You may have heard of or even know someone who has had their wages garnished by a collection agency; and you may be wondering, “Can they even do this?” The answer is yes, but not without a brief request. Every year, collection agencies flood the courts with thousands of lawsuits filed against debtors. This situation is somewhat unfortunate for consumers for two reasons. One, delinquent accounts come to collection agencies because the original creditors have already given up hope of getting payments and have decided to drop them. Two, even though collection agencies have bought the accounts for a fraction of the cost, they are going after consumers for the full amount owed. Invariably, they win in court because uninformed consumers don’t try to fight the claim. They also do not know that collection agencies are improperly relying on Federal Rule of Evidence (FRE) 803(b)(6) to present evidence in support of their claim.

First, let’s clarify that there are different stages in the debt collection process. For example, when a consumer fails to make a payment, the original creditor may initially rely on their internal collections department or may hire an outside agency to collect payment on their behalf. In both cases, the original creditor still owes the bad debt. There comes a time, however, when the company will lose hope of getting more payments. You will then make a business decision to close the account and pay off the remaining debt balance. When a “charge-off” is recorded, the business can claim a tax loss on the unpaid balance and the customer will see a negative notation appear on their credit report, regardless of whether or not the debt is later discharged. Accounts that have been closed are sold to “debt buyers” for a fraction of their value. In fact, it is not uncommon for collection accounts to be bought and resold multiple times. One must realize that at that point, consumers no longer have any contractual obligation to the original creditor (who no longer owes the bad debt). However, now they are left to deal with collection agencies.

Of course, the “debt buyers” will go to great lengths to make the payments. If they believe that clients have funds, they can initiate legal proceedings to obtain a judgment and court order of wage garnishment. Keep in mind that agencies need proof that they properly served consumers. The proper service notifies consumers that a claim has been filed against them so they can defend it in court. Failure to pay adequate attention to consumers will result in a judgment that can later be vacated.

Many times, consumers ignore a legal complaint because they are afraid or do not have the means to hire an attorney. And so they take no action, hoping that the problem will go away. This is the worst approach consumers can take because the collection agencies will automatically win the lawsuit. Therefore, a response to a complaint should always be completed in a timely manner. As defendants in a lawsuit, consumers should not admit to any allegations made in the lawsuit, but instead should request proof of what is alleged, especially proof that the collection agency now owes the account. After all, consumers never entered into any contractual agreements with collection agencies. They often don’t know which companies bought their account, let alone the fact that their account was bought in the first place. Also, as mentioned above, accounts are often sold multiple times; and, on occasion, documentary evidence of the debt assignment may have been lost. This fact alone is sometimes enough for collection agencies to drop the claim.

If the case goes to court, consumers need not fear that the burden of answering incriminating questions will fall on them. In fact, in our legal system, the party bringing the lawsuit has to prove their case first. Essentially, collection agencies need to establish that they are now the party to whom customers owe the debt. So, in theory, they would have to provide evidence that the original creditor sold them the account or, if the account was bought and sold multiple times, evidence of the entire chain of debt assignments. Although business records are hearsay, they may be admitted into evidence, as an exception to the hearsay rule under FRE 803(b)(6), provided that a company-employed records custodian appears in court, identify the documents and testify. from them. Keep in mind, however, that a custodian of records can only testify from records generated by your place of employment, and not from those generated by another business entity. Is this important? Absolutely, because it means that the custodian of records who will be present in the courtroom cannot testify from documents that have been prepared by the original creditor or previous collection agencies. When the custodian is not allowed to present documents prepared by the original creditor as proof of assignment of the debt, they cannot prove that the collection agency owes the account.

Although the collections industry is well aware of the limitations of this rule, unfortunately consumers are not.