The secondary debt market—credit cards and mortgages included—has relied on made-up legal terms and suspect justifications for years in order to turn the usually slow-moving court system into a speedy tool of business. It worked, probably because few consumers put up a fight. But more people are fighting back now, which means debt buyers are scrambling for legal footing.
It isn’t working, at least not in Pennsylvania, where the state court of appeals recently said “we reject [the] ‘This is how the industry does it’ mantra.”
In Commonwealth Financial Systems v. Smith, CFS argued that it should be able to submit a Citibank credit card agreement and statements under the business records exception to the hearsay rule. But CFS swearing Citibank’s records are accurate is like swearing your neighbors tax returns are accurate. There are lot of good reasons why they should be—and probably are—but would you bet on it?
The Pennsylvania courts will not.
[W]e . . . recognize that the trial court possesses the independent obligations to preserve its judicial integrity and to jealously guard its jurisdiction. “Neither the fluidity of the secondary [debt] market, nor monetary or economic considerations of the parties, nor the convenience of the litigants supersede[s] those obligations.”
The Pennsylvania Court of Appeals was quoting from the Ohio foreclosure cases in which the Ohio U.S. District Court tossed out more than a dozen foreclosures due to “robo-signing” issues.
This is not the end of debt buyer cases, though. Or robo-signing, for that matter. In fact, we are already seeing debt buyers’ attempts to respond: form declarations from the original creditor’s custodian of records to “authenticate” the evidence. Whether or not this is sufficient as a matter of law, it will keep the debt buyers in business for a while longer.