, especially the elderly, indigent, or unsophisticated.1 Current practice not only threatens the debtors, it also poses significant danger for the debt buyers themselves and their attorneys.
Courts and attorneys face a difficult challenge when attempting to balance the rights of plaintiffs to collect on overdue accounts with the interest of defendants to have the evidence against them weighed fairly, especially courts already clogged with litigation in front of judges unfamiliar with the mechanisms of the debt buying industry.2 Delinquent accounts are often purchased by the thousands in bundles for an average of four percent of the balance of the accounts, and because the vast majority of judgments are collected by default, the buyer may receive only scant details concerning the account.3 Usually a single line in a massive database ties the account to a complex sale contract in lieu of any paperwork that might prove the debt.4 This makes it difficult for the plaintiff ’s attorney to prove the assignment of the debt, much less the allegations of the complaint.5 This difficulty is exacerbated exponentially when the debt changes hands a second or third time, and debt buyers may struggle to piece together the account and collection history when key information may simply not be available.6 As individual civil dockets commonly list dozens or even more than a hundred third-party debt collection cases, hundreds or thousands of third-party debt collection cases are filed in any given county every year. These cases usually account for a significant percentage of cases within any given jurisdiction, and minorities are disproportionately affected.7 At the heart of the issue are the default judgments that conclude the vast majority of cases. These default judgments provide a strong incentive for the industry status quo without regard to questions of justice, professional ethics, judicial efficiency, or social policy.
This article will first examine the common practices of the debt collection industry and the related issues that plague the courts and society as a result. It will then propose a simple solution, already in place in at least one jurisdiction, and explore how, if more widely implemented, this solution would protect debt buyers, their attorneys, and defendants alike at the cost of improved record keeping on the part of debt sellers. Part I will briefly outline the prima facie case for actions brought by debt buyers against debtors and outline the facts that must be alleged and demonstrated in order to prevail on a contract or account stated action. Part II will explore the actual practices of many courts when met with these suits, how these practices generate vast numbers of default judgments, and how industry practices take advantage of this phenomenon. Part III will discuss consequences of these practices for debt buyers, and for their attorneys. Part IV will turn to the consequences for defendants, their attorneys, and the courts. Part V will analyze how a simple change in how courts grant default judgments in these matters would cause an industry change alleviating or reducing many of these issues. Part VI will explore approaches to implementing this proposal at various levels. This article focuses on changes in Missouri courts as informed by other states, but the proposal could be applied widely for greater effect.
I. The Prima Facie Case for Debt Buyer Collection Actions
Debt buyers filing collection actions need to be able to prove four things in order to rightly collect on a debt: (1) there is a debt to be collected, (2) they are the correct party in interest to collect the debt, (3) the defendant named and served is in fact the debtor, and (4) the amount that they are attempting to collect has been correctly calculated.8 Generally, before filing a petition, a plaintiff ’s attorney must be reasonably sure of each of these elements based on a reasonable inquiry.9 Since a default judgment will often be entered without the opportunity for a plaintiff to conduct discovery on the defendant, a plaintiff should be prepared to provide documentation supporting the allegation.
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