I recently attended Max Gardner's Debt Buyer Boot Camp. During the
boot camp, the panel briefly discussed the
Unifund CCR Partners v. Shah series of cases. These cases deal with a credit card debt that had been
sold by the originating lender. They are also Illinois cases, so they
are highly relevant for our clients.
Before I discuss the Shah line of cases, I'd like to provide some background
on the debt buying industry. When a credit card is issued, the original
lender is the bank that issued the card. In a perfect world, the credit
card account remains open and current. In that scenario, the lender keeps
the account on its books.
We don't live in a perfect world. People miss payments. Some people
completely default on their credit card payments. Others file bankruptcy
because their consumer debt has grown too large to manage. Some debts
simply grow too old to be enforceable. For all of these situations, an
original lender has three basic options: 1) hire a debt collector, 2)
collect its own debt, or 3) sell the debt to a debt buyer.
Most credit card companies don't take option 2. After a while, the
debt is either uncollectable (e.g. discharged in bankruptcy) or no longer
profitable to keep on the books. Debt collectors tend to want to be paid
a percentage of what they collect. If a debt has become uncollectable
(e.g. too old, bankruptcy discharge), then it generally will not go to
a debt collector.
In those situations, a debt buyer may purchase the debt. Credit card issuers
will sell bundles of debt for pennies on the dollar. Debt buyers purchase
this debt and either attempt to collect that debt or they assign the collection
rights to a debt collector. Sometimes, these debts are purchased and immediately
assigned to a new debt buyer and then to a collector via what are known
as "forward flow agreements." In most cases, the debt buyers
are purchasing data in a spreadsheet and receive very little (if any)
documentation related to the actual credit card accounts.
And that brings us back to the
Unifund CCR Partners v. Shah line of cases. The
Shah cases provide a glimpse inside the debt buying industry. Even if you are
an out-of-state practitioner, read
Shah II (2013 WL 3053972). The opinion provides some visual aids to help explain
the structure of the industry. The visual aids play havok with the page
layout (the two-column layout doesn't work well in this context),
but they are quite useful.
Shah I, addresses two main questions: 1) whether a collection agency can establish
standing to sue via multiple documents that incorporate each other and
2) whether a collection agency has standing to sue under Section 2-403
of the Illinois Code of Civil Procedure if it has been assigned an account
"for collection purposes only."
Section 2-403 outlines the pleading requirements for an action based on
a "non-negotiable chose in action." Credit card accounts fall
under this definition. Although the statute speaks to the "assignee
and owner" of the chose in action, the
Shah court held that, when read in conjunction with Section 8b of the Collection
Agency Act, a collection agency had standing to sue under Section 2-403.
Obviously, under this stautory schema, a debt buyer would have standing
to sue on its own behalf under Section 2-403.
In addressing the question of how a Plaintiff might establish its standing
via multiple documents, the
Shah court held that a Plaintiff collection agency could use multiple contracts
or assignments to establish its standing, so long as those documents incorporated
each other by reference. The court also held that affidavits were insufficient
to establish standing because they are not contracts or "instruments,"
but the subsitute for testimony at a court proceeding. Quite simply, the
nature of an affidavit is separate and distinct from that of a contract
Two years later,
Shah II was decided. In
Shah II, the court addressed whether a collection agency had to demonstrate a
complete chain of title from the credit card issuer to the collection
agency, or whether simply demonstrating how the collection agency obtained
title was sufficient to establish standing to sue.
Yes, that's a long question without a question mark at the end.
Shah, the Plaintiff was the fourth entity in the chain of title, not counting
the credit card issuer. Mr. Shah's debt went from Citibank to a debt
buyer. The debt was then sold to another debt buyer. That debt buyer assigned
the collection rights to a collection agency, which, in turn, assigned
its rights to yet another collection agency.
This chain of title creates multiple transactions with independent burdens
of proof. The debt buyers in the chain would only need to prove their
purchases via an affidavit that alleges the proper facts. I would also
argue that such an affidavit must be supported by the business records
reviewed by the affiant. I doubt that the
Shah court would disagree with me.
On the other hand, the collection agencies bear a higher burden of proof.
As noted above, affidavits are insufficient to prove their title to the
debt. Collection agencies must provide assignments that list the date
of the assignment and the amount of consideration paid for the assignment. In
Shah, the Plaintiff argued that it only had to provide the assignment to the
Plaintiff. The court disagreed. It noted that the purpose of the Collection
Agency Act was to protect consumers from repetitive litigation and debt
collection abuse. Therefore, it reasoned, the legislature would not impose
such strict requirements for proving one assignment in a chain of title,
but not subsequent assignments.
On the other hand, the
Shah court indicated that a credit card issuer to debt buyer transaction only
needed the proof required by Section 2-403. However, when a debt collector
is attempting to prove its standing, and there are both debt collectors
and debt buyers in the chain of title, then both Section 4-203 and Section
8b are triggered.
Shah court ruled that the Plaintiff lacked the standing to sue because it had
not complied with the requirements of the Collection Agency Act. The documents
that it presented did not properly list the account being collected. As
such, there was no proof that the Plaintiff had acquired the rights to
collect on the debt.
So what can we take away from the
First, it is important to know whether your Plainitff is a debt buyer or
a collection agency. The burden of proof is much higher for a collection
agency. Collection agencies must also be licensed in Illinois, which can
be another basis for fighting a credit card collections case. However,
don't assume that when a debt buyer is suing in its own name that
the game is over. Affidavits must be supported by facts pled from personal
knowledge. The employee of a debt buyer must review records to testify
to facts. Those records must be made available for review. If the records
do not support the affiant's assertions, then the affidavit is worthless.
As I've written on multiple occasions, credit card cases are often
undefended. I also see more people consenting to judgment in credit card
cases than in any other kind of case. Consumers must fight these cases.
If a debt buyer or collection agency cannot properly prove that a debt
is owed, then it should not receive a judgment. Ignoring a lawsuit or
consenting to judgment allows an industry that has slipshod quality control
to continue its practices.
The only person who will stand up for your rights is you.