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Make Debt Buyers Disclose Forward Flow Agreements

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Debt buyers, consumer advocates and courts are familiar with the issue of data integrity in debt buyer litigation. Debt buyers argue consumer liability even if the documentation to prove the ownership and amount of the debt is imperfect on account of consumers not showing up to defend themselves or generally admitting they owe the money anyway. Consumer advocates, conversely, complain about perjured affidavits, forged signatures and the wrong people being sued for the wrong amounts.

In the middle sit the judges of our courts system, who are tasked with processing the millions of debt buyer complaints filed each year, while preserving due process and the public’s faith in the rule of law.

In court, debt buyers often argue that credit card statements are inherently reliable.  Regardless of what one believes about the reliability of bank billing statements, this argument is problematic in the context of debt buyer litigation. Debt buyer cases have traditionally been based on accounts purchased "as is" for pennies on the dollar, with broad disclaimers of warranty of title, documentation, validity or accuracy.  While members of the industry have stated that there are no "as is" contracts any more, they have refused calls to produce these forward flow agreements. 

The broad disagreement between debt buyers and consumer advocates has led to both sides being unhappy with new legislation and changes to court rules in various states.  Debt buyers don’t like new requirements for more paperwork and more affidavits.  Advocates don’t like new statutes which they perceive as effectively creating an exception to the rules of evidence for debt buyers in some cases.

I propose a very simple solution which will put an end to more legislation, more rules, more lawsuits and more uncertainty for both sides: a requirement that the debt buyer make a copy of the operative forward flow agreement available to the court and to the defendant at the time of filing the lawsuit.

This requirement would benefit both sides of the dispute, because it would end the excessive wrangling over abstract arguments about the reliability of bank documents. Instead of abstract arguments, both sides would be able to scrutinize the representations and warranties given by the bank regarding the reliability, accuracy and level of documentation of the specific accounts in question. Further, both sides and the court would be able to scrutinize the warranties and buyback provisions about any ineligible accounts which may be sold as part of the portfolio. 

My primary concern is not the price paid (although as an advocate I find that you get what you pay for).  Rather, I am concerned about any and all red flags in the forward flow agreement, which would lead one to conclude the accounts being sold may have inadequate or unverified documentation, and, thus, are arguably quite the opposite of "inherently reliable."

My proposal requires no expensive or time-consuming studies, and it would not cost banks or debt buyers any money. Access can be via a website, such as the forward flow agreement referenced in an American Banker article, "Bank of America Sold Card Debts to Collectors Despite Faulty Records". It would also ensure well-founded, well-documented lawsuits move forward more quickly, because unfounded and undocumented ones would not be filed.

Both sides sometimes feel the other side is out of control. Advocates feel debt buyers file too many meritless collection lawsuits, while debt buyers feel advocates file too many meritless Fair Debt Collection Practices Act lawsuits.Shining the light on the terms and conditions of the forward flow agreements should help relieve our congested court dockets by preventing the filing of lawsuits against the wrong people in the wrong amount.

Peter A. Holland is director and clinical instructor at University of Maryland Law School Consumer Protection Clinic. He consults with lawyers around the country on consumer protection litigation and practice.

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