The Hidden Challenges Debt Buyers Face in Litigation in 2024

Debt Buyers Confront Tougher Landscape in 2024

In 2024, the standing of debt buyers in New York is influenced by several factors, including regulatory changes and broader economic conditions. The New York Attorney General's office has implemented new state regulations that significantly impact debt collectors, including debt buyers. These regulations, stemming from the Consumer Credit Fairness Act of 2021, reduce the statute of limitations for debt collectors from six to three years. This change aims to protect consumers from lawsuits on old debts and has led to agreements with major debt buyers, preventing them from pursuing untimely lawsuits against New York consumers. As a result, many companies and individuals have been permanently banned from engaging in debt collection in the state.

These conditions could affect the ability of debt buyers to collect on debts and potentially increase the risk associated with purchasing debt portfolios.In summary, debt buyers in New York in 2024 face a challenging environment due to stricter state regulations aimed at protecting consumers and broader economic conditions that may increase the risk of defaults and credit deterioration.

The Debt Buying Process

Debt buyers acquire bundled batches of charged-off accounts from original creditors like banks or credit card companies. These defaulted debts are purchased cheaply without much underlying documentation or account records.

Why Assignments Matter

Assignments legally transfer the creditor rights to the debt buyer. But mass bundles often mean generic, vague assignment records. This lack of specificity can lead to significant challenges in proving the debt buyer's legal ownership of the debt in court.

Proving Ownership of Assigned Debts

With inadequate backup proof or documentation of specific account transfers, debt buyers may struggle to establish standing and prove they legally own the right to collect in court when contested. Missing proof of the chain of ownership multiplies issues.

Evidentiary and Legal Admissibility Problems

Further compounding matters, records created by original creditors face evidentiary barriers. Fundamental gaps in underlying account application forms, statements, and active contracts make building a legitimate case harder.

"Incomplete records are no excuse to pursue questionable suits," says Adam Wolf, a consumer rights lawyer. "The onus remains on collectors to substantiate their allegations, not force defendants to disprove false claims."

Your Right to Request Proper Validation

Despite owning debts in name only with flawed assignment records, debt buyers aggressively litigate with advantage over unaware consumers. But requesting proof often exposes their lack of documentation.

Sample of "Discovery Demands" to Mail to the Debt Buyer in a Collection Lawsuit

Here is a sample set of 10 Documentary Demands, 10 Interrogatories, and 10 Notices to Admit:

Documentary Demands:

1. All documents evidencing the alleged debt, including the original account application, contract, and statements.
2. The complete chain of title documentation showing all assignments of the alleged debt from the original creditor to the Plaintiff.
3. All documents relating to the purchase of the alleged debt by the Plaintiff, including the purchase agreement and any attachments thereto.
4. All documents demonstrating the Plaintiff's legal standing to bring this action.
5. All documents evidencing the Plaintiff's compliance with relevant state and federal laws.
6. All documents related to the calculation of the alleged debt amount, including a detailed accounting of principal, interest, fees, and other charges.
7. All documents related to any prior collection attempts on the alleged debt by the Plaintiff or any prior creditors or debt collectors.
8. All documents related to any disputes, complaints, or legal actions concerning the alleged debt.
9. All documents related to any settlement offers or agreements made in connection with the alleged debt.
10. All documents relied upon by the Plaintiff in responding to these documentary demands.

Interrogatories:

1. Identify all persons with knowledge of the facts and circumstances surrounding the alleged debt and describe the nature of their knowledge.
2. Describe in detail the method by which the Plaintiff calculated the amount of the alleged debt.
3. Identify all prior owners of the alleged debt and provide the dates of each transfer of ownership.
4. Describe the Plaintiff's relationship to the original creditor and any intermediary owners of the alleged debt.
5. Identify all documents that establish the Plaintiff's legal standing to collect on the alleged debt.
6. Describe in detail any disputes, complaints, or legal actions concerning the alleged debt.
7. Identify all witnesses the Plaintiff intends to call at trial and provide a summary of their anticipated testimony.
8. Describe the Plaintiff's policies and procedures for ensuring compliance with relevant state and federal laws.
9. Identify any prior collection attempts on the alleged debt by the Plaintiff or any prior creditors or debt collectors.
10. Describe any settlement offers or agreements made in connection with the alleged debt.

Notices to Admit:

1. Admit that the Plaintiff lacks the original account application, contract, or statements evidencing the alleged debt.
2. Admit that the Plaintiff does not have a complete chain of title documenting all assignments of the alleged debt from the original creditor to the Plaintiff.
3. Admit that the Plaintiff lacks documentation to establish its legal standing to bring this action.
4. Admit that the alleged debt amount includes unauthorized fees, charges, or interest.
5. Admit that the Plaintiff has failed to comply with relevant state and federal laws in its collection efforts.
6. Admit that the alleged debt is barred by the applicable statute of limitations.
7. Admit that the Plaintiff has no personal knowledge of the creation of the alleged debt.
8. Admit that the Plaintiff cannot prove the accuracy of the alleged debt amount.
9. Admit that the Plaintiff has no evidence of any prior collection attempts on the alleged debt.
10. Admit that the Plaintiff has no evidence of any disputes, complaints, or legal actions concerning the alleged debt.

Please note that this is a sample set based on the general information provided and should not be considered legal advice. Consult with a qualified attorney to develop a strategy specific to your case.

How Much of Our Prior 2011 Blog Rings True Today in 2024

Despite the below being written over a decade ago, the issues highlighted in the 2011 blog remain relevant. The digital age has streamlined many aspects of finance, but the debt buying industry still grapples with the fundamental challenge of proving debt ownership. Advances in technology have made record-keeping more manageable, yet the reliance on minimal documentation at the time of purchase continues to pose challenges for debt buyers and collectors.

"Weak assignment documents continue to plague debt buyer lawsuits" (2011)

Why do debt buyers face serious challenges when their ownership of the debt is disputed? It’s all about the assignment. In the law, an assignment is the transfer of legal rights by contract. In the case of debt buyers, what’s transferred is the legal right to collect a debt. Debt buyers purchase defaulted debts from original creditors such as Chase Bank, HSBC, Bank of America or Sears. The debt buyers purchase the defaulted debts in bundles, for pennies on the dollar.

The amount of backup paperwork regarding each debt that comes with the purchase varies. Generally speaking, the more paperwork, the more it costs the debt buyer. And since the debt buyer profit model is based on keeping costs low, the debt buyer may purchase no back-up information at all, or may purchase only the right to information on a limited number of accounts as needed in the future.

If the debt buyer tries to collect the debt and is unsuccessful, it may sell the debt to another debt buyer.

The problems with proof often start with the original creditor. In recent times, lenders seem to be getting wise, but in the past, consumer creditors rarely kept copies of consumer credit applications with the consumer’s signature on them, or account statements sent to the consumer over the life of the account. Lenders also did not keep track of what contracts were in effect at what point in time, or when contract revisions were mailed to consumers.

Even if the debt buyer can come up with some of these proof documents, they face admissibility problems under the rules of evidence because the documents were not created by the debt buyer but by the original creditor.

And then there’s proof of the assignment of the debt itself. The assignment is the document that gives the debt buyer the legal right to attempt to collect the debt. Without it, the debt buyer does not have the legal right, or "standing," to bring a lawsuit in court. Since the debts are sold from the original creditor in a bundle, there is often only a generic proof of sale document or a document tiled “assignment” that will refer to an attachment listing the accounts assigned, but the attachment is rarely attached. As a result, the debt buyer often cannot prove ownership of the debt. If the debt gets sold more than once, the problem is multiplied, because each link in the chain of ownership must be proven to the court.

The assignment of a debt is fertile ground for challenging a debt collector’s legal right to bring a case against you in court. A good debt defense firm can craft a solid argument for you, even if you think you might owe the debt, forcing the debt collector to prove its case against you. It is your right under our judicial system to force the debt collector to prove its case.

Conclusion: Empowering Consumers

Understanding the complexities of debt assignment and the challenges faced by debt buyers in proving ownership can empower consumers to defend against unjust debt collection practices. By asserting your rights and demanding proof of debt ownership, you can protect yourself from potentially unethical collection attempts. If you're facing collection actions, consider consulting with a debt defense attorney to explore your options and develop a strategy tailored to your situation.