IN THE COURT OF APPEALS OF MARYLAND. September Term, No. 64 RAINFORD G. BARTLETT, Petitioner, PORTFOLIO RECOVERY ASSOCIATES, LLC, Respondent.

Transcription

1 N THE COURT OF APPEALS OF MARYLAND September Term, 2013 No. 64 RANFORD G. BARTLETT, v. Pettoner, PORTFOLO RECOVERY ASSOCATES, LLC, Respondent. No. 76 JAMES TOWNSEND, v. Pettoner, MDLAND FUNDNG, LLC, Respondent. On Wrt of Certorar to the Crcut Court for Baltmore Cty (W. Mchel Person (No. 64) and Pamela J. Whte (No. 76), Judges) BREF OF ATTORNEY GENERAL OF MARYLAND AND MARYLAND STATE COLLECTON AGENCY LCENSNG BOARD AS AMC CURAE WLLAM F. BROCKMAN DOUGLAS F. GANSLER Attorney General of Maryland REBECCA J. COLEMAN W. THOMAS LAWRE Deputy Solctor General 200 St. Paul Place, 20 th Floor Assstant Attorneys General Baltmore, Maryland North Calvert Street, Sute 406 (410) Baltmore, Maryland (410) November 1, 2013 Attorneys for Amc Curae

2 TABLE OF CONTENTS Page NTEREST OF AMC... 1 STATEMENT OF THE CASE... 3 STATEMENT OF FACTS... 3 QUESTON PRESENTED... 3 ARGUMENT THE DEBT BUYNG NDUSTRY LACKS REGULAR BUSNESS PRACTCES AND SYSTEMATC PROCEDURES FOR TRANSFERRNG AND MANTANNG ORGNAL CONSUMER ACCOUNT DOCUMENTS A. The State Has Developed a Sgnfcant Amount of Knowledge About The Debt Buyng ndustry... 3 B. Overvew of the Debt Buyng ndustry... 6 C. Common Characterstcs of Consumer Debt Sales Agreements... 9 D. Transfer of Accounts and Documents THE DOCUMENTS SUBMTTED NTO EVDENCE BY THE DEBT BUYERS N THESE CASES WERE NOT PROPERLY NTEGRATED NTO THE DEBT BUYERS OWN RECORDS, WERE NOT NHERENTLY RELABLE, AND WERE NOT CORRECTLY CERTFED OR OTHERWSE PROPERLY AUTHENTCATED A. The Account Documents n These Cases Do Not Have Any of the Hallmarks of a Busness Record of the Debt Buyer B. The Busness Records of Natonal Banks and Other Orgnal Credtors Are Not nherently Relable C. The Employees of Debt Buyers Are Not Competent to Certfy or to Testfy About the Authentcty or Accuracy of the Records of an Orgnal Credtor... 26

3 . THE CHANGES TO MARYLAND RULES AND WERE NTENDED TO LEVEL THE PLAYNG FELD FOR UNSOPHSTCATED CONSUMER-DEFENDANTS V. THE PLANTFFS AFFDAVTS AND ACCOMPANYNG DOCUMENTATON SEEKNG JUDGMENT ON AFFDAVT DD NOT COMPLY WTH THE MANDATORY REQUREMENTS OF RULE V. THE FAREST NTERPRETATON OF THE SMALL-CLAMS RULE S THE ONE ADVOCATED BY THE PETTONERS CONCLUSON PERTNENT PROVSONS... 36

4 TABLE OF AUTHORTES Cases Page Bernadyn v. State, 390 Md. 1 (2005) CACH, LLC v. Askew, 358 S.W.3d 58 (Mo. 2012) Chase Bank USA, N.A. v. Fekete, No CONS DV 78 (Fla. Volusa County Ct. Feb. 1, 2011)... 15, 24, 25 Clark v. Captal Credt & Collecton Servces, nc., 460 F.3d 1162 (9th Cr. 2006) Clomon v. Jackson, 988 F.2d 1314 (2d Cr. 1993) Federal Home Loan Mortg. Corp. v. Lamar, 503 F.3d 504 (6th Cr. 2007) n re Blly W., 387 Md. 405 (2005)... 26, 33, 34 n re Credt Servce, LLC, CFR-FY (Md. Collecton Agency Lc. Bd. Oct. 14, 2011)... 4 n re Glbreath, 409 B.R. 84 (Bankr. S.D. Tx. 2009) n re LVNV Fundng LLC, CFR-FY (Md. Collecton Agency Lc. Bd. Jun. 28, 2012)... 5 n re Mdland Fundng, LLC, DFR-FY (Md. Collecton Agency Lc. Bd. Dec. 17, 2009)... 4 n re Mann Bracken, LLP, DFR-FY (Md. Collecton Agency Lc. Bd. Aug. 10, 2010)... 4 n re Sunshne Fnancal Group, LLC, CFR-FY & CFR-FY (Md. Collecton Agency Lc. Bd. Sept. 9, 2011)... 4 n re Worldwde Asset Management, LLC, DFR-FY (Md. Collecton Agency Lc. Bd. Aug. 10, 2010)... 4 LVNV Fundng, LLC v. Mastaw, 2012 Tenn. App. Lexs 282 (Tenn. Ct. App. Apr. 30, 2012)... 27

5 Mdland Fundng LLC v. Brent, 644 F. Supp.2d 961, 966 (N.D. Oho 2009) MRT Constructon, nc. v. Hardrves, 158 F.3d 478, 483 (9th Cr. 1998) Rosa vs. Gaynor, 784 F.Supp. 1 (D. Conn. 1989) Spencer v. Hendersen-Webb, nc., 81 F. Supp. 2d 582 (D. Md. 1999) Travers v. Baltmore Polce Dept., 15 Md. App. 395 (1997) Unted States v. Doe, 960 F.2d 221 (1st Cr. 1992) Unted States v. Natonal Fn. Servs., nc., 98 F.3d 131 (4th Cr. 1996) Unted States v. Ullrch, 580 F.2d 765 (5th Cr. 1978) Statutes Md. Code Ann., Bus. Reg Md. Code. Ann., Law Md. Code. Ann., Law Regulatons and Rules 12 C.F.R Md. Rule , 7, 8, 13, 14, 16, 28, 30, 31, 32, 34 Md. Rule , 33, 34 Md. Rule Md. Rule Md. Rule Md. Rule , 19, 25 v

6 Md. Rule , 17 Other Authortes Mara Aspan, Borrower Beware: B of A Customer Repad Her Bll Yet Faced a Collectons Nghtmare, Am. Banker (Mar. 29, 2012, 5:47 pm ET), (last vsted Oct. 22, 2013)... 23, 25 Kate Berry, Robo-Sgnng Redux: Servcers Stll Fabrcatng Foreclosure Documents, Am. Banker, Aug. 31, 2011, sgnng-foreclosure-mortgage-assgnments html?zkprntable=1&nopagnaton=1 (last vsted Oct. 22, 2013) Jeffrey Brown, Robo-Sgnng Paperwork Breakdown Leaves Many Houses n Foreclosure Lmbo, PBS Newshour, Oct. 6, 2010, (last vsted Oct. 22, 2013) Robert Canova and Madelne Marsden, Examnng Recent Mortgage Foreclosure ssues, (last vsted Oct. 22, 2013) Federal Reserve System, et al., nteragency Revew of Foreclosure Polces and Practces (Apr. 2011), avalable at: 21, 23 Federal Trade Commsson, The Structure and Practces of the Debt Buyng ndustry (Jan. 2013), avalable at: 6, 7, 8, 9, 10, 11, 12, 13 Peter A. Holland, The One Bllon Dollar Problem n Small Clams Court: Robo-Sgnng and Lack of Proof n Debt Buyer Cases, 6 J. Bus. & Tech. L. 259, 264 (2011)... 6, 9 Jeff Horwtz, Robo Credt Card Suts Menace Banks, Am. Banker, Jan. 30, 2012, html (last vsted Oct. 22, 2013)... 23, 24 Jeff Horwtz, OCC Probng JPMorgan Chase Credt Card Collectons, Am. Banker, Mar. 12, 2012, chase-credt-cards-collectons-occ-probe-lnda-almonte html (last vsted Oct. 22, 2013)... 23, 24 v

7 Jeff Horwtz, How a Whstleblower Halted JPMorgan Chase s Card Collectons, Am. Banker, Mar. 15, 2012, (last vsted Oct. 22, 2013) Jeff Horwtz, Bank of Amerca Sold Card Debts to Collectors Despte Faulty Records, Am. Banker, Mar. 29, (last vsted Oct. 23, 2013) Jeff Horwtz, JPM Chase Quetly Halts Suts Over Consumer Debts, Jan. 10, 2013, (last vsted Oct. 22, 2013) Offce of the Comptroller of the Currency, OCC Takes Acton Aganst JPMC to Protect Consumers and to Ensure Servcemembers Receve Credt Protectons for Ther Non- Home Loans, (Sept. 19, 2013), avalable at: 22 Offce of the Comptroller of the Currency, OCC Takes Enforcement Acton Aganst Eght Servcers for Unsafe and Unsound Foreclosure Practces, (last vsted Oct. 22, 2013) Chad Terhune, Mortgage Mess: Shreddng the Dream, Bloomberg Busnessweek, Oct. 21, 2010, (last vsted Oct. 22, 2013) Unted States Government Accountablty Offce, Mortgage Foreclosures: Documentaton Problems Reveal Need for Ongong Regulatory Oversght, GAO (May 2011), avalable at: 21 Urban Justce Center, Debt Weght: The Consumer Credt Crss n New York Cty and ts mpact on the Workng Poor 3 (2007) avalable at: 10 v

8 N THE COURT OF APPEALS OF MARYLAND September Term, 2013 No. 64 RANFORD G. BARTLETT, v. Pettoner, PORTFOLO RECOVERY ASSOCATES, LLC, Respondent. No. 76 JAMES TOWNSEND, v. Pettoner, MDLAND FUNDNG, LLC, Respondent. On Wrt of Certorar to the Crcut Court for Baltmore Cty (W. Mchel Person (No. 64) and Pamela J. Whte (No. 76), Judges) BREF OF ATTORNEY GENERAL OF MARYLAND AND MARYLAND STATE COLLECTON AGENCY LCENSNG BOARD AS AMC CURAE NTEREST OF AMC CURAE The Maryland State Collecton Agency Lcensng Board n the Offce of the Commssoner of Fnancal Regulaton (the Agency ) s responsble for lcensng and regulatng persons engaged n collecton agency actvtes n the State of Maryland

9 pursuant to the Maryland Collecton Agency Lcensng Act ( MCALA, ), Md. Code Ann., Bus. Reg , and for otherwse enforcng the provsons of MCALA and of the Maryland Consumer Debt Collecton Act ( MCDCA ), Md. Code Ann., Com. Law, Ths lcensng and regulaton authorty extends to debt buyers flng actons n Maryland State courts, because these debt buyers satsfy the statutory defnton of collecton agences under MCALA and qualfy as collectors under the MCDCA. Further, the Offce of the Attorney General s responsble for enforcng the terms of the MCDCA through the Maryland Consumer Protecton Act, Md. Code Ann., Com. Law, The Agency and the Attorney General have an mportant nterest n ensurng that members of the debt buyng ndustry comply wth Maryland law n the collecton of those debts, ncludng the use of ltgaton to support collecton actvtes. 1 These appeals rase mportant ssues concernng the busness practces of debt buyers who brng collecton cases n Maryland State courts. n partcular, the court below n both cases was requred to construe rules adopted by ths Court n 2011 that govern the presentaton of evdence n debt collecton cases brought by debt buyers. The Agency and the Attorney General s Offce have a unque perspectve on the operaton of those rules, because they worked n concert to brng attenton to abusve practces n 1 Any llegal actvtes n the collecton of consumer debts from Maryland consumers, ncludng volatons of the federal Far Debt Collecton Practces Act ( FDCPA ) or other related federal statutes, consttute a volaton of MCALA. Because debt buyers are subject to the FDCPA and related federal laws, the Agency has an mportant nterest n ensurng that the debt buyng ndustry comples wth those laws as well. 2

10 debt-collecton ltgaton and led the effort to curb those abuses by proposng amendments to the rules, whch ultmately led to ths Court s adopton, n 2011, of amendments to the rules provsons at ssue n these appeals. STATEMENT OF THE CASE The amc adopt the pettoners statements of the case n both appeals. STATEMENT OF FACTS The amc adopt the pettoners statements of the facts n both appeals. QUESTON PRESENTED Dd the court below err n admttng hearsay testmony and a hearsay affdavt as proof of the defendants lablty, where the testmony and affdavt faled to establsh that the records on whch the plantffs reled are admssble under the hearsay excepton for busness records, as requred by Rule 3-306? ARGUMENT. THE DEBT BUYNG NDUSTRY LACKS REGULAR BUSNESS PRACTCES AND SYSTEMATC PROCEDURES FOR TRANSFERRNG AND MANTANNG ORGNAL CONSUMER ACCOUNT DOCUMENTS. A. The State s Knowledge of Debt Buyng Practces, Based on Experence n Regulatng the ndustry Through ther regulatory oversght of debt buyers, the Offce of the Attorney General and the Agency have acqured knowledge that makes them unquely qualfed to understand the busness practces of debt buyers, lke the respondents n these appeals, 3

11 ncludng ther acquston and use of consumer account documents, the competency of ther employees to testfy about such documents or to certfy them as busness records, and other matters at ssue n these appeals. Much of the State s knowledge about the ndustry was learned durng the course of varous enforcement actons brought by the Attorney General on behalf of the Agency snce 2009, all of whch resulted n settlement agreements, whch have generated substantal benefts for the State and ts consumers. These nclude: an enforcement acton aganst one of the respondents n these appeals, Mdland Fundng, LLC, and other busness enttes n the Encore Captal Group famly of companes, whch resulted n a settlement agreement n December 2009 (n re Mdland Fundng, LLC, DFR-FY (Md. Collecton Agency Lc. Bd. Dec. 17, 2009)); an acton aganst Mann Bracken LLC (a collectons law frm that has representng Mdland and other debt buyers), whch resulted n a consent revocaton of the company s collecton agency lcense n 2010 (n re Mann Bracken, LLP, DFR-FY (Md. Collecton Agency Lc. Bd. Aug. 10, 2010)); a settlement wth Worldwde Asset Management LLC, Worldwde Asset Purchasng LLC, West Asset Purchasng LLC and other afflated companes n 2010 (n re Worldwde Asset Management, LLC, DFR-FY (Md. Collecton Agency Lc. Bd. Aug. 10, 2010)); settlements wth Sunshne Fnancal Group, LLC, Credt Servce, LLC, and ther owner, J. Scott Morse, Esq. n 2011 (n re Sunshne Fnancal Group, LLC, CFR-FY , CFR-FY (Md. Collecton Agency Lc. Bd. Sept. 9, 2011) and n re Credt Servce, LLC, CFR-FY (Md. Collecton Agency Lc. Bd. 4

12 Oct. 14, 2011)); and an acton aganst LVNV Fundng LLC, Resurgent Captal Servces LP, and other busnesses under the Sherman Fnancal Group famly of companes n 2011, whch ultmately settled n 2012 (n re LVNV Fundng LLC, CFR-FY (Md. Collecton Agency Lc. Bd. Jun. 28, 2012)). 2 Other nvestgatons and enforcement actons nvolvng debt buyers are ongong. Durng the course of these varous nvestgatons and enforcement actons, the Agency and the Offce of the Attorney General have revewed not only a large number of ndvdual court case fles and sworn statements detalng company polces and procedures of major debt buyers, but also thousands of pages of corporate documents relatng to the debt buyng ndustry, such as manuals addressng nternal company polces and procedures, busness agreements wth local counsel, and hundreds of documents that can be characterzed as sales agreements or blls of sale. These nclude documents provdng for the sale of consumer debts from varous orgnal credtors ncludng Chase Bank, the orgnal credtor n the two cases on appeal to debt buyers and documents provdng for the further sale of consumer debts from debt buyers to other debt buyers, ncludng the respondents n these appeals. The observatons of the Agency and the Offce of the Attorney General acqured through ths experence are consstent wth the fndngs made by the Federal Trade Commsson ( FTC ) n a recent report. See FTC, The Structure and Practces of the Debt Buyng ndustry (Jan. 2 Copes of these settlement agreements are avalable at the Agency s webste: 5

13 2013), avalable at ( FTC Report ). B. Overvew of the Debt Buyng ndustry The respondents n both appeals are debt buyers who purchase consumer accounts n bulk from orgnal credtors or from other debt buyers. Whle the assgnment of debts for collecton s not a new phenomenon, the consumer debt buyng ndustry has grown exponentally n the wake of the recent economc crss. See Peter A. Holland, The One Bllon Dollar Problem n Small Clams Court: Robo-Sgnng and Lack of Proof n Debt Buyer Cases, 6 J. Bus. & Tech. L. 259, 264 (2011). n 2010, sales of charged-off debt exceeded 86 bllon dollars. See d. at 265. Debt buyers frequently attempt to collect on these debts by flng lawsuts n state courts. The respondents n these appeals, Mdland and Portfolo, each fle thousands of actons each year n the Dstrct Court of Maryland. Debt buyers typcally purchase hundreds or more commonly, thousands of consumer accounts at a tme. Frequently, the debts are bought ether n a sngle bulk purchase agreement or pursuant to what s known as a forward flow agreement, by whch the debt buyer agrees to purchase accounts n bulk at regular ntervals n the future, often n ether monthly or 3-month ntervals. These bundled groups of accounts sold to debt buyers are termed portfolos of consumer debt. The purchased accounts may be credt cards, consumer loans, nstallment sales agreements, utlty blls, or any number of other types of consumer debt. The majorty of these consumer accounts, however, consst of credt card debt. As the FTC noted n ts January 2013 report on the debt 6

14 buyng ndustry, bank sales of credt card debt drect to debt buyers account for 75% or more of all debt sold. FTC Report at 13. Debt s sometmes bundled nto other types of groupngs, such as accounts subject to bankruptcy proceedngs. n the context of forward flow agreements, at the tme of each future nterval purchase, the partes normally execute a one-page assgnment document (or bll of sale ) that makes reference to the forward flow agreement under whch the nterval purchase s made. Both sngle bulk purchase agreements and the one-page assgnment documents are accompaned by a sale data fle or fnal data fle, whch s an electronc spreadsheet that lsts the hundreds or thousands of consumer accounts beng transferred wth the sale or assgnment. Under Rule 3-306(d)(3)(B), as amended n 2011, a debt buyer s affdavt supportng a debt collecton clam must attach ths documentaton to show that the defendant s account was actually ncluded as part of the transferred portfolo. (The names and nformaton for consumers other than the defendant who are lsted on the prntout from the spreadsheet can be redacted. See Commttee Note to Rule 3-306(d)(3).) The specfc consumer accounts at ssue n both of these appeals allegedly were transferred from Chase Bank to the respondents by one-page bll of sale assgnment documents that had been executed pursuant to forward flow agreements. n Bartlett, the one-page assgnment document, ttled Bll of Sale and dated June 28, 2011, ndcates that t was executed pursuant to a December 10, 2010 forward flow agreement between 7

15 Chase Bank and Portfolo, ttled Credt Card Account Purchase Agreement. (B.E. 16) 3 n Townsend, the one-page assgnment document, also ttled Bll of Sale, s dated June 30, 2011 but was not fully executed untl August 11, 2011 and ndcates that t was executed pursuant to a November 30, 2010 forward flow agreement between Chase Bank and Mdland, also ttled Credt Card Account Purchase Agreement. (T.E. 67.) Nether plantff compled wth Rule 3-306(d)(3)(B) by attachng the spreadsheet prntout from the sale data fle or fnal data fle, as requred to demonstrate ownershp of the debt. 4 Accounts sold to debt buyers are usually consdered to be n default by the seller of the accounts (whether the orgnal credtor or another debt buyer). n the context of credt cards, the accounts have already been charged off by the orgnal credtor, whch s an accountng requrement to remove the debt from the credtor s books that normally occurs 180 days after the account becomes delnquent. Ths fnal charge-off amount ncludes not only prncpal, but also nterest, late fees, and other fees and charges added to the amount of the debt by the orgnal credtor, whch are collectvely consdered nterest under the Natonal Bank Act. See 12 C.F.R However, as the FTC has reported, debt buyers typcally do not receve enough nformaton at the tme of purchase to allow them to break down the outstandng balances nto prncpal, nterest, and other fees. See FTC Report at -, References to the record extract n Bartlett and Townsend are ndcated wth the notatons B.E. and T.E., respectvely. 4 n Bartlett, the wtness who testfed for the plantff acknowledged that the document dentfyng the consumer account as belongng to the defendant (B.E. 15) s not actually part of the sale data fle (B.E ). 8

16 Debt buyers purchase portfolos of consumer accounts at a fracton of the total face value of the debt at the tme of sale typcally payng between 1.75% and 6% of the face value of the debt portfolo, based on the sales agreements revewed by the State n connecton wth ts nvestgatons and enforcement actons. The FTC reports that the average prce pad by major debt buyers s 4% of the face value of the debt. See FTC Report at, 23. The precse amount pad for a gven portfolo of consumer debt depends on numerous factors, such as the number of accounts n the portfolo, the types and qualty of accounts, the age of the accounts, and the length of tme snce the charge-off or snce the last purchase or payment. See, e.g., FTC Report at The sales agreements and one-page assgnment documents typcally provde nformaton about the payment amount, but n both of these cases, n Bartlett and Townsend, the debt buyers only provded 1-page assgnment documents, n whch the amount of consderaton pad for the portfolos of transferred debts was redacted. (B.E. 16, T.E. 67.) Once an account s purchased, debt buyers try to collect the full face value of the debt from the consumer. See Holland, The One Bllon Dollar Problem, at 265; see also Urban Justce Center, Debt Weght: The Consumer Credt Crss n New York Cty and ts mpact on the Workng Poor 3 (2007), avalable at C. Common Characterstcs of Sales Agreements for Consumer Debt Although the sngle bulk sales agreements and the forward flow agreements vary somewhat among dfferent sellers and buyers, and even among the same partes for 9

17 dfferent types of consumer debts, such sales agreements stll contan common features that are germane here. Frst, the accounts are always sold as s, where s, and wth all faults, wth the debt buyers beng consdered sophstcated purchasers. Any representatons or warrantes contaned n the document are lmted to the exstence and ownershp of the account. The orgnal credtor generally dsclams all other warrantes, even as to the enforceablty or collectablty of the accounts. The agreements also state that there are no other representatons or warrantes of any knd, ncludng as to the authentcty or accuracy of the orgnal account documents documentaton that the ndustry refers to as meda, whch conssts of account statements; orgnal account contracts or applcatons; the agreement terms and condtons, ncludng amendments to those terms and condtons; communcatons from the credtor to the consumer, such as notfcatons of rate ncreases; and smlar documents. See FTC Report at The one-page assgnment documents ssued pursuant to forward flow agreements also state that they make no representatons or warrantes of any knd, except possbly as provded n the forward flow agreement. See d. Such dsclamers are evdent n the onepage assgnment documents n the present cases. (B.E. 16 ( Ths Bll of Sale s executed wthout recourse except as stated n the Credt Card Account Purchase Agreement. No other representaton of or warranty of ttle or enforceablty s expressed or mpled. ), Townsend Bll of Sale, T.E. 67 ( Ths Bll of Sale s executed wthout recourse except as 10

18 stated n the Credt Card Account Purchase Agreement to whch ths s an Exhbt. No other representaton of or warranty of ttle or enforceablty s expressed or mpled. ). A second common feature of these sales agreements s that they do not provde for the automatc transfer of the orgnal account documents from seller to buyer n conjuncton wth the sale. See FTC Report at -, 26. Rather, sales agreements from an orgnal credtor to a debt buyer generally contan provsons allowng for the buyer to obtan between 10% and 25% of the orgnal account documents for free upon request, and allowng the buyer to obtan addtonal documents by payng a charge of fve to ten dollars (or more) for each addtonal page or document. See d. at. The FTC reports that sales agreements typcally establsh how long the orgnal credtor has to respond to requests for documents from the mmedate debt buyers, whch s generally between 30 and 60 days. See d. The sales agreements generally lmt or elmnate the orgnal credtor s oblgaton to provde supportng documentaton f the debt buyer sells the account to a downstream debt purchaser. See d. at -v. Thus, f the accounts are subsequently sold to other downstream debt buyers, there s no guarantee that these downstream purchasers wll be able to obtan any account documents from the orgnal credtor. See d. The sales agreements from one debt buyer to another generally contan addtonal provsons statng that the seller cannot guarantee the avalablty of any orgnal account meda. Thrd, the agreements typcally contan terms provdng for the possblty that some of the transferred accounts may be uncollectble, such as f the accounts were 11

19 already pad n full, were not owned by the seller, were dscharged n bankruptcy, or were held by consumers who have snce ded. See d. at 25. D. Transfer of Accounts and Documents The actual transfer of orgnal accounts documents s addressed n sales agreements, whch, as dscussed above, dsclam all representatons and warrantes. At the tme that a portfolo of consumer debts s sold or assgned, the only thng that s always transferred s a database lstng the accounts transferred pursuant to the sale (often called a sale data fle or fnal data fle ). The complete prntouts from these databases are typcally spreadsheets lstng thousands of dfferent consumer accounts, wth each row contanng a dfferent consumer s name, account number, and other basc account nformaton. Subsequently, the orgnal credtor may provde the debt buyer wth supplemental account nformaton, and all of ths data wll be modfed and mported nto the debt buyer s own, larger accounts database contanng basc consumer account data felds, from whch the debt buyers can create a one-page account summary for each consumer. The summary prntouts provded by the plantffs n support of ther clams n these cases appear to be from ther own accounts databases. As noted above, the plantffs dd not provde the sale data fle that would show that the defendants consumer accounts were among the accounts purchased by the debt buyers, whch s necessary for them to demonstrate that they acqured legal ownershp of the debt. (The documents that the plantffs provded nstead clearly were generated by the debt buyers from ther own records after the purported transfer; they show that the plantffs obtaned access to the 12

20 defendants account nformaton, but do not show that the plantffs acqured ownershp of the account debt. (B.E. 15 (record dentfed as havng been prnted by Mdland.... from electronc records provded by Chase Bank ); T.E. 66 ( prnted by Portfolo... from electronc records provded by Chase Bank ).)) Before the recent changes to the Maryland Rules, very lttle, f any, documentaton was transferred from the orgnal credtors to the debt buyers. Occasonally, sellers mght provde a sample of the terms and condtons that appled to a partcular type of account from approxmately the same perod as the accounts transferred n the portfolo, but these were representatve examples only, and dd not necessarly pertan to any of the actual accounts that had been sold. A few sellers also provded buyers wth the last account statement, whch was usually consdered to be the same as the charge-off statement, but that vared from seller to seller. 5 However, the orgnal credtors dd not consstently transfer orgnal account documents wth portfolos at the tme of sale or assgnment. Agan, the State s experence n ths area s n accord wth fndngs made by the FTC, whch reported: For most portfolos, buyers dd not receve any documents at the tme of purchase. Only a small percentage of portfolos ncluded documents, such as account statements or the terms and condtons of credt. FTC Report at ; see also d. at Despte contentons by many debt buyers to the contrary, such charge-off statements alone, whch are ssued 6 months after the account becomes delnquent, do not satsfy the requrement of provng the exstence of the debt under Rule 3-306(d)(1), because they fal to show actual use of the credt card, or payment on that account, by the consumer. However, ths s not an ssue n ether of these appeals, where the plantffs submtted bllng statements, though these statements were not properly admtted nto evdence. 13

21 Snce the changes to Rule went nto effect, some debt buyers have altered ther busness practces and now obtan addtonal bllng statements for the accounts at ssue from the orgnal credtors, as well as partal assgnment documents. n both cases here, the plantffs apparently obtaned a smatterng of such documents (B.E , ; T.E , 48-65), but the State has seen nothng to suggest that debt buyers obtan complete account records from orgnal credtors. Among the numerous sales agreements revewed by the Agency nvolvng multple dfferent debt buyers, ncludng the respondents, none provded for the transfer of all account documents as part of the portfolo sale. The account documents mssng from what the plantffs submtted below that Chase Bank would presumably have mantaned nclude the orgnal account applcatons from the consumers, the orgnal terms and condtons applcable to the specfc consumers, amendments to those terms and condtons, the complete range of bllng statements ssued snce the account was opened, addtonal communcatons sent from Chase to the consumer, ncludng notces of nterest rate ncreases; a prntout of the runnng account dary mantaned and updated by Chase Bank s employees or agents; and wrtten communcatons between Chase Bank and the consumer, such as requests for verfcaton or dsputes of the debt. The falure of the debt buyers to submt more complete account nformaton may be attrbutable to the lmtatons mposed by the applcable sales agreements on the debt buyers ablty to obtan documentaton from the orgnal credtor or the large fees charged for provdng ths documentaton under the 14

22 terms of the agreement, assumng that the sales agreements that are not part of the record resemble those that the State and the FTC have found to be common n the ndustry. But another troublng explanaton must be consdered: that the account records were not properly mantaned by the orgnal credtor, Chase Bank, whose recordkeepng practces have been shown to be strkngly defcent. See, e.g., Chase Bank USA, N.A. v. Fekete, No CONS DV 78, slp op. (Fla. Volusa County Ct. Feb. 1, 2011) (notng the lack of documents n Chase s fle for the consumer-defendant) (attached hereto as Appendx 1); see generally Secton.B. below. t also bears emphaszng that an account may be sold multple tmes before t ever becomes the subject of ltgaton. However, the specfc documents and nformaton transferred to each subsequent debt buyer n the ownershp chan vares wdely. Agan, the only thngs that are always transferred are the lstng of accounts transferred pursuant to the sale ( sale data fle ), along wth any supplementary account nformaton. n the event that the debt buyer subsequently decdes to sell the accounts, the debt buyer may or may not transfer any account documents obtaned from prevous owners of the debt to the downstream debt buyer, whch n turn may or may not transfer some of those documents to yet other downstream debt buyers. n the event that a debt buyer decdes to brng a collecton acton aganst a consumer-defendant n Maryland, the process generally works as follows for the major debt buyers. Frst, the debt buyer wll have a representatve of the company or of a related servcng company execute an affdavt statng that the company owns a partcular 15

23 account, that the consumer has faled to pay them the amount owed, that the affant has revewed the account records confrmng ths nformaton, and that the person has personal knowledge about ther company s record keepng practces. The affdavt may be ntended to be used for the purpose of satsfyng the judgment-on-affdavt rule, Rule 3-306; and, n the event the consumer fles a notce of ntenton to defend the clam, the plantff may seek to use the affdavt n an effort to certfy and authentcate busness records to be used at tral under Rule 5-902(b). That affdavt and any account documents and nformaton n the company s possesson wll be transmtted to debt buyer s local law frm for further collectons, normally wth the expectaton that a lawsut wll be fled. f the local law frm beleves addtonal documents may be requred, the law frm may contact the debt buyer and request that the documents be obtaned from the orgnal credtor. The debt buyer s unlkely to undertake ths effort unless or untl a defendant fles a notce of ntenton to defend or court denes judgment on affdavt and assgns the case for tral. Many debt buyers have a dvson of the company that exsts specfcally for purposes of coordnatng wth orgnal credtors to obtan documents requested by attorneys (f the documents are avalable); then, whatever documents are obtaned from the orgnal credtor are forwarded by the debt buyer to the local law frm, whch wll n turn use them for purposes of the ltgaton. 16

24 . THE DOCUMENTS SUBMTTED BY THE DEBT BUYERS N THESE CASES WERE NOT PROPERLY NTEGRATED NTO THE DEBT BUYERS OWN RECORDS, WERE NOT NHERENTLY RELABLE, AND WERE NOT CORRECTLY CERTFED OR OTHERWSE PROPERLY AUTHENTCATED. Under Maryland law, n order for records to qualty for the excepton to the hearsay rule for busness records under Rule 5-803(b)(6), a busness s requred to have a competent sponsorng wtness who can gve lve testmony demonstratng that requrements (A) through (D) of Rule 5-803(b)(6) are satsfed. Alternatvely, the proponent of such evdence may nvoke the mechansm for self-authentcaton of records under Rule 5-902(b)(2), f the procedural requrements of Rule 5-902(b)(1) are satsfed and f the adverse party does not fle a tmely objecton on the ground that the sources of nformaton or the method or crcumstances of preparaton ndcate a lack of trustworthness. Not all busness records, even f properly authentcated, can be used as evdence of the truth of the matters stated n the records; the hearsay excepton does not apply f the source of nformaton or the method or crcumstances of the preparaton of the record ndcate that the nformaton n the record lacks trustworthness. Rule 5-803(b)(6). n the cases at ssue n ths appeal, as n many cases brought by debt buyers aganst consumers, the records at ssue are not the debt buyer s, the nformaton n the documents s not shown to be trustworthy, and the documents are not properly authentcated by a competent sponsorng wtness or by the self-authentcaton procedure of Rule 5-902(b). 17

25 A. The Account Documents n These Cases Do Not Have Any of the Hallmarks of a Busness Record of the Debt Buyer. The plantffs arguments n the proceedngs below depend on an assumpton that the documents they reled on are ther own busness records. Ther own busness records, however, would be nadequate to establsh the defendants lablty, whch could be shown only by records that demonstrate a debt owed to the orgnal credtor. Though some courts have allowed an entty other than the busness that created the records to aval tself of the busness-records hearsay excepton, on the grounds that the records have been ncorporated or ntegrated nto the entty s own records, the busness practces of debt buyers do not ncorporate credtor records n a manner that establshes ther relablty. Frst, snce debt buyers do not obtan all (or even most) account documents for the accounts n a gven portfolo, they never actually ncorporate all account documents nto ther own busness records. Accordngly, to the extent that the documents become records of the debt buyer, those records are ncomplete at best. Furthermore, whle a debt buyer may have the ablty to obtan some addtonal account documents from the orgnal credtor, many of those are generally not obtaned untl needed for purposes of ltgaton, or are never obtaned at all. Moreover, there s consderable varablty among orgnal credtors as to whch, f any, orgnal account documents they retan, for how long they retan them, and whether they are wllng to provde them to any subsequent, downstream debt buyers who request them. Thus, the possblty that an orgnal credtor or prevous owner of the debt may have partcular account documents does not mean that 18

26 such documents automatcally become the busness records of the downstream debt buyer. See, e.g., MRT Constructon, nc. v. Hardrves, 158 F.3d 478, 483 (9th Cr. 1998) (wtness must show (1) ncorporaton of thrd party records n the ordnary course of busness; (2) relance upon the records for ther accuracy; and (3) substantal nterest n the records accuracy); Unted States v. Ullrch, 580 F.2d 765, 771 (5th Cr. 1978) (wtness must show (1) ncorporaton of thrd party records; (2) relance on those records; and (3) steps taken to confrm ther accuracy). Most debt buyers do not mantan temzed lsts of whch orgnal account documents they obtaned for a gven account, f any, much less when those documents were obtaned and from whom, makng t mpossble to know whch partcular account documents were avalable for a debt buyer affant to revew at the tme the affant attested to the records for a partcular account. Rather, debt buyers obtan account documents on an ad hoc bass, at dfferent tmes and n a non-systematc manner, obtanng dfferent documents and nformaton from orgnal credtors at dfferent tmes, even for accounts n the same portfolo, dependng on the needs of collectons lawsuts. Wthout any type of comprehensve and systematc ntegraton process, the debt buyers can never satsfy the regular practce requrement of Rule 5-803(b)(6)(D), among other thngs. Furthermore, the document transfer process n the debt buyng ndustry lacks the formalty assocated wth the true ntegraton of another company s busness records. Nether the debt seller nor the debt buyer generally mantans any sort of complete lst of account documents, and sales agreements generally do not contemplate that any account 19

27 documents wll automatcally be transferred wth the sale (much less all account documents). Moreover, the companes sellng the accounts rarely, f ever, provde any sort of certfcaton pertanng to transferred account documents at the tme of account transfer, and the debt buyers do not take the steps necessary to ensure the accuracy of the account records. For the debt buyers purposes, an naccurate record s no less useful than an accurate one, and the debt buyer has negotated away any rght to nsst on accurate records from the orgnal credtor or ntermedate debt buyer, by acceptng the dsclamer of warrantes. The record generated n the cases on appeal gves no ndcaton that Chase Bank ever provded any certfcaton or assurance of accuracy for the records that the plantffs reled on. nstead, the frst attempt to certfy the account documents as busness records s made by the debt buyer n the context of ltgaton. And the declaratons submtted as part of ths effort generally fal to specfy whch partcular account documents the affant s clamng to have revewed. As a result, when affants employed by a debt buyer make the general statement that they have revewed the company s account records, t s mpossble to know whch specfc account records were avalable for them to revew (assumng they actually revewed anythng at all). 6 Often, all they may have had 6 The robo-sgnng of affdavts by employees of debt buyers s a sgnfcant problem. For example, an Oho federal court determned that Mdland had employees sgnng affdavts based on personal knowledge, even though they had not revewed any of the underlyng account documents. See Mdland Fundng LLC v. Brent, 644 F. Supp. 2d 961, 966 (N.D. Oho 2009). The State s aware of other major debt buyers employees sgnng hundreds of affdavts a day, also purportedly based on personal knowledge. 20

28 avalable to revew was ther company s own accounts database, wthout any orgnal account documents. The cases on appeal llustrate the problem. Portfolo s affant n Bartlett and Mdland s n Townsend both make statements ndcatng that they revewed all records n exstence for the consumer s account beng sued upon (B.E. 203, T.E ), but nether debt buyer can clam to have acqured all (or even most) of the account documents from Chase Bank, much less to have done so as a regular busness practce. B. The Busness Records of Natonal Banks and Other Orgnal Credtors Are Not nherently Relable. There s a common mspercepton that the busness records of federally-regulated banks are nherently relable. Recent events n the mortgage ndustry and elsewhere have shown that they are not. The largest natonal banks have had to acknowledge major recordkeepng defcences n the mortgage context, ncludng wth ther orgnal loan orgnaton documents, ther documentaton pertanng to the sales of mortgages, and the records of subsequent servcng of such mortgages. See, e.g., Unted States Government Accountablty Offce, Mortgage Foreclosures: Documentaton Problems Reveal Need for Ongong Regulatory Oversght, GAO (May 2011), avalable at Federal Reserve System, et al., nteragency Revew of Foreclosure Polces and Practces (Aprl 2011), avalable at See also Offce of the Comptroller of the Currency, OCC Takes Enforcement Acton 21

29 Gven these major problems wth the records of natonal banks n the context of large mortgage loans secured by resdental real property, there s nothng to suggest that ther record-keepng procedures would be any better n the context of credt cards wth relatvely small amounts of unsecured debt. n fact, Chase Bank, the orgnal credtor n both of these cases, s currently the subject of an admnstratve enforcement acton by the Comptroller of the Currency as a result of ts debt collecton ltgaton practces. See Offce of the Comptroller of the Currency, OCC Takes Acton Aganst JPMC to Protect Consumers and to Ensure Servcemembers Receve Credt Protectons for Ther Non- Home Loans (Sept. 19, 2013), avalable at: Addtonally, a recent nvestgatve seres publshed by the Amercan Banker a publcaton that s well-respected wthn the bankng and lendng ndustres revealed serous flaws n Chase Bank s recordkeepng wth respect to delnquent credt card Aganst Eght Servcers for Unsafe and Unsound Foreclosure Practces, (last vsted Oct. 22, 2013); Kate Berry, Robo-Sgnng Redux: Servcers Stll Fabrcatng Foreclosure Documents, Amercan Banker, Aug. 31, 2011, (last vsted Oct. 22, 2013); Chad Terhune, Mortgage Mess: Shreddng the Dream, Bloomberg Busnessweek, Oct. 21, 2010, (last vsted Oct. 22, 2013); Jeffrey Brown, Robo-Sgnng Paperwork Breakdown Leaves Many Houses n Foreclosure Lmbo, PBS Newshour, Oct. 6, 2010, (last vsted Oct. 22, 2013); Robert Canova & Madelne Marsden, Examnng Recent Mortgage Foreclosure ssues, 10q4_vp_wp_canova-marsden.pdf (last vsted Oct. 22, 2013). 22

30 accounts. See Jeff Horwtz, OCC Probng JPMorgan Chase Credt Card Collectons, Amercan Banker, March 12, 2012, (last vsted Oct. 22, 2013), Jeff Horwtz, JPM Chase Quetly Halts Suts Over Consumer Debts, Jan. 10, 2013, (last vsted Oct. 22, 2013), Jeff Horwtz, Robo Credt Card Suts Menace Banks, Amercan Banker, Jan. 30, 2012, robosgnng-credt-card-suts html (last vsted Oct. 22, 2013), Horwtz, OCC Probng JPMorgan Chase, Jeff Horwtz, How a Whstleblower Halted JPMorgan Chase s Card Collectons, Amercan Banker, March 15, 2012, html (last vsted Oct. 22, 2013), Jeff Horwtz, Bank of Amerca Sold Card Debts to Collectors Despte Faulty Records, Amercan Banker, March 29, html (last vsted Oct. 23, 2013); Mara Aspan, Borrower Beware: B of A Customer Repad Her Bll Yet Faced a Collectons Nghtmare, Amercan Banker (March 29, 2012), (last vsted Oct. 22, 2013). Chase Bank employees told the Amercan Banker that the bank used three dfferent computer systems to track the amount owed on delnquent accounts and that those systems 23

31 frequently dsagreed about how much debtors actually owed. Horwtz, OCC Probng JPMorgan Chase. Former Chase Bank employees also alleged that when sellng judgments to outsde debt purchasers, the bank frequently sold accounts that were mssng proofs of judgment or other essental nformaton... [and] msstated how much the borrower owed. d. Further, accordng to the bank s own records, n at least one Chase Bank faclty, correspondences from borrowers, ncludng bankruptcy notfcatons, address changes, and hardshp requests, were beng dropped on an unmanned desk. d. And employees who were responsble for revewng accounts and sgnng legal affdavts verfyng that the account records were accurate rarely f ever revewed the fles and routnely sgned stacks of affdavts on flghts and n meetngs. d. Even n ltgaton brought by Chase Bank tself, at least one court determned that Chase Bank s own desgnated record custodan had nsuffcent knowledge about Chase s account documents and record-keepng practces to be able to certfy ts account documents n a lawsut brought by Chase aganst a consumer-defendant. See Chase Bank USA, N.A. v. Fekete, No CONS DV 78, slp op. (Fla. Volusa County Ct. Feb. 1, 2011). n Fekete, the Florda court determned that the records submtted by Chase at tral were not made n the ordnary course of busness on or about the tme of the event descrbed theren, but were created for ths tral. d. at 4. Because the court determned that the documents offered by Chase Bank lacked credblty and trustworthness they were therefore not admssble. d. Further, the court found that the 24

32 employee that Chase Bank sought to have testfy as a sponsorng wtness lacked the requste personal knowledge necessary for her testmony to be admssble. See d. at 4-5. Anecdotal evdence suggests that such problems are not lmted to Chase Bank. As an example, for nearly three years, from 2006 to 2009, Maryland resdent Karen Stevens was hounded by debt buyers over a $1,900 credt card debt to Bank of Amerca that she had already pad off. See Aspan, Borrower Beware. n 2006, when she was contacted by a collecton agency representng Bank of Amerca, Ms. Stevens wrote a check payng the account n full, whch Bank of Amerca cashed. See d. Yet the bank stll sold the account to a thrd-party debt purchaser, and even though Ms. Stevens provded the debt buyer s representatves wth a copy of her canceled check and a letter from the bank confrmng that the account was pad n full, the collecton calls contnued. See d. n 2009, that debt buyer sold the debt to a second debt buyer, whch n turn brought sut aganst Ms. Stevens n the Dstrct Court of Maryland; t was not untl Ms. Stevens hred a prvate attorney to defend the sut and fle a counter-clam that her ordeal ended. See d. All of ths shows that the records of orgnal credtors, ncludng Chase Bank and others, are not nherently relable, whch helps to explan why ther account debts are sold wth dsclamers and at a steep dscount. Thus, courts should be wary of acceptng orgnal credtors records under a hearsay excepton, even when properly authentcated, because, as Rule 5-803(b)(6) advses, such records may be excluded f the source of nformaton or the method or crcumstances of the preparaton of the record ndcate that 25

33 the nformaton n the record lacks trustworthness. Gven these concerns about the relablty of these records, t s mperatve to have an approprately qualfed wtness establsh the authentcty of documents used to establsh lablty, and to subject that wtness to cross-examnaton to test whether he or she has personal knowledge of the orgnal credtor s recordkeepng practces and can explan when the records were prepared and how they were mantaned. C. The Employees of Debt Buyers Are Not Competent to Certfy or to Testfy About the Authentcty or Accuracy of the Records of an Orgnal Credtor. One of the most fundamental rules of wtness competency s that a wtness may not testfy to a matter unless evdence s ntroduced suffcent to support a fndng that the wtness has personal knowledge of the matter. Rule Further, Rule 3-306, whch lays out the mnmum standards a plantff must meet n order to obtan judgment on affdavt, provdes that the affdavt supportng a demand for affdavt judgment shall: (1) be made on personal knowledge; (2) set forth facts that would be admssble n evdence; [and] (3) show affrmatvely that the affant s competent to testfy to the matters stated n the affdavt... Rule 3-306(c). Moreover, even when a court s not requred to strctly adhere to the rules of evdence, t must stll strctly adhere to the rules relatng to the competency of wtnesses. n re Blly W., 387 Md. 405, 444 (2005). A debt buyer who cannot satsfy the proof standards necessary to preval on a demand for judgment on affdavt cannot be put to a lesser standard at tral. Any affdavt or lve testmony offered by a debt buyer n support of a small clams acton must also 26

34 come from a wtness wth personal knowledge who s competent to testfy to the matters stated. When the wtness purports to testfy on behalf of a busness, the court must ensure that the wtness has personal knowledge of the practces and procedures of that busness. See Bernadyn v. State, 390 Md. 1, (2005). Whle the records custodan of a consumer debt purchaser may be able to testfy as to the polces and procedures employed by the debt buyer n mantanng ts own records, that employee s not competent to testfy to the recordkeepng practces of the orgnal credtor or any upstream debt buyers. The debt buyer s records custodan s not competent to provde evdence about when the orgnal credtor s records were prepared, whether they were created n the regular course of busness, or how the records were mantaned; and the employee of the debt buyer certanly does not have requste personal knowledge of, and famlarty wth, the recordkeepng practces of the orgnal credtor. The pettoners brefs persuasvely demonstrate that a debt buyer s employee s not competent to authentcate the busness records of an orgnal credtor, as requred to establsh a defendant s lablty on a consumer debt. See Bartlett Pettoner s Bref at 8-13; Townsend Pettoner s Bref at 16-20, The Agency and the Attorney General would smply add the observaton that,, when ths ssue has been decded by the hghest courts of other states, those courts have determned that the debt buyers employees are not competent to certfy the records of the orgnal credtors. See, e.g., CACH, LLC v. Askew, 358 S.W.3d 58 (Mo. 2012); LVNV Fundng, LLC v. Mastaw, 2012 Tenn. App. Lexs 282 (Tenn. Ct. App. Apr. 30, 2012). The decsons of other state and 27