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Collection Actions: 4.5.3.2 Contract’s Unavailability No Excuse for Non-Production

A collector unable to produce the applicable contract cannot excuse this lapse by pointing to federal Truth in Lending Act and Equal Credit Opportunity Act regulations that require creditors to retain documentation of a credit agreement and credit application for at least twenty-five months.342 These regulations do not condone destruction of the documents after twenty-five months, and they certainly do not state that a debt can be collected without proof of a contract.343

Collection Actions: 4.5.3.3 Production of the Contract Applicable to the Particular Consumer

To prove breach of contract, collectors must produce a written agreement that is binding on the parties.351 Collectors must produce not just a standard form contract, but the version of the contract that the particular consumer agreed to.352 Courts have dismissed cases when the collector submits a generic, undated, and unsigned “customer agreement” that does not even contain the consumer’s name or any indicia relating the document to the consumer.353

Collection Actions: 4.5.3.4 Proving Consumer Assent to the Contract and Contract Charges

To prove breach of contract, the collector must not just introduce the applicable contract, but prove that the consumer has agreed to that contract. Ordinarily, proving that the consumer has agreed to a contract requires little more than producing the consumer’s signature on a contract. For credit card agreements in particular, this may not be possible because the consumer may never have signed the contract.

Collection Actions: 4.5.3.5 Does an Assignee Have Rights Under a Contract?

Ordinarily, an assignee has been assigned all rights under a contract. However, an assignee should not be able to sue under a breach of contract theory if it has only been assigned the right to receivables. A right to receivables gives the assignee the right to recover amounts owed the assignor, but not other rights under the contract—such as the right to future interest charges or attorney fees as granted by the contract.

Collection Actions: 4.5.5 Collector Must Prove Balance Due on an Open-End Account

Proof of a written contract is not enough to prove the elements of breach of contract, particularly for an open-end account (for example, one involving a credit card, cell phone, cable, water, gas, or electricity service). The collector must prove its damages—i.e., the unpaid credit balance at the time of default plus any additional charges it seeks beyond that amount.399

Collection Actions: 4.5.6 Nature of Evidence Required to Show Balance Due

When the consumer contests the amount owed, the collector should not be able to prevail on a summary judgment motion merely by submitting an affidavit attesting to the amount owed.403 The collector must produce business records proving the amount owed, properly authenticated by affidavit.404 The proper authentication of business records is examined in

Collection Actions: 4.6.1 Availability of the Cause of Action

A common cause of action for the unpaid balance of an open account is often termed “on account” or “open account,” but states may use different terminology. The cause of action is not based upon a written contract but on proof of entitlement to the unpaid balance of the open-end account.424

Collection Actions: 4.6.2 Recovery Under an On Account Theory

If a collector recovers on an “on account” or “open account” theory that does not include proof of a written contract, the failure to prove that contract has a dramatic effect on the collector’s recovery, as set out in more detail at § 4.5.4, supra. Typically, the collector’s entitlement to finance charges and other fees are established by written contract.

Collection Actions: 4.7.1 Introduction

Collectors suing on credit card or other open account debts may allege a cause of action for an “account stated” to avoid showing how the amount due was computed and to avoid having to prove the terms of a written contract. Avoiding such proof is especially attractive for a debt buyer if the debt buyer has little documentation of the credit contract or of individual charges. Nevertheless, there are a number of difficulties a collector will encounter using the account stated theory, as will be detailed in this section.

Collection Actions: 4.7.6.1 Generally

Consumers, after receiving a statement of account, rarely communicate explicit agreement that they owe the amount specified in that statement of account. The collector’s action for account stated usually must rely on the consumer’s implied consent to pay the amount found in the statement. The law is far from clear as to what actions by the consumer sufficiently imply consent, and the law may be different for transactions between businesses than for consumer obligations.

Collection Actions: 4.7.6.4.1 Overview

Federal law provides consumers with various dispute rights, and collectors may argue that failure to utilize these dispute rights implies consent to charges as indicated on a statement of account. One such dispute right involves a consumer’s ability to ask a collector to verify a debt, but the Fair Debt Collection Practices Act explicitly states that “the failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer.”529

Collection Actions: 4.7.6.4.2 Incorrect minority view that FCBA creates affirmative duty on consumers

A series of Connecticut trial court decisions and one Ohio appellate court take the unfounded and wrongheaded position that failure to send an FCBA billing error dispute within sixty days admits the accuracy of the charges.538 These courts turn a consumer protection statute on its head into a debt buyer’s protection statute by taking the strange position that the FCBA creates an affirmative obligation for consumers, if they believe a credit card statement is inaccurate, to send a written dispute letter within sixty days.

Collection Actions: 4.8 Quantum Meruit or Unjust Enrichment

Some collectors routinely add a quantum meruit or unjust enrichment claim to their collection action, perhaps in recognition that they will have difficulty proving either a contract or an account stated claim. The first question is whether the state recognizes the cause of action pleaded by the collector. For example, California does not recognize the cause of action for unjust enrichment.545

Collection Actions: 4.9 Other Causes of Action

Depending on state law, collectors may have other causes of action available to them to collect on a debt. Collectors may opt for these other theories when they cannot prove their case using the more common causes of action or where they believe these other claims may offer the collector greater recoveries for attorney fees, interest, or other charges.

Collection Actions: 12.2.2.1 The Practice Described

Consumers are rightly concerned about their credit rating, and debt collectors often take advantage of this fear in their collection efforts. This concern becomes particularly salient when dealing with rental debt, either on a credit report or a tenant screening report. Rental debt appearing on a credit or tenant screening report can make it difficult for a consumer to find housing, particularly in a tight housing market. As a result, consumers may feel compelled to pay rental debt—even when there are valid defenses and no threat of a collection lawsuit—just to avoid being homeless.

Collection Actions: 12.2.2.2 Reviewing the Tenant Screening Report

The Fair Credit Reporting Act (FCRA) provisions that apply to CRAs are also applicable to tenant screening companies. When a rental application is denied with the use of a tenant screening report, the tenant should receive notice of an adverse action indicating the name and phone number of the tenant screening company, even though the notice need not indicate the reason for the denial of the housing application.

Collection Actions: 12.2.2.3 FDCPA Provisions Prohibiting “Debt Parking”—Regulation F

Until recently, collection agencies and debt buyers often did not bother to contact tenants about rental debt. Instead, they reported the debt to a CRA and waited until a tenant’s application for new housing, employment or credit was denied based on the delinquent rental debt. With the denial, the tenant receives an adverse action notice that includes the name and phone number of the tenant screening company that the landlord used while evaluating the application.

Collection Actions: 12.2.3 Challenging the Rental Debt Amount

In a surprisingly frequent practice, a landlord may seek back-rent that has already been fully or partially paid—such as where the landlord’s record-keeping is sloppy, a property manager pockets the tenant’s payment, or a government voucher or assistance money is not being properly accounted for. Never assume the landlord’s records of payment are accurate. Another defense occurs if the tenant’s nonpayment can be treated, under state law, as withholding rent for property defects.