Consider this part 2 to our previous blog, "why some debt buyers have difficulty enforcing collection lawsuits," we focused on the issue ownership of the debt by means of a valid assignment (transfer of legal interest).
A recent investigation by American Banker, a financial and banking publisher, revealed a prominent reason why debt buyers come up short: the forward flow agreement.
A "forward flow" is an agreement between a debt buyer and debt seller to transact a fixed amount of debt over a fixed period of time for a predetermined price. For example a debt buyer and debt seller may enter an agreement to transact $20 million face value of debt each month for 12 months at a price of 7%.[1]
American Banker analyzed a particular forward flow agreement produced in a California civil court case concerning written-off debt that Bank of America sold to debt buyer, CACH, LLC. Bank of America sold these debts to CACH on an "as is" basis.
Some disturbing characteristics of the forward flow agreement, drafted by Bank of America, include:
- CACH, LLC would initially receive no documentation to support the debt;
- CACH, LLC might not be able to acquire supporting documentation even if asked;
- Some accounts may be have been extinguished by bankruptcy; and
- The agreement cautioned that some stated balances could be inaccurate.
Nevertheless, CACH, LLC went on to file thousands of lawsuits in state courts across the country. This manner of high volume, electronic transfer, and lawsuit churning are "emblematic of wider industry practice."
While forward flow agreements may advance business interests by cutting corners, they appear to be damning evidence showing that debt buyers not only lack necessary proof, but also may be violating the Fair Debt Collection Practices Act (FDCPA) in the process.