Assignment is the foundation of the debt buying industry, and the industry is built on sand. Or a swamp. Because assignment is also the industry’s weak spot, and the reason why most—if not all—debt buyer lawsuits should fail.
In order to collect a debt legally, a debt buyer must prove it has the right to collect it. To do this, it must show an unbroken, valid chain of assignment back to the original creditor. Most debt buyers cannot do this.
The smoking gun
Think of a chain of assignment like a chain of evidence in a criminal case. In order to connect the smoking gun—with the culprit’s fingerprints on the trigger—to the crime scene, the police and prosecutor must be able to account for its whereabouts at every moment since the detective put it into an evidence bag at the crime scene. If they lose track of it, the evidence is no longer reliable. In order to prove that the gun—and fingerprints—in court are the same found at the scene, everyone who was in possession of the gun must come into court to testify, from the detective to the forensics expert to the guy from the evidence room.
The same thing must happen with a debt; the evidence of the debt is the smoking gun, and the contract from the original creditor to a debt buyer (and from one debt buyer to the next) is part of the proof of where the debt has been.
Debt buyers’ proof problems
Debt buyers could prove up the chain of assignment; it just goes against their business model. That business model is to file (tens or hundreds of) thousands of lawsuits without checking to see whether those lawsuits have merit, and hoping to intimidate most consumer-defendants into paying up without asking any more questions.
And most do, so the business model works.
But most consumers should win their debt buyer lawsuits, because debt buyers cannot produce any competent evidence to support their claims.
The evidence problems start with the original creditor. Until recently, few kept copies of credit applications with the consumer’s signature, or even a complete set of account statements. Some creditors have improved their record-keeping, but those records rarely travel with the debt as it is bought and sold. So debt buyers generally do not have those records when they collect, and most file lawsuits without bothering to get this basic evidence.
In part, this is because requesting proof before suit would probably slow down the debt collection freight train. Also, debt buyers apparently have to pay for that proof, which would add expense to delay.
Even if debt buyers did get the evidence from the original creditors, there remains the problem of proving its whereabouts.
Generally, debt buyers produce only a bill of sale to “prove” the sale. The bill of sale is a generic document that never mentions the debt at issue. That makes it no good proof of anything. It generally refers to an exhibit with the list of accounts sold—which is never attached. At best, a debt buyer may produce a single line from a spreadsheet (the exhibit is rarely an actual document).
Finally, when a debt buyer does produce what seems to be adequate proof, watch out for robo-signing, which has long been business as usual in the debt buying industry.
Challenging the evidence of assignment
If challenged with well-drafted discovery requests and a competent consumer attorney, most debt buyer lawsuits should fail. You can find some forms to get you started, but you are better off consulting with a consumer lawyer as soon as you receive a call or summons from a debt buyer.