New State Court Rules Require More Proof to Initiate Collection Lawsuits

Taking consumers who default on their debt to court in Delaware is about to become more time consuming and possibly more expensive.

The state Court of Common Pleas issued new directives in March for filing consumer debt collection lawsuits that state all debt collection agencies, original creditors, and debt buyers must abide by or risk having the case dismissed.

Beginning July 1, all claims to collect consumer debt or credit card debt must name the original creditor, the last four digits of the original account number, name of the current debt owner, and all previous owners (chain of title) if the case is not filed by the original creditor.  The court also mandated that the amount claimed as owed must be broken down by the principal due at the time of default, interest, fees and other charges.

As evidence, the court says it wants copies of the original contracts and a copy of documents to support plaintiffs’ claim that they now own the debt. But before any decision is made, the court says it wants proof the parties tried to reach an agreement.

The new directives are significantly more than a spreadsheet of names, account numbers, and summary of the debt owed that collection attorneys have relied on for years to sue consumers in court.

The Delaware court said it is issuing the new rules because “consumer debt collection actions filed in the state’s legal system continue to grow at an exponential rate, straining the courts and imposing an increased burden upon judicial resources.”  The court said it believes the new rules will help it better manage consumer debt collection litigation and be fair to all involved.

ACA International said the directives appear to impose some of the most onerous requirements on initiating a collection lawsuit.

“To our knowledge, this directive did not involve any discussions with the creditors bar in Delaware and we are communicating with the local unit as well as sister associations to learn more about the genesis,” said David Cherner, ACA’s corporate counsel and director of state government affairs.

Cherner said ACA also wants to discuss the ARM industry’s concerns regarding the directive and explain the unintended consequences the directive may pose for the courts.

Some industry experts say one consequence is that courts could be flooded in paperwork at a time when resources are low, further delaying resolutions. Consumers also will suffer because the additional cost of obtaining documents not readily available will be passed onto consumers through higher interest rates on consumer loans, according to David Winters, vice president the Mid-Atlantic Collectors Association.

Winters noted that some credit card accounts may have been opened 15 or 20 years, but only recently fell into default. He said that mergers or amendments to cardholder agreements also will complicate the documentation process.

“There are a lot of places along the way for something to have gone wrong (with the chain of assignment),” Winters said.

But one Delaware attorney understands the reasons for court’s new directive and said he believes the court didn’t have any other choice.

Tom Marconi, of Losco & Marconi, PA of Wilmington, Del., told insideARM that too often the court hears defendants say during proceedings that they don’t know the company suing them and that they don’t recognize the debt in question. Likewise, plaintiffs aren’t able to provide enough evidence to connect the dots for judges to say with certainty that the plaintiff must pay.

“What the court is saying (to plaintiff’s counsel and creditors), is if you can’t come here off the bat and resolve these potential issues, you’re wasting our time and everyone else’s time,” Marconi said.

Marconi, who used to work in the legal department of MBNA, the world’s largest independent credit card issuer before it was sold to Bank of America in 2006, said he believes that the directives could be good for the debt collection industry if the transaction process is set up to make documentation easily available.

“These cases will stream though without any worry about discovery issues and stuff coming up in trial,” Marconi said. “It may be difficult in some instances, but I think in the long run it will get more consistent results, much faster, and justice will be done.”