COLLECTION LITIGATION:

REPRESENTING THE
DEBTOR
DANIEL A. EDELMAN
Edelman, Combs, Latturner & Goodwin, LLC
Chicago
COPYRIGHT 2014 BY IICLE.

DANIEL A. EDELMAN is a Principal of Edelman, Combs,

Latturner & Goodwin, LLC. Since the end of 1985, he has been in
private practice in downtown Chicago. Virtually all of his practice
involves litigation on behalf of consumers, including individual and
class actions under the Fair Debt Collection Practices Act, Fair
Credit Reporting Act, Telephone Consumer Protection Act, Real
Estate Settlement Procedures Act, and Truth in Lending Act and debt
collection defense. Mr. Edelman argued for the consumer in Heintz
v. Jenkins, 514 U.S. 291, 131 L.Ed.2d 395, 115 S.Ct. 1489 (1995),
establishing FDCPA coverage of attorneys. Mr. Edelman is the
author or coauthor of numerous books and publications on class
actions and consumer protection law, including CONSUMER
CLASS ACTION MANUAL (NCLC, 2d 5th eds.) (coauthor) and
chapters in OHIO CONSUMER LAW and IICLEs ILLINOIS
MORTGAGE FORECLOSURE PRACTICE, REAL ESTATE
LITIGATION, and ILLINOIS CAUSES OF ACTION: ESTATE,
BUSINESS & NONPERSONAL INJURY ACTIONS, as well as
articles for the Loyola Consumer Law Reporter and the Chicago Bar
Association. He is also the author of the IICLE QuickGuide
PREDATORY MORTGAGE LENDING. He received his J.D. from
the University of Chicago Law School.
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unique experience with the transaction at hand.

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QG210E

I. Who Is Bringing the Case: Creditor or Debt Buyer?

A. [1.1] Introduction
B. [1.2] Abusive Debt Buyer Practices
1. [1.3] Re-Aging of Debts
2. [1.4] Negligently or Intentionally Attempting To Collect from the
Wrong Person
3. [1.5] Collection of Time-Barred Debts
4. [1.6] Abusive Litigation Practices
5. [1.7] Collection of Debts Not in Fact Owned by the Debt Buyer
C. [1.8] Who Has the Burden of Proof of Ownership of Assigned
Debt
II. Court Procedures, Deadlines, and Proper Plaintiff
A. [2.1] Procedures and Deadlines
B. [2.2] Proper Plaintiff
C. [2.3] Licensing of Debt Buyers
D. [2.4] Authorization To Do Business
E. [2.5] Securitization Issues
F. [2.6] Assignees for Collection as Plaintiffs

G. [2.7] Applicability of Hearsay Rule in Small Claims Proceedings

III. Defective Collection Pleadings
A. [3.1] Compliance with 735 ILCS 5/2-403
B. [3.2] Compliance with 735 ILCS 5/2-606
1. [3.3] Contract
2. [3.4] Assignment
C. [3.5] Compliance with Illinois Supreme Court Rule 282
D. [3.6] Cause of Action for Account Stated Requires Both the
Underlying Contract and a Statement of Account
E. [3.7] When Pleadings Should Be Challenged
IV. Right To Obtain Verification of Debt Under the Fair Debt
Collection Practices Act, the Uniform Commercial Code, and
Supreme Court Rule 222
A. [4.1] In General
B. [4.2] Fair Debt Collection Practices Act
C. [4.3] Article 9 of the Uniform Commercial Code
D. [4.4] Supreme Court Rule 222
V. Collection Plaintiffs and Debt Buyers: Proving That Anything
Is Due

A. [5.1] Affidavits, Testimony, and Records

B. [5.2] What Is an Assignment, and What Is Sufficient Proof of
One?
C. [5.3] Proof of Business Records of Original Creditor
D. [5.4] Proof of Contract Terms
E. [5.5] Facsimile Statements
F. [5.6] Secondary Evidence of Documents
G. [5.7] Illinois Law
H. [5.8] Disclaimers of Accuracy of Information Furnished to Debt
Buyers
I. [5.9] Consent Judgments and Administrative Actions Indicating
That Records Are Inaccurate
J. [5.10] Need To File Motion To Strike
VI. Substantive Defenses
A. [6.1] Is the Defendant the Correct Person?
B. [6.2] Is the Debt Unpaid?
C. [6.3] Disputes Regarding Goods or Services Paid for with Credit
Card; Unauthorized Charges
D. [6.4] Computation of Amount Due on Credit Card

E. [6.5] Is the Defendant Personally Liable on Credit Card?

F. [6.6] Issuance of an IRS Form 1099-C
G. [6.7] Statute of Frauds
H. [6.8] Statutes of Limitations
I. [6.9] Application of Statutes of Limitations
J. [6.10] Family Expense Statute
K. [6.11] Preemption of Family Expense Statute by Equal Credit
Opportunity Act
L. [6.12] Medical Services
M. [6.13] Nursing Home Contracts
N. [6.14] Retail Installment Contracts
VII. Fair Debt Collection Practices Act Issues
A. [7.1] In General
B. [7.2] Typical Collection Litigation Violations
VIII. [8.1] Telephone Consumer Protection Act Issues

I. WHO IS BRINGING THE CASE:

CREDITOR OR DEBT BUYER?
A. [1.1] Introduction
The question of whether one is dealing with a creditor or a debt
buyer is important because creditors can sometimes prove their case.
Debt buyers usually cannot.
Debt buying is a fast-growing business. By 2005, the amount of debt
sold by the original creditors had risen to $110 billion per year.
Eileen Ambrose, Zombie debt Debt can come back to haunt you
years later, Baltimore Sun, May 6, 2007, at 1C,
http://articles.baltimoresun.com/2007-0506/business/0705060084_1_zombie-debt-debt-buyers-consumerdebt.
Debts are typically purchased for a few cents on the dollar. In
January 2013, the Federal Trade Commission (FTC) published a
report, The Structure and Practices of the Debt Buying Industry
(Structure and Practices),
www.ftc.gov/sites/default/files/documents/public_events/life-debtdata-integrity-debt-collection/debtbuyingreport.pdf, based on
information obtained via compulsory process issued to the largest
debt buyers. The report found that the average price was four percent
of face value. Structure and Practices, p. ii. There are two earlier
FTC reports that also contain useful information: Collecting
Consumer Debts: The Challenges of Change: A Workshop Report
(Feb. 2009) (Collecting Consumer Debts),
www.ftc.gov/sites/default/files/documents/reports/collectingconsumer-debts-challenges-change-federal-trade-commission-

workshop-report/dcwr.pdf; and Repairing A Broken System:

Protecting Consumers in Debt Collection Litigation and
Arbitration (July 2010),
www.ftc.gov/sites/default/files/documents/reports/federal-tradecommission-bureau-consumer-protection-staff-report-repairingbroken-system-protecting/debtcollectionreport.pdf.
Several of the principal debt buyers are public companies, so
information about the scope of their activities and the amount they
pay for debts may be found in Securities and Exchange Commission
(SEC) filings, which are available on the SECs website,
www.sec.gov, under Filings. For example, public debt buyer
Portfolio Recovery Associates, Inc., disclosed in its annual report on
Form 10-K for the year ending December 31, 2011, that it held
1,063,000 accounts allegedly owed by Illinois residents. See
Portfolio Recovery Form 10-K, p. 10 (filed Feb. 28, 2012). The
company stated: From our 1996 inception through December 31,
2011, we acquired 2,335 portfolios, representing more than 28
million customer accounts and aggregated into 132 pools for
accounting purposes, with a face value of $64.6 billion for a total
purchase price of $2.1 billion [or about 3.1 cents on the dollar].
Portfolio Recovery Form 10-K, p. 6 (filed Feb. 28, 2012).
Another large debt buyer is public company Encore Capital Group,
Inc., which operates through subsidiaries Asset Acceptance,
Midland Credit, and Midland Funding. (It acquired Asset
Acceptance in June 2013.) According to its report on Form 10-Q for
the quarter ending September 30, 2013, during the nine months ended
September 30, 2013, Encore purchased receivable portfolios with a
face value of $83.9 billion for $1.1 billion, or a purchase cost of 1.3
percent of face value, including the Asset Acceptance portfolio.
Encore Capital Group Form 10-Q, p. 19 (filed Nov. 7, 2013). In its

annual report on Form 10-K for the year ending December 31, 2012,
Asset Acceptance claimed to own 752,000 accounts allegedly owed
by Illinois residents. Asset Acceptance Capital Form 10-K, p. 6
(filed Mar. 7, 2013).
Thus, these two debt buyers alone hold over 1.8 million debts
purportedly owed by Illinois residents. According to the United
States Census Bureaus website, www.census.gov, the adult
population of Illinois as of the 2010 census was only 9.7 million.
Generally, debt buyers have very little, if any, documentation of the
debts and may not be able to obtain it:
The Court is aware of how the market for the sale of debt
currently works, where large sums of defaulted debt are
purchased, by a small number of firms, for between .04 and .06
cents on the dollar . The entire industry is a game of odds, and
in the end as long as enough awards are confirmed to make up
for the initial sale and costs of operation the purchase is deemed
a successful business venture. However, during this process
mistakes are made, mistakes that may seriously impact
consumers and their credit. The petition at bar is a specimen
replete with such defects and the Court takes this opportunity to
analyze the filing in detail, in hopes to persuade creditors, not
simply to take more care in dotting their is and crossing their
ts in their filings, but to assure a minimum level of due process
to the respondents.
Why is this debt sold for such a cheap price? Certainly part of
the reason is the poor prospects of payment these creditors
expect from the defaulting individuals given their past delinquent

payment history, while another part is [undoubtedly] to avoid

additional costs associated with debt collection. Further yet, is
the simple fact that the proof required to obtain a judgment in
the creditors favor is lacking, usually as a result of poor record
keeping on the part of the creditor. MBNA America Bank, N.A. v.
Nelson, 15 Misc.3d 1148(A), 841 N.Y.S.2d 826, 2007 WL 1704618
at **1 2 (N.Y. City Civ. 2007) (text available in Westlaw).
The FTCs January 2013 Structure and Practices report found that
debt buyers generally obtained the amount of the debt, the name of
the original creditor, the original creditors account number, the
debtors social security number, the date of last payment, and the
date of charge-off. Structure and Practices, p. ii. Debt buyers
generally did not obtain an account history, details of what the
alleged balance consisted of, disputes or correspondence showing
whether the putative debtor had disputed any portion of the debt, or
documentation (account agreements, monthly statements,
applications, etc.). Structure and Practices, pp. ii iii. In addition,
debt buyers generally acquired debts on an as is basis: In
purchase and sale agreements obtained in the study, sellers generally
disclaimed all representations and warranties with regard to the
accuracy of the information they provided at the time of sale about
individual debts essentially selling debts, with some limited
exceptions, as is. Structure and Practices, p. iii.
The FTCs 2009 Collecting Consumer Debts report noted that [a]
leading association of debt buyers, DBA International (DBA),
acknowledged that it is common for a debt buyer to receive only a
computerized summary of the creditors business records when it
purchases a portfolio. Collecting Consumer Debts, p. 22.
The principal debt buyers operating in Illinois are listed below.

Several of these firms, denoted by an asterisk, are publicly traded

companies or subsidiaries of public companies.
Asta Funding/Palisades*
Atlantic Credit
Autovest (specializes in auto deficiencies)
Bureaus
CACV/CACH/Collect America/SquareTwo Financial* (has public
debt securities)
Cavalry
Crown Asset Management
eCast Settlement Corp.
Erin Capital Management
First Resolution
Harris & Harris
HBLC
Harvest Credit Management
Jefferson Capital Systems
JRSI
Midland/Encore (Midland Credit Management, Midland Funding,
etc.)*
National Credit Adjusters
NCO*
Oliphant Financial
Portfolio Recovery Associates, Inc. (PRA)*
Resurgence
RJM Acquisitions
Sherman Financial Group (does business as LVNV Funding, PYOD,
Resurgent Capital Services)
Unifund
Velocity Investments, LLC/Velocity Portfolio Group, Inc.
World Credit Fund

Worldwide Asset Purchasing

Some of these firms do their own debt collection, some use thirdparty debt collectors, and some do both.

B. [1.2] Abusive Debt Buyer Practices

There are numerous documented instances of debt buyer abuses.
Many enforcement actions have been filed against debt buyers by the
FTC, the Consumer Financial Protection Bureau (CFPB), and state
Attorneys General. Among the practices involved are those
discussed in 1.3 1.7 below.
1. [1.3] Re-Aging of Debts
In 2004, the FTC recovered a $1.5 million civil penalty from debt
buyer NCO for misrepresenting the age of debts to credit bureaus so
they would stay on consumers credit reports for more than the 7.5
years permitted under the Fair Credit Reporting Act (FCRA), 15
U.S.C. 1681, et seq. The FTC explained:
According to the FTCs complaint, defendants NCO Group, Inc.;
NCO Financial Systems, Inc.; and NCO Portfolio Management,
Inc. violated Section 623(a)(5) of the FCRA, which specifies that
any entity that reports information to credit bureaus about a
delinquent consumer account that has been placed for collection
or written off must report the actual month and year the account
first became delinquent. In turn, this date is used by the credit
bureaus to measure the maximum seven-year reporting period
the FCRA mandates. The provision helps ensure that outdated
debts debts that are beyond this seven-year reporting period
do not appear on a consumers credit report. Violations of this

provision of the FCRA are subject to civil penalties of $2,500 per

violation.
The FTC charges that NCO reported accounts using later-thanactual delinquency dates. Reporting later-than-actual dates may
cause negative information to remain in a consumers credit file
beyond the seven-year reporting period permitted by the FCRA
for most information. When this occurs, consumers credit scores
may be lowered, possibly resulting in their rejection for credit or
their having to pay a higher interest rate.
The proposed consent decree orders the defendants to pay civil
penalties of $1.5 million and permanently bars them from
reporting later-than-actual delinquency dates to credit bureaus
in the future. Additionally, NCO is required to implement a
program to monitor all complaints received to ensure that
reporting errors are corrected quickly. The consent agreement
also contains standard recordkeeping and other requirements to
assist the FTC in monitoring the defendants compliance. News
Release, FTC, NCO Group to Pay Largest FCRA Civil Penalty to
Date (May 13, 2004), www.ftc.gov/news-events/pressreleases/2004/05/nco-group-pay-largest-fcra-civil-penalty-date.
2. [1.4] Negligently or Intentionally Attempting To Collect from
the Wrong Person
The very limited information that debt buyers obtain about the
alleged debtors makes it easy for them to seek payment from the
wrong person when engaging in skip tracing, particularly when
dealing with persons with common or similar names.

Sometimes the attempts to collect from the wrong person are not an
error. In 2004, the FTC shut down a debt buyer called CAMCO,
which was headquartered in Illinois. The following is from a press
release issued by the FTC in connection with that case:
In papers filed with the court, the agency charged that as much
as 80 percent of the money CAMCO collects comes from
consumers who never owed the original debt in the first place.
Many consumers pay the money to get CAMCO to stop
threatening and harassing them, their families, their friends, and
their co-workers.
According to the FTC, CAMCO buys old debt lists that
frequently contain no documentation about the original debt and
in many cases no Social Security Number for the original debtor.
CAMCO makes efforts to find people with the same name in the
same geographic area and tries to collect the debt from them
whether or not they are the actual debtor. In papers filed with
the court, the FTC alleges that CAMCO agents told consumers
even consumers who never owed the money that they were
legally obligated to pay. They told consumers that if they did not
pay, CAMCO could have them arrested and jailed, seize their
property, garnish their wages, and ruin their credit. All of those
threats were false, according to the FTC. News Release, FTC,
FTC Asks Court to Halt Illegal CAMCO Operation (Dec. 8, 2004),
www.ftc.gov/news-events/press-releases/2004/12/ftc-asks-courthalt-illegal-camco-operation.
See also Sonja Ryst, Debt tagging by collection agencies a
growing problem, Washington Post, Aug. 8, 2010, at G01
(Sometimes [debt collectors] go after people with the same names

as those who owe money. They might also relentlessly call wrong
phone numbers, hoping to pry information out of whoever answers.
Some finagle enough identifying information to make people seem
liable for debts they never owed.).
3. [1.5] Collection of Time-Barred Debts

The FTC has determined that [m]ost consumers do not know their
legal rights with respect to collection of old debts past the statute of
limitations . When a collector tells a consumer that she owes
money and demands payment, it may create the misleading
impression that the collector can sue the consumer in court to collect
that debt. News Release, FTC, Under FTC Settlement, Debt Buyer
Agrees to Pay $2.5 Million for Alleged Consumer Deception (Jan.
30, 2012), www.ftc.gov/news-events/press-releases/2012/01/underftc-settlement-debt-buyer-agrees-pay-25-million-alleged. In early
2012, the FTC entered into a consent decree with Asset Acceptance,
one of the largest debt buyers in the United States, requiring that it
disclose to consumers when it is attempting to collect debts that are
barred by the statute of limitations. United States v. Asset
Acceptance, LLC, Case No. 8:12-cv-00182-T-27EAJ (M.D.Fla.
filed Jan. 30, 2012),
www.ftc.gov/sites/default/files/documents/cases/2012/01/120131asse
On October 1, 2012, the Consumer Financial Protection Bureau,
which has taken over much of the FTCs enforcement responsibility
and has been granted rulemaking authority with respect to debt
collection, the Federal Deposit Insurance Corporation, the Federal
Reserve Board, and the Office of the Comptroller of the Currency
entered into consent orders with three American Express-related
entities requiring disclosure when debts they are attempting to
collect are time barred. In re American Express Centurion Bank,

Salt Lake City, Utah, File No. 2012-CFPB-0002 (CFPB filed Oct.
1, 2012),
http://files.consumerfinance.gov/f/201210_cfpb_001_Amex_Consent_
(case sensitive); In re American Express Bank, FSB, Salt Lake City,
Utah, File No. 2012-CFPB-0003 (CFPB filed Oct. 1, 2012),
http://files.consumerfinance.gov/f/2012-CFPB-0003-AmericanExpress-Bank-FSB-Consent-Order.pdf (case sensitive); In re
American Express Travel Related Services Co., File No. 2012CFPB-0004 (Sept. 27, 2012),
http://files.consumerfinance.gov/f/2012-CFPB-0004-AmericanExpress-Travel-Related-Services-Company-Inc.-Stipulation-with-esignatures.pdf (case sensitive). The orders require that [t]he Bank
shall continue to provide disclosures concerning the expiration of the
Banks litigation rights when collecting debt that is barred by the
applicable state statutes of limitations. American Express
Centurion Bank, File No. 2012-CFPB-0002, p. 6; American
Express Bank, FSB, File No. 2012-CFPB-0003, p. 5.
4. [1.6] Abusive Litigation Practices
Debt buyers typically file large volumes of cases, try to get default
judgments or settlements from as many consumers as possible, and
abandon the cases against the few consumers who resist. They rarely
have documents and information to prove anything about the debts,
including their ownership of them. Sometimes, misrepresentation is
used to create the appearance that evidence exists when it does not.
5. [1.7] Collection of Debts Not in Fact Owned by the Debt
Buyer
The possibility that a debt buyer is suing on a debt it does not own is
very real. A consumer cannot know, and should not assume, that a

debt buyer actually owns the debt or that a debt collector is

authorized to act by the true owner of the debt. There are many
instances in which a consumer pays the debt only to receive a call
two months later from another debt collector about the same debt.
A New York court with a high volume of collection cases noted:
[O]n a regular basis this court encounters defendants being sued
on the same debt by more than one creditor alleging it is the
assignee of the original credit card obligation. Often these
consumers have already entered into stipulations to pay off the
outstanding balance due the credit card issuer and find
themselves filing an order to show cause to vacate a default
judgment from an unknown debt purchaser for the same
obligation. Chase Bank USA, N.A. v. Cardello, 27 Misc.3d 791, 896
N.Y.S.2d 856, 857 (N.Y. City Civ. 2010).
An article that appeared in the trade press shortly before the 2007
extension of the Collection Agency Act (CAA), 225 ILCS 425/1, et
seq., to debt buyers stated:
More collection agencies are turning to the debt resale market
as a place to pick up accounts to collect on. Too small to buy
portfolios directly from major credit issuers, they look to the
secondary market where portfolios are resold in smaller chunks
that they can handle.
But what they sometimes find in the secondary market are
horror stories: The same portfolio is sold to multiple buyers; the
seller doesnt actually own the portfolio put up for sale; half the
accounts are out of statute; accounts are rife with erroneous

information; access to documentation is limited or nonexistent.

Corinna C. Petry, Do Your Homework; Dangers often lay hidden in
secondary market debt portfolio offerings. Here are lessons from
the market pros that novices can use to avoid nasty surprises.,
Collections & Credit Risk, Mar. 1, 2007, at 24.
In 2009, a debt buyer was convicted of a scheme to sell 86,000
accounts that he did not own. He had actually sold over 10,000 at the
time he was caught. United States v. Goldberg, No. 9:09-cr-80030KAM-1 (S.D.Fla. judgment entered Nov. 13, 2009). One of the
purchasers filed a lawsuit complaining that it had purchased 6,521 of
the accounts. RMB Holdings, LLC v. Goldberg & Associates, LLC,
No. 3:2007cv00406 (E.D.Tenn. Oct. 30, 2007). On May 29, 2008, a
decision was issued in favor of the plaintiff in that case. RMB
Holdings, LLC v. Goldberg & Associates, LLC, No. 3:07-CV-406
(E.D.Tenn. May 29, 2008). The court found that RMB began making
attempts to collect the accounts it purchased from Goldberg even
though Goldberg never delivered title or ownership of the accounts
to RMB. Id. See also Old National Bank v. Goldberg &
Associates, LLC, No. 08-80078-CIV, 2008 WL 4104465 (S.D.Fla.
Sept. 4, 2008).
Other debt buyers have voiced similar complaints about defective
title to debts. Florida Broker Faces Multiple Lawsuits, Collections
& Credit Risk, Apr. 1, 2008, at 8.
Reported decisions indicate that debt buyers commonly obtain
information about accounts that they do not in fact purchase or that
are purchased but then returned to the seller. Chase Bank USA, N.A.
v. Unifund Portfolio A LLC, No. 09 Civ. 9795, 2010 WL 3565169
(S.D.N.Y. Sept. 13, 2010) (information about non-purchased
accounts was to be destroyed). A debt buyers possession of

information about a given debtor, without testimony or evidence that

it actually purchased the specific account, is thus not proof that it
owns the account.
There are many reported cases in which debtors have been subjected
to litigation because they settled with A and then claimed to own the
debt. Smith v. Mallick, 514 F.3d 48 (D.C.Cir. 2008) (when
commercial debt was purchased and resold by debt buyer and debt
buyer (possibly fraudulently) settled debt it no longer owned,
settlement held binding because notice of assignment not given, but
obligor subjected to litigation as result). See also Miller v. Wolpoff
& Abramson, LLP, No. 1:06-CV-207-TS, 2008 WL 474202
(N.D.Ind. Feb. 19, 2008), in which a debtor complained that he had
been sued twice on the same debt; Dornhecker v. Ameritech Corp.,
99 F.Supp.2d 918, 923 (N.D.Ill. 2000), in which the debtor claimed
that he settled with one agency and was then dunned by a second for
the same debt; Northwest Diversified, Inc. v. Desai, 353 Ill.App.3d
378, 818 N.E.2d 753, 288 Ill.Dec. 818 (1st Dist. 2004), in which a
commercial debtor paid the creditor only to be subjected to a levy by
a purported debt buyer; and Yarney v. Ocwen Loan Servicing, LLC,
929 F.Supp.2d 569 (W.D.Va. 2013), involving an alleged attempt to
collect a debt that had been settled.
In Wood v. M & J Recovery LLC, No. CV 05-5564, 2007 WL
1026372 (E.D.N.Y. Apr. 2, 2007), a debtor complained of multiple
collection efforts by various debt buyers and collectors on the same
debt, and the defendants asserted claims against one another
disputing the ownership of the portfolio involved. Shekinah alleged
that it sold a portfolio to NLRS, that NLRS was unable to pay, that
the sale agreement was modified so that NLRS would obtain only
one fifth of the portfolio, and that the one fifth did not include the
plaintiffs debt. Portfolio Partners claimed that it, and not Shekinah,

was the rightful owner of the portfolio.

In Associates Financial Services Co. v. Bowman, Heintz, Boscia &
Vician PC, No. IP99-1725-C-M/S, 2001 WL 619381 (S.D.Ind. Apr.
25, 2001), later op., 2004 WL 826088 (S.D.Ind. Mar. 31, 2004),
allegations were made that a creditor had continued to collect
accounts allegedly sold to a debt buyer.
In Capital Credit & Collection Service, Inc. v. Armani, 227
Or.App. 574, 206 P.3d 1114 (2009), a debt collector was found to
have settled a debt and then instituted litigation on it. In David J.
Gold, P.C. v. H&K Investigations, Inc., No. 604026/2006, 2010 NY
Slip Op 30538(U) (N.Y.Sup. Mar. 8, 2010), one debt collector sued
another, claiming that it had, without authority, assigned its account
to a second debt collector that had misidentified the judgment
creditor and inflated the judgment amount.
In Overcash v. United Abstract Group, Inc., 549 F.Supp.2d 193,
195 (N.D.N.Y. 2008), a debtor claimed that he had paid a collection
agency, after which his debt was resold and another agency
demanded an additional $40,000 from the debtor.
In Chiverton v. Federal Financial Group, Inc., 399 F.Supp.2d 96,
99 (D.Conn. 2005), a debtor paid one collection agency but another
later claimed it bought the debt and attempted to coerce payment.
In McCammon v. Bibler, Newman & Reynolds, P.A., 493 F.Supp.2d
1166 (D.Kan. 2007), a collection agency obtained judgment against a
consumer knowing that the consumer had paid the original creditor.
The author has encountered several cases in which debts were paid
to or settled with one entity, after which another tried to collect the

entire debt or the remaining portion.

Clearly, a consumer cannot know, and should not assume, that a debt
buyer actually owns the debt or that a debt collector is authorized to
act by the true owner of the debt. As noted above, there are many
instances in which a consumer pays the debt only to later receive a
call from another debt collector about the same debt. A consumer has
the right to receive proof that the debt collector owns the debt. Even
if the consumer recognizes the debt and believes he or she owes it,
the consumer should request, at a minimum, some proof of
ownership.

C. [1.8] Who Has the Burden of Proof of Ownership

of Assigned Debt
The issue of who has the burden of alleging and proving standing to
sue, in the sense of ownership or other right to collect a debt, is
surprisingly convoluted.
Early cases held, logically enough, that one claiming a right to sue as
an assignee must allege and prove the assignment. McFarland v.
Dey, 69 Ill. 419, 422 (1873) (We are unable to perceive how the
complainant has any interest in this property, save that which he has
as assignee of the debt. That interest being denied, it was incumbent
on him to prove it.). Accord Board of Managers of Medinah on
Lake Homeowners Assn v. Bank of Ravenswood, 295 Ill.App.3d
131, 692 N.E.2d 402, 405, 229 Ill.Dec. 629 (3d Dist. 1998) (Once
established, an assignment places the assignee into the shoes of the
assignor.). This is consistent with common sense and normal
pleading rules, under which the plaintiff must prove all material
allegations of the complaint. Bell v. School Dist. No. 84, 407 Ill.
406, 95 N.E.2d 496, 501 (1950) (It is incumbent upon a plaintiff on

the trial of the cause to prove all the material allegations contained
in his complaint by a preponderance of the evidence.); Casanas v.
Nelson, 140 Ill.App.3d 341, 489 N.E.2d 358, 361, 95 Ill.Dec. 137
(2d Dist. 1986) (A plaintiff must prove at trial all the material
allegations contained in his complaint.).
More recent Illinois cases state that standing is an affirmative
defense and the defendant has the burden of showing its absence. In
Razor Capital v. Antaal, 2012 IL App (2d) 110904, 1, 972 N.E.2d
1238, 362 Ill.Dec. 205, Razor Capital, final transferee of an
alleged credit card debt, sued to collect it. The appellate court held
that standing is an affirmative defense that must be affirmatively
raised in a non-small claims case. 2012 IL App (2d) 110904 at 23.
However, it also held that 2-606 of the Code of Civil Procedure,
735 ILCS 5/1-101, et seq., requires a plaintiff to attach chain-of-title
documents to its complaint. 2012 IL App (2d) 110904 at 24, citing
Candice Co. v. Ricketts, 281 Ill.App.3d 359, 666 N.E.2d 722, 217
Ill.Dec. 53 (1st Dist. 1996).
In Deutsche Bank National Trust Co. v. Gilbert, 2012 IL App (2d)
120164, 16 17, 982 N.E.2d 815, 367 Ill.Dec. 665, a foreclosure
action, the court held that even if Gilbert bore the burden of
showing that Deutsche Bank lacked standing, he met that burden
when he raised the affirmative defense of lack of standing both in
his answer and in his motion for summary judgment and pointed out
that the note and the mortgage attached to the complaint
identif[ied] the mortgagee as MERS not Deutsche Bank and that
the [a]ssignment attached to the amended complaint was dated
August 25, 2008, which was several months after the foreclosure
action was filed. The court held that this evidence met Gilberts
burden to show that Deutsche Bank lacked standing when the suit
was filed, because the note and the mortgage identified the lender as

WMC Mortgage and the holder of the mortgage as MERS. Deutsche

Banks name does not appear on either of these documents . As
Gilbert made out a prima facie showing that Deutsche Bank lacked
standing, the burden shifted to Deutsche Bank to refute this evidence
or demonstrate a question of fact. 2012 IL App (2d) 120164 at 17.
Under Gilbert, it would be sufficient to simply point out that the
original obligee of the claimed debt is someone other than the
plaintiff and no assignment or similar transfer has been provided.
Gilbert was followed in a federal case, Dawkins v. Deutsche Bank
National Trust Co., No. 13 C 5464, 2013 WL 5164570 (N.D.Ill.
Sept. 12, 2013). However, a First District decision disagrees with
the Gilbert burden-shifting analysis. In Rosestone Investments, LLC
v. Garner, 2013 IL App (1st) 123422, 28, 2 N.E.3d 532, ___
Ill.Dec. ___, the court stated:
In reaching this conclusion, we acknowledge that the Second
Districts decision in Gilbert, 2012 IL App (2d) 120164, 367
Ill.Dec. 665, 982 N.E.2d 815, could be construed as reaching a
different result. We believe the Gilbert court misplaced the
burden of proof. Specifically, the court held that, after the
defendant in that case had made a prima facie showing that the
plaintiff lacked standing, the burden shifted to plaintiff, who
failed to rebut the defendants evidence. See Gilbert, 2012 IL
App (2d) 120164, 17, 367 Ill.Dec. 665, 982 N.E.2d 815. To
support this burden-shifting scheme, the Gilbert court cited
Triple R Development, LLC v. Golfview Apartments I, L.P., 2012
IL App (4th) 100956, 12, 358 Ill.Dec. 381, 965 N.E.2d 452.
However, that case concerned neither standing nor foreclosure
proceedings. See Triple R Development, 2012 IL App (4th)
100956, 358 Ill.Dec. 381, 965 N.E.2d 452. Rather, it addressed

the return of a deposit and the burden of persuasion on a motion

for summary judgment. See Triple R Development, 2012 IL App
(4th) 100956, 1, 358 Ill.Dec. 381, 965 N.E.2d 452. Contrary to
the Gilbert courts application, and as we have just discussed,
our supreme court has repeatedly held that lack of standing is an
affirmative defense, which defendant alone has the burden to
plead and prove. See [Lebron v. Gottlieb Memorial Hospital, 237
Ill.2d 217, 930 N.E.2d 895, 916, 341 Ill.Dec. 381 (2010); Wexler v.
Wirtz Corp., 211 Ill.2d 18, 809 N.E.2d 1240, 1243, 284 Ill.Dec. 294
(2004); Chicago Teachers Union, Local 1 v. Board of Education of
City of Chicago, 189 Ill.2d 200, 724 N.E.2d 914, 918, 244 Ill.Dec.
26 (2000)]; see also [Mortgage Electronic Registration Systems,
Inc. v. Barnes, 406 Ill.App.3d 1, 940 N.E.2d 118, 123 124, 346
Ill.Dec. 118 (1st Dist. 2010)] (defendant has burden in foreclosure
case to plead and prove lack of standing as an affirmative
defense). It is unclear what result the Gilbert court would have
reached had it required defendant, rather than plaintiff, to bear
the ultimate burden. Indeed, neither party in that case
established precisely when the plaintiff gained an interest in the
property. See Gilbert, 2012 IL App (2d) 120164, 20, 367 Ill.Dec.
665, 982 N.E.2d 815. Regardless, we choose not to adopt the
approach devised by the Second District. [Emphasis in original.]
However, the court also noted that [g]iven the complaint, mortgage
assignment, affidavit, and note in this case, there is no question that
plaintiff has a real interest in the outcome of this controversy. Thus,
we reject defendants standing claim. 2012 IL App (2d) 120164 at
27. In fact, most cases purporting to place the burden of pleading
and proof of lack of standing on the defendant involve situations in
which the plaintiff has prima facie proof of entitlement to sue, such
as a note.

Because of the language in the decisions, the consumer needs to

inquire into the chain of title through all available means, including
discovery when available, motions attacking the failure to allege or
attaching documents showing an assignment, and requesting proof of
assignment under 9-406 of the Uniform Commercial Code (UCC),
810 ILCS 5/1-101, et seq., discussed in 4.3 below.

II. COURT PROCEDURES, DEADLINES,

AND PROPER PLAINTIFF
A. [2.1] Procedures and Deadlines
It is essential to strictly comply with all deadlines. In Cook County
First Municipal District cases, for example, an appearance needs to
be filed by 9:30 a.m. on the return date, at which time a status date is
assigned. Because of delays in the clerks office, it is best to file the
appearance as far in advance of the return date as possible.
(Sometimes, cases will be placed on the default call if the
appearance is filed on or shortly before the return date.) If the case is
not a small claim ($10,000 or less), an answer does not have to be
filed. At the status date, a trial date is assigned.
Counsel in other courts should call and find out exactly what is to
take place on each date.

B. [2.2] Proper Plaintiff

Is the plaintiff the original creditor? A collection agency (defined
to include a debt buyer, effective Jan. 1, 2008)? If it is a collection
agency, is it licensed as such? If it is suing as an assignee for
collection, does it have an assignment in the form required by 8b of

the Collection Agency Act, 225 ILCS 425/8b?

C. [2.3] Licensing of Debt Buyers

The Collection Agency Act was amended to include debt buyers as
collection agencies by P.A. 95-437 (eff. Jan. 1, 2008). See 225
ILCS 425/2. This made applicable the licensing requirements of 4
of the Act. The amendment also enacted some provisions tracking the
identity theft provisions of the Fair Debt Collection Practices Act
(FDCPA), 15 U.S.C. 1692, et seq., and the Fair Credit Reporting
Act. See 15 U.S.C. 1692c, 1692g, 1681c-1, 1681c-2. In addition,
punitive damages are available under the CAA but not under the
FDCPA. Sherman v. Field Clinic, 74 Ill.App.3d 21, 392 N.E.2d
154, 29 Ill.Dec. 597 (1st Dist. 1979).
225 ILCS 425/3, as amended effective January 1, 2008, brings debt
buyers within its purview by providing that [a] person, association,
partnership, corporation, or other legal entity acts as a collection
agency when he or it [b]uys accounts, bills or other indebtedness
and engages in collecting the same. Previously, coverage was
limited to a person who [b]uys accounts, bills or other indebtedness
with recourse and engages in collecting the same. Former 225 ILCS
425/3 (2007). By deleting with recourse, the legislature intended
to classify as a collection agency persons who buy charged-off
debts for their own account.
In addition, the amendments effective January 1, 2008, repealed the
definition of collection agency contained in former 2.02 and
provided a more expansive set of definitions that, among other
things, now define a collection agency as any person who, in the
ordinary course of business, regularly, on behalf of himself or
herself or others, engages in debt collection. [Emphasis added.]

225 ILCS 425/2. Thus, one who purchases delinquent debt for
himself or herself and engages in any acts defined as debt
collection is covered.
A suit by a collection agency that is required to have a license, but
that does not have one, is subject to dismissal. LVNV Funding, LLC
v. Trice, 2011 IL App (1st) 092773, 952 N.E.2d 1232, 352 Ill.Dec.
6. This represents an application of the principle that courts will
not aid a plaintiff who bases his cause of action on an illegal act.
Chatham Foot Specialists, P.C. v. Health Care Service Corp., 216
Ill.2d 366, 837 N.E.2d 48, 57, 297 Ill.Dec. 268 (2005), quoting King
v. First Capital Financial Services Corp., 215 Ill.2d 1, 828 N.E.2d
1155, 1174, 293 Ill.Dec. 657 (2005). When a license is required to
engage in a business or profession for the protection of the public,
one engaging in the business or profession without the required
license is barred from maintaining a lawsuit. On numerous
occasions, Illinois courts have held that where a licensing
requirement has been enacted not to generate revenue, but rather to
safeguard the public by assuring them of adequately trained
practitioners, the unlicensed party may not recover fees for services
or otherwise enforce a contract. Chatham, supra, 837 N.E.2d at 57.
The licensing requirements of the CAA were imposed to protect the
public. In addition to the declaration in 14a, the public policy
represented by the Act is stated in 1a:
1a. Declaration of public policy. The practice as a collection
agency by any entity in the State of Illinois is hereby declared to
affect the public health, safety and welfare and to be subject to
regulation and control in the public interest. It is further declared
to be a matter of public interest and concern that the collection
agency profession merit and receive the confidence of the public

and that only qualified entities be permitted to practice as a

collection agency in the State of Illinois. This Act shall be
liberally construed to carry out these objects and purposes.
It is further declared to be the public policy of this State to
protect consumers against debt collection abuse. 225 ILCS
425/1a.
An unlicensed collection agency has no right to invoke the assistance
of a court to engage in unlawful business activities, declared by the
General Assembly to constitute a crime (225 ILCS 425/14, 425/14b)
and to be inimical to the public welfare, to constitute a public
nuisance, and to cause irreparable harm to the public welfare (225
ILCS 425/14a).
Some doubt has been created by a couple of federal decisions that
suggest that passive debt buyers who had suits filed on their behalf
by attorneys were not covered prior to further amendments to the
CAA that took effect January 1, 2013. The 2013 amendments (1)
added definitions of charge-off balance, charge-off date,
current balance, and debt buyer to 225 ILCS 425/2; (2) added
225 ILCS 225/8.5, providing that [a] debt buyer shall be subject to
all of the terms, conditions, and requirements of this Act, except as
otherwise provided for in subsection (b) of Section 8.6 of this Act;
(3) added 225 ILCS 425/8.6(a), which requires filing within the
statute of limitations; and (4) added 225 ILCS 425/8.6(b), which
provides that
[w]ith respect to its activities as a debt buyer in pursuing the
collection of accounts it owns, a debt buyer shall be subject to all
of the terms, conditions, and requirements of this Act, except
that a debt buyer shall not be required to (i) file and maintain in

force a surety bond under Section 8 of this Act; (ii) maintain a

trust account under Section 8c of this Act; (iii) procure written
authorization to refer the account to an attorney for suit under
Section 8a-1 of this Act; or (iv) adhere to the assignment for
collection criteria under Section 8b of this Act.
In Galvan v. NCO Financial Systems, Inc., No. 11 C 3918, 2013
WL 1628190 at *7 (N.D.Ill. Apr. 15, 2013), the court opined that the
Illinois Supreme Court would not follow Trice, supra, and would
instead hold that prior to January 1, 2013, litigation by a debt buyer
that did not engage in calling or dunning debtors would not be
sufficient to create a licensing obligation or issue: [T]he Court
concludes that the pre-2013 [CAA] did not consider a company that
simply filed collection lawsuits on debts that it owned to be a
collection agency subject to the Acts registration requirement.
Galvan was followed in McLaughlin v. LVNV Funding, LLC, No.
13 cv 1387, 2013 WL 4782173 at *3 (N.D.Ill. Sept. 6, 2013). An
appeal is pending in Galvan. See Galvan v. NCO Portfolio
Management, Inc., No. 13-2264 (7th Cir. filed June 11, 2013).
McLaughlin was settled, and there will be no further proceedings.
See also Leeb v. Pendrick Capital Partners, LLC, 891 F.Supp.2d
1002, 1004 (N.D.Ill. 2012).
In addition, on remand to the circuit court in Trice, supra, the court
issued an opinion that imposing criminal liability for licensing
violations was unconstitutional. This ruling has little support in the
law and is also on appeal. See LVNV, LLC v. Trice, No. 116128.

D. [2.4] Authorization To Do Business

Must an out-of-state debt collector register to do business under the
Illinois corporation statutes before filing suit? Compare Berg v.

Blatt, Hasenmiller, Leibsker & Moore LLC, No. 07 C 4887, 2009

WL 901011 (N.D.Ill. Mar. 31, 2009), with Guevara v. Midland
Funding NCC-2 Corp., No. 07 C 5858, 2008 WL 4865550 (N.D.Ill.
June 20, 2008). Note that courts are much more willing to find
door-closing statutes inapplicable than statutes requiring
registration or licensing as part of a regulatory scheme. Silver v.
Woolf, 694 F.2d 8 (2d Cir. 1982). Door-closing statutes that require
only foreign entities to register with the Secretary of State and pay
franchise taxes are considered to be a naked restriction on interstate
firms that have no regulatory objective. 694 F.2d at 11. Note also
that there is at least an implied interstate commerce exception to
avoid Commerce Clause issues. St. Louis Hills Urological
Associates, Inc. v. Nicoletti, 153 Ill.App.3d 1044, 506 N.E.2d 602,
106 Ill.Dec. 802 (5th Dist. 1987).

E. [2.5] Securitization Issues

Credit card and automobile finance receivables are securitized, just
like mortgages. Securitization involves transferring all or part of the
accounts to third parties or trustees for the purpose of facilitating
investment, with servicing retained by the originator or transferred
to a different party. For example, Capital One Bank transfers a large
proportion of its credit card receivables to Capital One Funding,
LLC, which places them into the Capital One Multi-Asset Execution
Trust. The Capital One Multi-Asset Execution Trust issues securities
to investors. The securities pay amounts based on the income from
the receivables. Capital One Bank retains servicing of the accounts.
See Bank of New York v. First Millennium, Inc., 607 F.3d 905 (2d
Cir. 2010), and Bank of New York v. Federal Deposit Insurance
Corp., 508 F.3d 1 (D.C.Cir. 2007), for a description of a
securitization. In Federal Deposit Insurance Corp., the court stated:

Some credit card banks securitize their credit card

receivables . NextBanks securitization was typical: it sold a
portion of its credit card receivables to a special purpose entity,
the Master Trust. The trust paid NextBank by selling securities
backed by the cash flows from the receivables. There were four
classes of securities or Notes, which varied by degree of risk.
NextBank serviced the credit cards and deposited cardholders
payments into a series of accounts (collectively the Collection
Account). It also retained about a 9 percent sellers interest in
the receivables . The Bank of New York, as indenture trustee,
maintained the Collection Account and made distributions to
noteholders based on formulas corresponding to specific classes
of Notes.
Securitization offered NextBank several benefits. First,
NextBank received cash immediately rather than waiting for the
credit card holders to pay off their debts. Second, because
NextBank sold the receivables, accounting rules permitted it
to remove them from its balance sheet, thereby freeing up
capital. Third, NextBank obtained cheaper funding because the
trusts separate legal status isolated the noteholders from
NextBanks underlying business risk. Faced only with the risk
inherent in the receivables, investors accepted lower interest
payments.
The securitization transaction consisted of four main documents.
The Trust Agreement created the Master Trust and set forth its
powers. Although the trust was a legally separate entity, it was
wholly owned and operated by NextBank. The Administration
Agreement obligated NextBank to perform duties of the trust as

specified under the other documents. The Transfer and Servicing

Agreement provided for the conveyance of receivables to the
trust and for servicing of the receivables by NextBank. [Footnote
omitted.] 508 F.3d at 3.
In some cases, the securitization documents provide that the
originator retains ownership of the accounts or may or must take
back defaulted receivables. If the originator does not retain
ownership of the accounts and does not get them back, the proper
plaintiff in an action to collect the accounts is the securitization entity
or, if that entity is a trust, the trustee. Furthermore, even if the
originator may or must take back defaulted receivables, there must
be a proper assignment transferring the receivable back to the
plaintiff.
The defense attorney should inquire in discovery whether the debt
has ever been securitized, in which case the defendant should request
all documents transferring the debt and the instruments governing the
securitization. To date, most courts have rejected claims or defenses
based on securitization, but results depend on the facts relating to
what was transferred. Tostado v. Citibank (South Dakota), N.A.,
Civil Action No. SA-09-CV-549-XR, 2010 WL 55976 (W.D.Tex.
Jan. 4, 2010) (Citibank found to have retained ownership of
securitized credit card receivables); Scott v. Bank of America, Civil
Action No. 13-987, 2013 WL 6164276 at *3 (E.D.Pa. Nov. 21,
2013); Shade v. Bank of America, No. 2:08-cv-1069 LKK JFM PS,
2009 WL 5198176 at **3 4 (E.D.Cal. Dec. 23, 2009); SepehryFard v. Department Stores National Bank, Case No. 13-cv-03131WHO, 2013 WL 6574774 (N.D.Cal. Dec. 13, 2013); Citibank
(South Dakota), N.A. v. Carroll, 148 Idaho 254, 220 P.3d 1073
(2009). A majority of the cases involved pro se litigants.

F. [2.6] Assignees for Collection as Plaintiffs

Section 8b of the Collection Agency Act contains a special
assignment requirement. An assignment that does not comply is not
valid. Business Service Bureau, Inc. v. Webster, 298 Ill.App.3d
257, 698 N.E.2d 702, 232 Ill.Dec. 611 (4th Dist. 1998). The
provision applies only to assignments for collection, as opposed to
absolute assignments; if a debt is the subject of successive absolute
assignments and assignments for collection, the provision applies
only to the assignments for collection. Unifund CCR Partners v.
Shah, 407 Ill.App.3d 737, 946 N.E.2d 885, 349 Ill.Dec. 389 (1st
Dist. 2011), later op., 2013 IL App (1st) 113658; King v.
Resurgence Financial, LLC, No. 08 C 3306 (N.D.Ill. Nov. 3, 2008)
(minute order).
Section 8b states:
An account may be assigned to a collection agency for collection
with title passing to the collection agency to enable collection of
the account in the agencys name as assignee for the creditor
provided:
(a) The assignment is manifested by a written agreement,
separate from and in addition to any document intended for the
purpose of listing a debt with a collection agency. The document
manifesting the assignment shall specifically state and include:
(i) the effective date of the assignment; and
(ii) the consideration for the assignment.
(b) The consideration for the assignment may be paid or given

either before or after the effective date of the assignment. The

consideration may be contingent upon the settlement or outcome
of litigation and if the claim being assigned has been listed with
the collection agency as an account for collection, the
consideration for assignment may be the same as the fee for
collection.
(c) All assignments shall be voluntary and properly executed and
acknowledged by the corporate authority or individual
transferring title to the collection agency before any action can
be taken in the name of the collection agency.
(d) No assignment shall be required by any agreement to list a
debt with a collection agency as an account for collection.
(e) No litigation shall commence in the name of the licensee as
plaintiff unless: (i) there is an assignment of the account that
satisfies the requirements of this Section and (ii) the licensee is
represented by a licensed attorney at law.
(f) If a collection agency takes assignments of accounts from 2 or
more creditors against the same debtor and commences litigation
against that debtor in a single action, in the name of the
collection agency, then (i) the complaint must be stated in
separate counts for each assignment and (ii) the debtor has an
absolute right to have any count severed from the rest of the
action. 225 ILCS 425/8b.

G. [2.7] Applicability of Hearsay Rule in Small Claims

Proceedings

Illinois Supreme Court Rule 286(b) provides:

In any small claims case, the court may, on its own motion or on
motion of any party, adjudicate the dispute at an informal
hearing. At the informal hearing all relevant evidence shall be
admissible and the court may relax the rules of procedure and
the rules of evidence. The court may call any person present at
the hearing to testify and may conduct or participate in direct
and cross-examination of any witness or party. At the conclusion
of the hearing the court shall render judgment and explain the
reasons therefor to all parties.
In Majid v. Stubblefield, 226 Ill.App.3d 637, 589 N.E.2d 1045, 168
Ill.Dec. 645 (3d Dist. 1992), the Third District held without much
analysis that this language permitted the use of hearsay. On the other
hand, similar language in various statutes relating to administrative
proceedings has repeatedly been held by the Illinois Supreme Court
and appellate courts not to permit the introduction of hearsay over
objection. Grand Liquor Co. v. Department of Revenue, 67 Ill.2d
195, 367 N.E.2d 1238, 10 Ill.Dec. 472 (1977); Jamison v. Weaver,
30 Ill.App.3d 389, 332 N.E.2d 563 (1st Dist. 1975); Eastman v.
Department of Public Aid, 178 Ill.App.3d 993, 534 N.E.2d 458, 460
461, 128 Ill.Dec. 276 (2d Dist. 1989); Kurdi v. DuPage County
Housing Authority, 161 Ill.App.3d 988, 514 N.E.2d 802, 113
Ill.Dec. 20 (2d Dist. 1987).

III. DEFECTIVE COLLECTION

PLEADINGS
A. [3.1] Compliance with 735 ILCS 5/2-403

Section 2-403(a) of the Code of Civil Procedure provides:

(a) The assignee and owner of a non-negotiable chose in action
may sue thereon in his or her own name. Such person shall in his
or her pleading on oath allege that he or she is the actual bona
fide owner thereof, and set forth how and when he or she
acquired title. 735 ILCS 5/2-403(a).

B. [3.2] Compliance with 735 ILCS 5/2-606

Any written contract terms and any written assignment must be
attached to the complaint, in compliance with 2-606 of the Code of
Civil Procedure, which states:
If a claim or defense is founded upon a written instrument, a
copy thereof, or of so much of the same as is relevant, must be
attached to the pleading as an exhibit or recited therein, unless
the pleader attaches to his or her pleading an affidavit stating
facts showing that the instrument is not accessible to him or her.
In pleading any written instrument a copy thereof may be
attached to the pleading as an exhibit. In either case the exhibit
constitutes a part of the pleading for all purposes. 735 ILCS 5/2606.
1. [3.3] Contract
With respect to the contract, there are three key Illinois cases:
Velocity Investments, LLC v. Alston, 397 Ill.App.3d 296, 922
N.E.2d 538, 337 Ill.Dec. 415 (2d Dist. 2010); Razor Capital v.
Antaal, 2012 IL App (2d) 110904, 972 N.E.2d 1238, 362 Ill.Dec.
205; and Asset Acceptance, LLC v. Tyler, 2012 IL App (1st)

093559, 966 N.E.2d 1039, 359 Ill.Dec. 351.

In Velocity Investments, supra, the appellate court applied 735
ILCS 5/2-606 to a debt buyer case. The complaint alleged that the
defendant owed money by virtue of a certain agreement entered into
by defendant on or about August 2, 2001. 922 N.E.2d at 540. The
only documents attached were a statement of account apparently
generated by the debt buyer, a debt buyer affidavit reiterating what
was in the statement of account, and a standard form Cardmember
Agreement and Disclosure Statement; a computerized printout of the
account history was furnished later. Id. The court held that none of
these documents satisfied 2-606. With respect to the Cardmember
Agreement and Disclosure Statement, the court stated that it is not
the written contract, as it offers no evidence that defendant agreed to
be bound by these terms or that these terms even applied to this
particular account. 922 N.E.2d at 541. The court held that the
complaint should have been dismissed, with leave to replead, and
reversed a summary judgment for the debt buyer.
Although the case arose under 2-606, the statement that the
Cardmember Agreement and Disclosure Statement was not a
contract because there was no evidence that defendant agreed to be
bound by these terms or that these terms even applied to this
particular account (id.) would also appear to set forth what a debt
buyer must prove (a) what the terms of the contract are and (b)
that the debtor agreed to those terms by engaging in transactions after
being provided with the terms.
Debt buyers argued that because a credit card is not a written
contract for limitations purposes, nothing needed to be attached. In
Razor Capital, supra, 2012 IL App (2d) 110904 at 1, Razor
Capital, the final transferee of an alleged credit card debt, sued to

collect it. The appellate court held that even though a credit card is
technically an unwritten contract, it is necessary for the plaintiff to
allege and prove the terms of the contract and that they apply to the
particular account. 2012 IL App (2d) 110904 at 29 32.
To properly plead that the generic agreement attached to the
complaint applied to defendants account when she used the
card, plaintiff must, at a minimum, allege facts reflecting that
those terms were communicated to defendant, via mail to
defendants most recent billing address or in another similar
manner by which it would be reasonable to presume that
defendant received them, and that defendant accepted those
terms by subsequently using the card .
Nevertheless, to pursue even an unwritten-contract claim, a
plaintiff must both plead or attach the terms of the agreement
allegedly breached and tie those terms to the defendant. Further,
in the absence of allegations or affidavits explaining when and
how an attached agreement was communicated to the defendant
and showing that the defendant used the card thereafter, thereby
accepting the agreements terms, a plaintiff cannot recover
pursuant to those terms.
While it might very well be true that the generic agreement
attached to plaintiffs complaint accurately reflects the terms of
their unwritten contract and that defendant accepted those
terms when she used the card after the agreement was
communicated to her, the complaint includes no allegations or
documents reflecting as such . To plead the cause of action,
there must be allegations or documents reflecting the terms of
the agreement between defendant and plaintiff (or plaintiffs

predecessor), that the terms pertained to defendants account,

and that she received or was mailed the agreement, and that she
agreed to those terms when she used the card thereafter . We
further note that plaintiff must plead that the terms alleged are
those under which it seeks to recover. For example, it is
theoretically possible, under Garber [v. Harris Trust & Savings
Bank, 104 Ill.App.3d 675, 432 N.E.2d 1309, 1311, 60 Ill.Dec. 410
(1st Dist. 1982)], that several versions of terms applied to
defendants account, if the terms were modified between
defendants credit card transactions. If so, and to the extent that
plaintiff seeks to recover for charges defendant incurred under
different versions of terms of the unwritten agreement, those
terms, the communication of those terms to defendant, and
defendants subsequent use of the card will need to be separately
pleaded for each version of terms under which plaintiff seeks to
recover. [Emphasis in original.] [Citation omitted.] 2012 IL App
(2d) 110904 at 32 34.
Asset Acceptance, supra, arose in the context of an attempt by Asset
to prove an arbitration agreement existed. The court found that Asset
had failed to prove that the unsigned cardmember agreement it
offered was in fact part of the contract between the consumer and the
original creditor. Asset could not prove the contents of an agreement
by submitting an affidavit. The court stated: Nor do we agree with
any suggestion that the affidavit attached to Assets complaint was an
adequate substitute for the requisite documentary showing under
section 13 to confirm the arbitration award. See Velocity, 397
Ill.App.3d at 299, 337 Ill.Dec. 415, 922 N.E.2d 538 (citing 735
ILCS 5/2-606 (West 2006)) (affidavit in record did not satisfy the
requirement that the written contract be presented). 2012 IL App
(1st) 093559 at 56. Under this decision, the use of generic credit

card agreements and affidavits by debt buyers is plainly insufficient

to prove the terms of a contract.
Between them, these decisions require allegation and proof of the
terms of the contract, including the specific written terms applicable
to the particular consumer.
2. [3.4] Assignment
With respect to assignments, Candice Co. v. Ricketts, 281 Ill.App.3d
359, 666 N.E.2d 722, 217 Ill.Dec. 53 (1st Dist. 1996), holds that a
written assignment is a contract on which the action is founded. At
the time the parties rights are determined, actual assignments
sufficient to vest title to the obligation sued on in the plaintiff must be
in the record. Bayview Loan Servicing, L.L.C. v. Nelson, 382
Ill.App.3d 1184, 890 N.E.2d 940, 322 Ill.Dec. 21 (5th Dist. 2008).
See also V.W. Credit, Inc. v. Alexandrescu, 13 Misc.3d 1207(A),
824 N.Y.S.2d 759 (N.Y. City Civ. 2006) (text available in
Westlaw); MBNA America Bank, N.A. v. Nelson, 15 Misc.3d
1148(A), 841 N.Y.S.2d 826 (N.Y. City Civ. 2007) (text available in
Westlaw).

C. [3.5] Compliance with Illinois Supreme Court Rule

282
Pursuant to S.Ct. Rule 281, if the complaint is for less than $10,000
(after January 1, 2006) or $5,000 (prior to January 1, 2006), it must
comply with S.Ct. Rule 282, which governs small claims and
provides:
(a) Commencement of Actions. An action on a small claim may
be commenced by paying to the clerk of the court the required

filing fee and filing a short and simple complaint setting forth (1)
plaintiffs name, residence address, and telephone number, (2)
defendants name and place of residence, or place of business or
regular employment, and (3) the nature and amount of the
plaintiffs claim, giving dates and other relevant information. If
the claim is based upon a written instrument, a copy thereof or of
so much of it as is relevant must be copied in or attached to the
original and all copies of the complaint, unless the plaintiff
attaches to the complaint an affidavit stating facts showing that
the instrument is unavailable to him.
(b) Representation of Corporations. No corporation may appear
as claimant, assignee, subrogee or counterclaimant in a small
claims proceeding, unless represented by counsel. When the
amount claimed does not exceed the jurisdictional limit for small
claims, a corporation may defend as defendant any small claims
proceeding in any court of this State through any officer,
director, manager, department manager or supervisor of the
corporation, as though such corporation were appearing in its
proper person. For the purposes of this rule, the term officer
means the president, vice-president, registered agent or other
person vested with the responsibility of managing the affairs of
the corporation.
Many collection complaints do not attach written contracts that the
plaintiff seeks to enforce and do not contain the date on which the
contract was breached. In some cases, this hides the fact that the debt
is out of statute. Thus, a copy of any written instrument and dates
must be provided.

D. [3.6] Cause of Action for Account Stated Requires

Both the Underlying Contract and a Statement of

Account
An account stated has been defined as an agreement between parties
who have had previous transactions that the account representing
those transactions is true and that the balance stated is correct,
together with a promise, express or implied, for the payment of such
balance. McHugh v. Olsen, 189 Ill.App.3d 508, 545 N.E.2d 379,
383, 136 Ill.Dec. 855 (1st Dist. 1989), quoting W.E. Erickson
Construction, Inc. v. Congress-Kenilworth Corp., 132 Ill.App.3d
260, 477 N.E.2d 513, 519, 87 Ill.Dec. 536 (1st Dist. 1985). [A]n
account stated is merely a form of proving damages for the breach of
a promise to pay on a contract. Dreyer Medical Clinic, S.C. v.
Corral, 227 Ill.App.3d 221, 591 N.E.2d 111, 114, 169 Ill.Dec. 231
(2d Dist. 1992).
An account stated therefore requires allegation and proof that (1)
there was a contract between the parties, such as a credit card
agreement or a contract for the sales of goods or services (Dreyer,
supra); (2) a statement of account was sent to the party sought to be
held liable; and (3) the statement was agreed to, expressly or by
implication. Thomas Steel Corp. v. Ameri-Forge Corp., No. 91 C
2356, 1991 WL 280085 at *2 (N.D.Ill. Dec. 27, 1991). Agreement
by the debtor may be inferred from payment or retention of an
invoice for a substantial period without objection. Note that under 15
U.S.C. 1692g, an initial demand by a debt collector cannot create
an account stated.
However, both the basic agreement and the rendition of an account
must be proved:
[T]he rule that an account rendered and not objected to within a

reasonable time is to be regarded as correct assumes that there

was an original indebtedness, but there can be no liability on an
account stated if no liability in fact exists, and the mere
presentation of a claim, although not objected to, cannot of itself
create liability . In other words, an account stated cannot
create original liability where none exists; it is merely a final
determination of the amount of an existing debt. [Citations
omitted.] Motive Parts Company of America, Inc. v. Robinson, 53
Ill.App.3d 935, 369 N.E.2d 119, 124, 11 Ill.Dec. 665 (1st Dist.
1977).
When an account stated is claimed, the cause of action is one for
breach of contract and requires proof of both (1) the underlying
contract and (2) the statement of account sent to the debtor and
agreed to by the debtor. Both must be attached.

E. [3.7] When Pleadings Should Be Challenged

Although many collection pleadings are defective, it is generally not
advisable to raise pleading issues unless either (1) the defect is
unlikely to be curable or (2) the motion raises a substantive defense
that the plaintiff is unlikely to be able to overcome. For example, it
may be desirable to file a motion under 735 ILCS 5/2-619 if the
complaint is time barred.

IV. RIGHT TO OBTAIN VERIFICATION

OF DEBT UNDER THE FAIR DEBT
COLLECTION PRACTICES ACT, THE
UNIFORM COMMERCIAL CODE, AND

SUPREME COURT RULE 222

A. [4.1] In General
There are several means of obtaining information about a debt
besides ordinary discovery. See 4.2 4.4 below.

B. [4.2] Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act entitles the consumer to
verification of the debt if requested within 30 days of initial
communication from the debt collector. 15 U.S.C. 1692g. Cases are
unclear as to what verification is sufficient under the FDCPA. Clark
v. Capital Credit & Collection Services, Inc., 460 F.3d 1162 (9th
Cir. 2006); Chaudhry v. Gallerizzo, 174 F.3d 394 (4th Cir. 1999);
Stonehart v. Rosenthal, No. 01 Civ. 651(SAS), 2001 WL 910771
(S.D.N.Y. Aug. 13, 2001); Erickson v. Johnson, No. Civ.05-427
(MJD/SRN), 2006 WL 453201 (D.Minn. Feb. 22, 2006); Recker v.
Central Collection Bureau, Inc., No. 1:04-CV-2037-WTL-DFH,
2005 WL 2654222 (S.D.Ind. Oct. 17, 2005); Monsewicz v.
Unterberg & Associates, P.C., No. 1:03-CV-01062JDTTAB, 2005
WL 756433 (S.D.Ind. Jan. 25, 2005); Semper v. JBC Legal Group,
No. C04-2240L, 2005 WL 2172377 (W.D.Wash. Sept. 6, 2005);
Mahon v. Credit Bureau of Placer County Inc., 171 F.3d 1197,
1203 (9th Cir. 1999) (debt collector properly verified debt by
contacting original creditor, verifying nature and balance of
outstanding debt, reviewing efforts original creditor made to obtain
payment, and establishing that balance remained unpaid); Sambor v.
Omnia Credit Services, Inc., 183 F.Supp.2d 1234, 1242 1243
(D.Haw. 2002) (stating by way of example that debt collector
seeking to collect amounts owed to credit card company would have

to cease attempts to collect debt if fire destroyed credit card

companys records, thereby precluding verification of debt); Spears
v. Brennan, 745 N.E.2d 862, 878 879 (Ind.App. 2001) (copy of
original debt instrument does not verify that there is existing unpaid
balance and does not satisfy verification requirement of 1692g(b)).

C. [4.3] Article 9 of the Uniform Commercial Code

State law rights are better than those under the Fair Debt Collection
Practices Act. The sale of accounts receivable is regulated by
Article 9 of the Uniform Commercial Code, codified in Illinois at
810 ILCS 5/9-101, et seq. Although Article 9 basically deals with
secured transactions, sales of receivables have to be recorded to be
effective against third parties, and Article 9 confers certain rights on
the account debtors. Article 9 of the Uniform Commercial Code
applies to both security interests in accounts and to outright sales of
accounts . See UCC 9-102 (1978), comment 2. [Footnote
omitted.] Tradex, Inc. v. Modern Merchandising, Inc., 386 N.W.2d
800, 802 (Minn.App. 1986).
Defense counsel should send a certified or faxed letter requesting
assignment or assignments necessary to show title in the plaintiff
under UCC 9-406. Under 9-406, the debt buyer is not entitled to
payment unless it provides a copy of the assignment(s). After waiting
about ten days after receipt, counsel should then move to dismiss on
the ground that there is no obligation to pay.
Section 9-406 provides:
Discharge of account debtor; notification of assignment;
identification and proof of assignment; restrictions on assignment
of accounts, chattel paper, payment intangibles, and promissory

notes ineffective.
(a) Discharge of account debtor; effect of notification. Subject to
subsections (b) through (i), an account debtor on an account,
chattel paper, or a payment intangible may discharge its
obligation by paying the assignor until, but not after, the account
debtor receives a notification, authenticated by the assignor or
the assignee, that the amount due or to become due has been
assigned and that payment is to be made to the assignee. After
receipt of the notification, the account debtor may discharge its
obligation by paying the assignee and may not discharge the
obligation by paying the assignor.
(b) When notification ineffective. Subject to subsection (h),
notification is ineffective under subsection (a):
(1) if it does not reasonably identify the rights assigned;
(2) to the extent that an agreement between an account debtor
and a seller of a payment intangible limits the account debtors
duty to pay a person other than the seller and the limitation is
effective under law other than this Article; or
(3) at the option of an account debtor, if the notification notifies
the account debtor to make less than the full amount of any
installment or other periodic payment to the assignee, even if:
(A) only a portion of the account, chattel paper, or payment
intangible has been assigned to that assignee;
(B) a portion has been assigned to another assignee; or

(C) the account debtor knows that the assignment to that

assignee is limited.
(c) Proof of assignment. Subject to subsection (h), if requested
by the account debtor, an assignee shall seasonably furnish
reasonable proof that the assignment has been made. Unless the
assignee complies, the account debtor may discharge its
obligation by paying the assignor, even if the account debtor has
received a notification under subsection (a).
(d) Term restricting assignment generally ineffective. Except as
otherwise provided in subsection (e) and Sections 2A-303 and 9407 [810 ILCS 5/2A-303 and 5/9-407], and subject to subsection
(h), a term in an agreement between an account debtor and an
assignor or in a promissory note is ineffective to the extent that
it:
(1) prohibits, restricts, or requires the consent of the account
debtor or person obligated on the promissory note to the
assignment or transfer of, or the creation, attachment,
perfection, or enforcement of a security interest in, the account,
chattel paper, payment intangible, or promissory note; or
(2) provides that the assignment or transfer or the creation,
attachment, perfection, or enforcement of the security interest
may give rise to a default, breach, right of recoupment, claim,
defense, termination, right of termination, or remedy under the
account, chattel paper, payment intangible, or promissory note.
(e) Inapplicability of subsection (d) to certain sales. Subsection
(d) does not apply to the sale of a payment intangible or

promissory note, other than a sale pursuant to a disposition under

Section 9-610 [810 ILCS 5/9-610] or an acceptance of collateral
under Section 9-620 [810 ILCS 5/6-920].
(f) Legal restrictions on assignment generally ineffective. Except
as otherwise provided in Sections 2A-303 and 9-407 and subject
to subsections (h) and (i), a rule of law, statute, or regulation that
prohibits, restricts, or requires the consent of a government,
governmental body or official, or account debtor to the
assignment or transfer of, or creation of a security interest in, an
account or chattel paper is ineffective to the extent that the rule
of law, statute, or regulation:
(1) prohibits, restricts, or requires the consent of the
government, governmental body or official, or account debtor to
the assignment or transfer of, or the creation, attachment,
perfection, or enforcement of a security interest in the account
or chattel paper; or
(2) provides that the assignment or transfer or the creation,
attachment, perfection, or enforcement of the security interest
may give rise to a default, breach, right of recoupment, claim,
defense, termination, right of termination, or remedy under the
account or chattel paper.
(g) Subsection (b)(3) not waivable. Subject to subsection (h), an
account debtor may not waive or vary its option under subsection
(b)(3).
(h) Rule for individual under other law. This Section is subject to
law other than this Article which establishes a different rule for

an account debtor who is an individual and who incurred the

obligation primarily for personal, family, or household purposes.
(i) Inapplicability to health-care-insurance receivable. This
Section does not apply to an assignment of a health-careinsurance receivable. 810 ILCS 5/9-406.
In light of the problem with debt collectors suing without valid title,
reasonable proof of an assignment should require a photostat of an
assignment of the particular account, or at least a document signed by
each transferor and identifying the account. Analogous requirements
are imposed on the transfer of servicing of a mortgage by the Real
Estate Settlement Procedures Act of 1974 (RESPA), Pub.L. No. 93533, 88 Stat. 1724, and were imposed because scammers would
send people letters telling them to send their mortgage payments to a
new servicer. See 12 U.S.C. 2605. RESPA requires matching
letters from both the transferor and transferee or a joint letter. See
Chase Bank USA, N.A. v. Cardello, 27 Misc.3d 791, 896 N.Y.S.2d
856, 857 858 (N.Y. City Civ. Mar. 4, 2010):
The attempt of Chase to execute these bulk assignments to an
unlicensed out-of-state debt collector requires the court to
articulate a firm policy in regard to service of a notice of
assignment on the debtor. It is clear[,] however, that due process
requires that notice of the assignment be given to the debtor by
the assignor and not by the assignee. The credit card holder had
his or her agreement with [the] credit card issuer and not with
the unknown third-party debt purchaser so that receipt of notice
from the third-party debt purchaser does not satisfy due process
standards.

Allowing the assignee to give notice would enable dishonest debt

collectors to search the court records, obtain the names of
judgment debtors and send the debtor a letter stating they have
purchased the debt from credit card issuers such as Chase and
[the debtor] should make all payments to the third party.
Requiring the assignor-credit card issuer to serve the notice
would reduce the incidents of fraud in this regard. The federal
Fair Debt Collection Practices Act (FDCPA) lists sixteen false,
deceptive or misleading practices some of which would not be
available by requiring a notice of assignment to be given by the
assignor to the debtor. The trend in consumer protection law is
to require such notice (see Uniform Consumer Credit Code
3.204) especially in dealing with consumer credit debt where the
vast majority of defendants are unrepresented, unsophisticated
individuals. As the Court of Appeals stated in Tri City Roofers,
Inc. v. Northeastern Industrial Park, 61 N.Y.2d 779, 781, 473
N.Y.S.2d 161, 461 N.E.2d 298 (1984): A judgment debtor is not
called upon to search the countys records every time he is
served with an execution or desires to make a payment on his
debt. The failure to establish that notice of the assignment was
given to the debtor makes the assignment ineffective.

D. [4.4] Supreme Court Rule 222

S.Ct. Rule 222 went into effect in 1996, but it is frequently not
complied with. The rule applies to all cases subject to mandatory
arbitration and cases in which money damages of $50,000 or less are
sought. But it does not apply to small claims cases, evictions, family
law cases, and actions seeking equitable relief. Collection cases
seeking between $10,000 and $50,000 are therefore covered.
The rule requires both parties to provide to the opposing party a list
of case-related information, such as names and addresses of
witnesses, the factual basis of the claim, the legal theory of each
claim or defense, etc., automatically, without request.
The disclosures must be made within 120 days of the filing of the
responsive pleading to the complaint. Rule 222 has been ignored in
Cook County, but a 2006 article suggests this rule can no longer be
disregarded. Helen W. Gunnarsson, Rule 222 the high cost of
noncompliance, 94 Ill.B.J. 67 (Feb. 2006).
Rule 222(g) states that the court shall exclude at trial any evidence
offered by a party that was not timely disclosed as required by this
rule, except by leave of court for good cause shown. If a defendant
moves, on the day of trial, to exclude all evidence, given the
plaintiffs failure to file a Rule 222 disclosure statement, a court is
likely to grant the request, dooming the plaintiffs action. One case,
Kapsouris v. Rivera, 319 Ill.App.3d 844, 747 N.E.2d 427, 254
Ill.Dec. 387 (2d Dist. 2001), suggests (but does not hold) that if
specific information is provided through other discovery, such as a
Rule 213 interrogatory response, the failure to file a Rule 222
response will not trigger the exclusion of that evidence.

V. COLLECTION PLAINTIFFS AND

DEBT BUYERS: PROVING THAT
ANYTHING IS DUE
A. [5.1] Affidavits, Testimony, and Records
Absent an account stated, it is difficult for the collection plaintiff,
particularly a debt buyer, to prove anything is due. Debt buyers
rarely possess the basic legal documentation required to make out a
prima facie case. See, e.g., PRA III, LLC v. Gonzalez, 54 A.D.3d
917, 864 N.Y.S.2d 140 (2008); Palisades Collection Co. v.
Velazquez, 27 Misc.3d 132(A), 910 N.Y.S.2d 406 (App. Term
2010) (text available in Westlaw); Portfolio Recovery Associates,
LLC v. Ginn, 24 Misc.3d 137(A), 897 N.Y.S.2d 672 (App. Term
2009) (text available in Westlaw); Colorado Capital Investments,
Inc. v. Villar, 241 N.Y.L.J. 116, 2009 N.Y.Misc. LEXIS 2693 (N.Y.
City Civ. June 4, 2009); Rushmore Recoveries X, LLC v. Skolnick,
15 Misc.3d 1139(A), 841 N.Y.S.2d 823 (Nassau Cty.Dist. 2007)
(text available in Westlaw); DNS Equity Group Inc. v. Lavallee, 26
Misc.3d 1228(A), 907 N.Y.S.2d 436 (Nassau Cty.Dist. 2010) (text
available in Westlaw); Palisades Collection LLC v. Haque, 235
N.Y.L.J., No. 71, 20, col. 3 (N.Y. City Civ. Apr. 13, 2006);
Palisades Collection, LLC v. Gonzalez, 10 Misc.3d 1058(A), 809
N.Y.S.2d 482 (N.Y. City Civ. 2005) (text available in Westlaw);
Palisades Collection LLC v. Kalal, 324 Wis.2d 180, 781 N.W.2d
503 (App. 2010). This is acknowledged by the collection industry
itself. James M. McNeile, Challenges for Collecting Purchased
Debt, NARCA Newsl. (First Quarter 2003).
The reason is because cardholder agreements are standing offers to

extend credit, subject to modification at will, which are accepted

each time the card is used according to the terms of the cardholder
agreement at the time of such use. Garber v. Harris Trust &
Savings Bank, 104 Ill.App.3d 675, 432 N.E.2d 1309, 1311, 60
Ill.Dec. 410 (1st Dist. 1982). Accord Ragan v. AT&T Corp., 355
Ill.App.3d 1143, 824 N.E.2d 1183, 1188, 291 Ill.Dec. 933 (5th Dist.
2005); Reyes v. Equifax Credit Information Services, No. 03 C
1377, 2003 WL 22922190 (N.D.Ill. Dec. 10, 2003); Frerichs v.
Credential Services International, No. 98 C 3684, 1999 U.S.Dist.
LEXIS 22811 at *21 (N.D.Ill. Oct. 1, 1999); Taylor v. First North
American National Bank, 325 F.Supp.2d 1304, 1313 (M.D.Ala.
2004); Battels v. Sears National Bank, 365 F.Supp.2d 1205, 1209
(M.D.Ala. 2005); Grasso v. First USA Bank, 713 A.2d 304
(Del.Super. 1998); Edelist v. MBNA America Bank, 790 A.2d 1249
(Del.Super. 2001). See Banc One Financial Services, Inc. v.
Advanta Mortgage Corp. USA, No. 00 C 8027, 2002 WL 88154
(N.D.Ill. Jan. 23, 2002).
The terms provided in this manner are poorly documented and
frequently changed. Often, the rates are not in the agreements
themselves but in card mailers or other, separate documents. Credit
card issuers commonly offer numerous promotions over the life of
the account, each with its own set of terms. Card issuers often waive
interest, fees, and late charges upon oral request. Any such waiver of
course binds the assignee of the card issuer. Finally, a majority of
cards have variable interest rates, pegged to the prime rate or the
London Interbank Offered Rate (LIBOR) so that the fact that one
account statement contains a certain rate does not mean that is the
rate that governs for other periods. Generally, the issuer does not
retain a copy of documents in a manner that permits identification of
the documents governing a specific account.

Affidavits submitted to prove default are often conclusory and

insufficient. Manufacturers & Traders Trust Co. v. Medina, No. 01
C 768, 2001 WL 1558278 (N.D.Ill. Dec. 5, 2001); Cole Taylor
Bank v. Corrigan, 230 Ill.App.3d 122, 595 N.E.2d 177, 181 182,
172 Ill.Dec. 114 (2d Dist. 1992) (when bank officers affidavit
essentially consisted of a summary of unnamed records at the bank,
unaccompanied by records themselves and unsupported by facts
establishing basis of officers knowledge, foundation was lacking for
admission of officers opinion regarding amount due on loan); Asset
Acceptance Corp. v. Proctor, 156 Ohio App.3d 60, 804 N.E.2d 975
(2004). Computer-generated bank records or testimony based
thereon are often offered without proper foundation or are
summarized without being introduced. Manufacturers & Traders
Trust, supra; Federal Deposit Insurance Corp. v. Carabetta, 55
Conn.App. 369, 739 A.2d 301, appeal denied, 251 Conn. 927
(1999).
Testimony, whether live or in the form of an affidavit, to the effect
that the witness has reviewed a loan file and that the loan file shows
that the debtor is in default is hearsay and incompetent; rather, the
records must be introduced after a proper foundation is provided.
New England Savings Bank v. Bedford Realty Corp., 238 Conn.
745, 680 A.2d 301, 308 309 (1996), appeal after remand, 246
Conn. 594 (1998); Corrigan, supra, 595 N.E.2d at 181 (bank
officers affidavit summarizing bank records insufficient when it did
not show officers familiarity with amounts disbursed or collected or
provide documents on which he relied for his conclusion as to
amount due); Hawaii Community Federal Credit Union v. Keka, 94
Haw. 213, 11 P.3d 1 (2000) (following Corrigan). It is the business
records that constitute the evidence, not the testimony of the witness
referring to them. In re A.B., 308 Ill.App.3d 227, 719 N.E.2d 348,
356, 241 Ill.Dec. 487 (2d Dist. 1999) (Under the business records

exception it is the business record itself, not the testimony of a

witness who makes reference to the record, which is admissible.
(Cole Taylor Bank v. Corrigan, 230 Ill.App.3d 122, 130, 172
Ill.Dec. 114, 595 N.E.2d 177 (1992)). In other words, [a] witness
is not permitted to testify as to the contents of the document or
provide a summary thereof; the document speaks for itself.
[Citations.] M. Graham, Cleary & Grahams Handbook of Illinois
Evidence 803.10, at 825 (7th ed. 1999). [Citations omitted.]);
Topps v. Unicorn Insurance Co., 271 Ill.App.3d 111, 648 N.E.2d
214, 217 n.1, 207 Ill.Dec. 758 (1st Dist. 1995) (under the business
record exception to the hearsay rule, only the business record itself
is admissible into evidence rather than the testimony of the witness
who makes reference to the record); Northern Illinois Gas Co. v.
Vincent DiVito Construction, 214 Ill.App.3d 203, 573 N.E.2d 243,
252, 157 Ill.Dec. 825 (2d Dist. 1991) (The business records
exception to the hearsay rule (134 Ill.2d R. 236) makes it apparent
that it is only the business record itself which is admissible, and not
the testimony of a witness who makes reference to the record.).
A witness cannot testify by regurgitating the content of business
records that the witness has reviewed when the witness has not seen
or heard the events in question. Such regurgitation is hearsay, plain
and simple. United States v. Marshall, 762 F.2d 419, 428 (5th Cir.
1985); Railroad Management Co. v. CFS Louisiana Midstream
Co., 428 F.3d 214 (5th Cir. 2005); Waterloo Furniture
Components, Ltd. v. Haworth, Inc., 467 F.3d 641 (7th Cir. 2006);
Wahad v. Federal Bureau of Investigation, 179 F.R.D. 429, 438
(S.D.N.Y. 1998); In re McLemore, No. 03AP-714, 2004 WL
259252 (Ohio App. Feb. 12, 2004); State of Nebraska v. Ward, 1
Neb.App. 558, 510 N.W.2d 320, 324 (1993). There is no hearsay
exception that allows a witness to give hearsay testimony of the
content of business records based only upon a review of the

records. Grant v. Forgash, No. 95APE06-792, 1995 WL 765154 at

*5 (Ohio App. Dec. 26, 1995), quoting St. Paul Fire & Marine
Insurance Co. v. Ohio Fast Freight, Inc., 8 Ohio App.3d 155, 456
N.E.2d 551, 553 (1982). See generally Trujillo v. Apple Computer,
Inc., 578 F.Supp.2d 979 (N.D.Ill. 2008), condemning the inclusion
in an affidavit of information supplied by others.
Under the Illinois Rules of Evidence, [t]he Original Writing Rule,
Ill.R.Evid. 1002 is applicable to writings and records admitted
pursuant to the business record hearsay exceptions. Michael H.
Graham, GRAHAMS HANDBOOK OF ILLINOIS EVIDENCE
803.6, p. 886 (10th ed. 2010).

B. [5.2] What Is an Assignment, and What Is

Sufficient Proof of One?
An assignment requires the transfer of a designated or identified
right, claim or fund. Associated Metals & Minerals Corp. v.
Isletmeleri, 6 Ill.App.2d 548, 128 N.E.2d 595, 597 (1st Dist. 1955).
Assignment documents must therefore show transfer of a particular
account, not merely that some portfolio was transferred. It should be
noted that many debt sale agreements provide for the return of
accounts under some circumstances, so the full text of the agreement
should be obtained. If accounts can be returned, the debt buyer
should be required to prove its present title to the debt.
Courts have repeatedly emphasized the need for a document
identifying the particular account sued on. In Unifund CCR Partners
v. Cavender, No. 2007-CC-3040, 14 Fla.L. Weekly Supp. 975b
(Orange Cty. July 20, 2007), the court held that a debt buyer
assignment that does not refer to specific accounts does not establish
ownership by the plaintiff, nor is testimony based on a computer

screen sufficient:
The Court has reviewed the documents presented by the
Plaintiff, [the] Bill of Sale and the Assignment, and finds that
they fail to sufficiently identify the accounts that were assigned
or sold to the Plaintiff. Neither the Bill of Sale nor the
Assignment indicate the account numbers or names of account
holders. They do not provide any information that would allow
the Court to determine if the alleged account of Defendant was
one of the accounts sold or assigned to the Plaintiff.
Without any indicia of ownership that would sufficiently identify
the true owner of the account at the time that Plaintiff filed this
action, the Plaintiff is unable to prove that it had standing to
bring the action. An assignment is the basis of the Plaintiffs
standing to invoke the processes of the Court in the first place
and is therefore an essential element of proof. Progressive
Express Ins. Co. v. McGrath Community Chiropractic, 913 So.2d
1281, 1285 (Fla. 2nd DCA 2005); Oglesby v. State Farm Mutual
Automobile Ins. Co., 781 So. 2d 469 (Fla. 5th DCA 2001). Only
the insured or medical provider owns the cause of action
against the insurer at any one time. Id. at 470.
Similarly, in Nyankojo v. North Star Capital Acquisition, 298
Ga.App. 6, 679 S.E.2d 57, 60 61 (2009), the court held:
Through competent and admissible evidence, North Star showed
nothing more than that, under a revolving charge agreement,
Nyankojo was indebted in the amount of $2,621.83 on an account
to Leather World identified by number; that Leather World
assigned an unidentified revolving charge agreement to an

unidentified entity; and that Wells Fargo assigned to North Star

an unidentified account on which Nyankojo owed $1,132.62. This
evidence, even together with the reasonable inferences from it,
was insufficient to establish all essential elements of North Stars
case.
Likewise, in Wirth v. Cach, LLC, 300 Ga.App. 488, 685 S.E.2d 433,
435 436 (2009), the court held:
Moreover, there is no contract or Appendix A appended to the
Bill of Sale which identifies Wirths account number as one of the
accounts Washington Mutual assigned to Cach. The record is
also devoid of any evidence which reflects that Washington
Mutual purchased Providian to support the chain of assignment
to Cach. See Ponder v. CACV of Colorado, LLC, 289 Ga.App.
858, 859, 658 S.E.2d 469 (2008) (record was devoid of evidence
supporting CACVs allegation that it was the successor in
interest to Fleet Banks right to recover any outstanding debt
from Ponder).
Given the foregoing, we conclude that [t]his evidence, even
together with the reasonable inferences from it, was insufficient
to establish all essential elements of [Cachs] case. Nyankojo,
supra, 298 Ga.App. at 10, 679 S.E.2d 57. We therefore reverse
the trial courts order granting summary judgment in favor of
Cach.
Again, in Norfolk Financial Corp. v. Mazard, 2009 Mass.App.Div.
255, 258, the court held:
Nor, finally, do the business records attached to the Medeiros

affidavit establish Norfolks status as the valid assignee of

Mazards alleged Household account. By the ten bills of sale
attached to the affidavit, Norfolk showed only that, between
April, 2001 and March, 2005, multiple accounts were assigned
from Bank of America, N.A. (BOA) to Worldwide Asset
Purchasing, L.L.C. (Worldwide), from Worldwide to Seller and
Risk Management Alternatives Portfolio Services, LLC
(SRMAPS), from SRMAPS to North Star Capital Acquisition,
LLC (North Star), from North Star to Global Acceptance
Credit Corporation (Global), and finally, in March, 2005, from
Global to Norfolk. Norfolk failed, however, to present any
evidence of an assignment of Mazards account from Household
to BOA. Further, although the attached exhibits were admissible
under the business records exception to the hearsay rule, see
[Mass.Gen. Laws] c. 233, 78; Beal Bank, SSB v. Eurich, 444
Mass. 813, 817 (2005), not one makes any reference to Mazards
Household account. Mazards account is not identified in any of
the ten bills of sale. And although each bill of sale states that the
accounts being assigned are listed in respectively attached
schedules, none of those schedules were provided by Norfolk in
support of its motion.
In Citibank (South Dakota), N.A. v. Martin, 11 Misc.3d 219, 807
N.Y.S.2d 284, 291 (N.Y. City Civ. 2005), the court held:
[A]s to assigned claims, it is essential that an assignee show its
standing, which doctrine embraces several judicially selfimposed limits on the exercise of jurisdiction, such as the
general prohibition on a litigants raising another persons legal
rights. A lack of standing renders the litigation a nullity,

subject to dismissal without prejudice . It is the assignees

burden to prove the assignment . Given that courts are
reluctant to credit a naked conclusory affidavit on a matter
exclusively within a moving partys knowledge an assignee
must tender proof of assignment of a particular account or, if
there were an oral assignment, evidence of consideration paid
and delivery of the assignment. [Citations omitted.] Quoting Allen
v. Wright, 468 U.S. 737, 82 L.Ed.2d 556, 104 S.Ct. 3315, 3324
(1984).
In Midland Funding LLC v. Loreto, 34 Misc.3d 1232(A), 950
N.Y.S.2d 492, 2012 WL 638807 at **1 2 (N.Y. City Civ. 2012)
(text available in Westlaw), the court held:
The complaint alleges the underlying consumer credit account
was sold by Citibank to Midland Funding LLC. Attached as an
exhibit to the motion is a Bill of Sale and Assignment from
Citibank (South Dakota), NA and an Asset Schedule alleging
that this account was one of many included in a Bill of Sale and
Assignment dated August 20, 2010 and packaged with an
undisclosed number of other accounts in a Purchase and Sale
Agreement between Buyer and Bank with the date redacted
(emphasis added). Likewise the Asset Schedule states: The
individual Accounts transferred are described in the final
electronic file delivered by the Bank to Buyer on or around
August 18, 2010 the same deemed attached here to by
reference. The remainder of this document is also redacted
(emphasis added). Neither document contains any reference to
this specific account nor discloses how many accounts were
included in the transfer. Neither exhibit discloses the amount of
consideration, if any, tendered by Midland to Citibank. This

confirms that plaintiff has adopted Guys & Dolls character Big
Jules spotless dice logic to consumer credit transactions .
Additionally the Bill of Sale and Assignment refers to the terms
and conditions of a Purchase and Sale Agreement which is not
included as an exhibit in this litigation and may set forth rights
and defenses available to defendant herein. The court must
question why it has been omitted.
Submission of a document in this form absent even a modicum of
proof that the defendants account was included in the
transaction, would be acceptable if the person signing the paper
was Mammy Yokum of Lil Abner fame because when she said
I has spoken the validity of her conclusion was received
without question by the inhabitants of the town of Dogpatch,
USA.
Perhaps plaintiff is asserting the Yul Brynner Character Rule
of Evidence. For instance, in his role as Pharaoh Rameses
(spelling in film) in Cecil B. DeMilles epic The Ten
Commandments he said So let it be written. So let it be done
thereby indicating the infallibility of his pronouncement.
There is also the statement in the musical The King and I when
Brynners royal character says When I sit, you sit. When I
kneel, you kneel. Et cetera, et cetera, et cetera! Again
making the issuance of the statement not subject to challenge.
What do these quotes have in common with plaintiffs
submission? They are bald statements by a bald actor
playing bald characters while plaintiffs submission is also
bald but with the added factor of being unsubstantiated.
However, because we are neither in Dogpatch nor the 6th

Dynasty of Egypts Old Kingdom, nor 19th Century Siam, the

document cannot be accepted to establish the assignment of the
defendants account to the plaintiff. Neither the Bill of Sale and
Assignment nor the Asset Schedule specifically refer to the
defendants account. Further, there is no affidavit from someone
with personal knowledge of the account to verify as to the
accuracy of this information. The document is merely signed by
an employee of Citibank (South Dakota), NA. There is no
indication that Midland Funding LLC accepted the assignment.
The documentation is legally insufficient to establish the proper
assignment of the account and cannot be the basis of a judgment
whether on default, by motion, inquest or trial. [Footnotes
omitted.]
In Kimhow Corp. v. Rawji, 2012 Mass.App.Div. 48, 49 50, the
court held: It was Kimhows burden to establish that it was
properly assigned the debt owed by Rawji to Chase Bank. Norfolk
Fin. Corp. v. Mazard, 2009 Mass.App.Div. 255, 258 259. From
the opening statements, Kimhow was on notice that Rawji disputed
that it had any right in any debt he owed to Chase Bank. There was
no evidence offered on what accounts Chase Bank assigned to
Dodeka, LLC/Turtle Creek Asset LTD. More importantly, there was
no evidence that Rawjis account was listed as one of the accounts
assigned in the attachment to that bill of sale, i.e., Exhibit I.
In Palisades Collection LLC v. Haque, 235 N.Y.L.J., No. 71, 20,
col. 3 (N.Y. City Civ. Apr. 13, 2006) (Pineda-Kirwin, J.), the court
found:
Ms. Bergman testified that plaintiff is authorized to perform any

and all acts relating to certain accounts assigned to plaintiff by

AT&T Wireless pursuant to a limited power of attorney and a
bill of sale and assignment of benefits. These two documents,
both dated July 2004, were admitted into evidence as plaintiffs
Exhibit 1A and 1B. These documents, however, name, as the
assignee, an entity which is a Delaware limited liability company,
not a New Jersey Corporation, as this plaintiff alleges itself to
be. Nor do the documents contain an indication that
consideration was paid for the assignment and neither document
is executed by plaintiff as the assignee. Further the assignment
refers to a Purchase and Sale Agreement and indicates that an
Account Schedule is attached to that agreement. Plaintiff did
not seek to introduce the Purchase and Sale Agreement with
its annexed schedule into evidence.
In contrast to the wording of the assignment which references
the Purchase and Sale Agreement and its annexed schedule of
accounts, the witness testified that the purchased accounts came
to plaintiff by electronic transmission. Ms. Bergman testified
credibly that the electronic statements were received on
December 13, 2005. Ms. Bergman testified that defendants
account was included in those purchased by plaintiff. Plaintiff
then sought to introduce into evidence a document, dated
January 9, 2006, that the witness testified was the hard copy of
the account summary generated by AT&T Wireless and
electronically sent to plaintiff pertaining to this defendant. The
witness testified that plaintiff did not have copies of any
statements from AT&T Wireless that were allegedly sent to
defendant .

***
Further, in light of the dearth of evidence presented at trial
regarding the assignment and the infirmities therein, plaintiff did
not prove by a preponderance of the evidence that defendants
account was in fact assigned to plaintiff . Had plaintiff been
able to prove that much, as it is undisputed that defendant did
not pay the monthly charge of $24.99 for August and September,
plaintiff would have been entitled to a judgment for those
amounts. [Citations omitted.]
Another attempt by the same debt buyer to prove an assignment
failed in Palisades Collection, LLC v. Gonzalez, 10 Misc.3d
1058(A), 809 N.Y.S.2d 482, 2005 WL 3372971 at *4 (N.Y. City
Civ. 2005) (Gesmer, J.) (text available in Westlaw):
Finally, Ms. Bergmann claims that plaintiff is entitled to sue
because of an assignment to it from AT&T. However, she does
not attach a copy of the alleged assignment. In the absence of
the document on which her statement is based, her statement is
of no probative value . Consequently, Ms. Bergmann has failed
to establish that plaintiff has the right to collect this debt.
[Citations omitted.]
Again, in Rushmore Recoveries X, LLC v. Skolnick, 15 Misc.3d
1139(A), 841 N.Y.S.2d 823, 2007 WL 1501643 at **3 4 (Nassau
Cty.Dist. 2007) (text available in Westlaw), the court held that
the documents upon which the Plaintiff relies do not support the
Plaintiffs claim. While the Plaintiff alleges that it is the assignee
of this account, the Plaintiff fails to provide proper proof of the

alleged assignment sufficient to establish its standing herein. The

Plaintiff has made no effort to authenticate the alleged
assignments, NYCTL 1998-2 Trust v. Santiago, 30 AD3d 572, 817
NYS2d 368 (2nd Dept. 2006); and, there is a break in the chain of
the assignments from Citibank down to the Plaintiff. The
purported assignment from NCOP Capital, Inc. to New Century
Financial Services, Inc., Plaintiffs alleged assignor, is not signed
at all on behalf of NCOP Capital, Inc. There being no competent
proof that the assignment to New Century Financial Services,
Inc. was valid, the Plaintiff cannot establish the validity of the
assignment from New Century Financial Services, Inc. to the
Plaintiff, preventing the granting of summary judgment for this
reason as well.
To the same effect is MBNA America Bank, N.A. v. Nelson, 15
Misc.3d 1148(A), 841 N.Y.S.2d 826, 2007 WL 1704618 at *4 (N.Y.
City Civ. 2007) (text available in Westlaw), in which the court
stated:
It is imperative that an assignee establish its standing before a
court, since lack of standing renders the litigation a nullity.
It is the assignees burden to prove the assignment and an
assignee must tender proof of assignment of a particular account
or, if there were an oral assignment, evidence of consideration
paid and delivery of the assignment. Such assignment must
clearly establish that Respondents account was included in the
assignment. A general assignment of accounts will not satisfy this
standard and the full chain of valid assignments must be
provided, beginning with the assignor where the debt originated
and concluding with the Petitioner .

 Because multiple creditors may make collection efforts for

the same underlying debt even after assignment, for any variety
of reasons (i.e. mis-communication or clerical error) failure to
give notice of an assignment may result in the debtor having to
pay the same debt more than once or ignoring a notice because
the debtor believes he or she has previously settled the claim.
Further, debtors are often left befuddled as they get the runaround from a panoply of potential creditors when inquiring
about their defaulted accounts, during which time they lose the
ability to negotiate payments with the current debt owner
(whoever that may be at the time) and therefore incur additional
fees and penalties. Courts in other states, reviewing general
principles of assignment, have noted that notice to the debtor is
an explicit requirement to a valid assignment. [Emphasis added by
Nelson court.] [Footnotes omitted.] Quoting Citibank (South
Dakota), supra, 807 N.Y.S.2d at 291.
The same conclusion was reached in Unifund CCR v. Ayhan, 146
Wash.App. 1026, 2008 WL 2974639 at *7 (2008) (unpublished).
The consumer in Ayhan contested part of the charges on the ground
of identity theft. Reversing a summary judgment for Unifund, the
court held that Unifund had failed to establish its ownership of the
debt and standing to sue:
This breach of contract claim is based on Unifunds alleged
purchase or assignment of Ayhans debt from Providian;
therefore, at the threshold, Unifund, as the party moving for
summary judgment, had the burden of establishing its standing by
proving its right to sue under the contract as a matter of law.
See, e.g., [Warth v. Seldin, 422 U.S. 490, 45 L.Ed.2d 343, 95 S.Ct.
2197, 2205 (1975); Norm Advertising, Inc. v. Monroe Street

Lumber Co., 25 Wash.2d 391, 171 P.2d 177, 181 (1946); Chisholm
v. Ultima Nashua Industrial Corp., 150 N.H. 141, 834 A.2d 221,
225 (2003).]
In support of its motion for default, Unifund attached a document
entitled Affidavit of Indebtedness, a declaration from Unifund
Media Supervisor Bharati Lengade, who swore that Ayhans
account had been assigned from Providian and that the debt was
valid. [Clerks papers (CP)] at 12. Ayhan challenged the claimed
assignment and Unifund, to support its second motion for
summary judgment, offered a document entitled Bill of Sale,
that stated, as of January 27, 2004, Providian transferred to
Unifund certain accounts identified in an attached Account
Schedule. But no Account Schedule was attached. CP at 206.
And Hopkins affidavit, submitted at the same time, declared
that Unifund purchased the debt from Providian on May 5, 2005,
not January 27, 2004, as stated in the Bill of Sale.
Thus, to overcome Ayhans challenge to the claimed assignment
and to establish its right to sue and obtain a judgment against
Ayhan as a matter of law, Unifund submitted only its own
[employees] affidavits and a conflicting Bill of Sale with no
name, account number, or any other information identifying
Ayhans debt as having been sold or assigned to Unifund. This
evidence is insufficient to establish, under either New Hampshire
or Washington law, that Providian assigned the rights and
obligations on Ayhans contract to Unifund. As a result, we are
unable to hold, as a matter of law, that Unifund had standing to
assert a breach of Providians contract with Ayhan. Thus, the
trial courts grant of summary judgment to Unifund was error.

On remand, Unifund, to prevent summary judgment dismissal of

its claim against Ayhan, must present additional evidence
relating to its claimed purchase or assignment of Providians
rights under the Ayhan contract. Id.
Accord Colorado Capital Investments, Inc. v. Villar, 241 N.Y.L.J.
116, 2009 N.Y.Misc. LEXIS 2693 at *2 (N.Y. City Civ. June 4,
2009) (None of these assignments, however, contain a list of the
accounts which were included in the transfer . Thus on their face,
these assignments and bills of sale do not specify that defendants
account was included in any transfer, and cannot support movants
contention that defendants account was so transferred.); Cuda &
Associates, LLC v. Lumpkin, No. NNHCV095031901, 2011 WL
6413674 at *3 (Conn.Super. Nov. 29, 2011) (The plaintiffs other
evidence consists of a bill of sale describing an assignment of
certain accounts from Hudson & Keyse to the plaintiff, an attached
spreadsheet entry with the defendants name, address, social security
number and certain information purporting to pertain to a Bank of
America account, as well as Garamellas testimony that the
information contained in the entry was provided to the plaintiff by
Hudson & Keyse at the time of sale. This evidence, however, proves
only that the plaintiff purchased information purporting to be an
account and debt from an entity with no relationship with the
defendant. In other words, it does not prove that the defendant ever
entered into a credit card agreement with Bank of America, that the
defendant incurred an outstanding credit card debt or that Bank of
America ever sold an account and debt of the defendant to the
intermediary, Hudson & Keyse.); National Check Bureau, Inc. v.
Ruth, No. 24241, 2009 WL 2516123 at *3 (Ohio App. Aug. 19,
2009) (document referring to transfer of accounts on Exhibit 1,
without Exhibit 1, not sufficient to prove the assignment); Unifund

CCR Partners v. Hemm, No. 08-CA-36, 2009 WL 2106289 (Ohio

App. July 17, 2009) (affidavit and bill of sale that did not refer to
specific account not enough); Retail Recovery Services of NJ v.
Conley, No. 10-09-15, 2010 WL 1173099 (Ohio App. Mar. 29,
2010) (similar).
In Unifund CCR Partners v. Laco, No. 05-08-01575-CV, 2009 WL
4879348 at *4 (Tex.App. Dec. 17, 2009), the court reiterated that an
assignment must refer to a specific account:
Assuming without deciding that Unifunds affidavit of account is
legally sufficient, the affidavit fails to offer any proof Unifund
was the original creditor. Nor does the affidavit of account or the
Bill of Sale offer proof Unifund is an assignee of the original
creditor; at best, the affidavit of account and Bill of Sale
suggest Unifund acquired unspecified receivables from Chase
Bank and that a principal balance of $12,897.56 is somehow due
and payable by Laco to Unifund. We therefore conclude
Unifund has failed to offer a scintilla of evidence that it is the
assignee of a creditor to whom [Laco] incurred a debt, and the
trial court did not err in granting summary judgment in favor of
Laco.
See also RAB Performance Recoveries LLC v. Scorsonelli, 242
N.Y.L.J. 16, 2009 N.Y.Misc. LEXIS 2512 at *3 (Richmond Cty.Sup.
June 25, 2009) (For plaintiff to establish standing it must provide a
complete chain of assignments from the original creditor to itself .
In opposition to the motion plaintiffs counsel concludes it has
standing to sue and offers schedule A which it claims establishes
defendants account was transferred. A review of Schedule A is
nothing more than a computer print out with defendants name,

address, social security number and general information about the

alleged account . It does not establish defendants account was
one assigned to it or that plaintiff has standing to sue. The other
documents plaintiff produced as proof of assignment are ambiguous
and refer to terms and accounts in other documents . Plaintiff
cannot show that this particular account was assigned.).
An affidavit reciting that a debt has been assigned is not competent
proof of an assignment; rather, under Ill.R.Evid. 1002, the proponent
must lay a foundation for and introduce the actual assignment.
Deutsche Bank National Trust Co. v. Gilbert, 2012 IL App (2d)
120164, 19 20, 982 N.E.2d 815, 367 Ill.Dec. 665, holds:
Deutsche Bank now relies solely on the Loch affidavit to refute
the lack of standing shown by the note and the mortgage.
Deutsche Bank points to Lochs statement that the assignment
occurred on November 1, 2005, and contends that his statement
must be taken as true in the absence of contrary evidence. This
legal principle applies only to admissible evidence, however.
Complete Conference Coordinators, Inc. v. Kumon North
America, Inc., 394 Ill.App.3d 105, 108, 333 Ill.Dec. 567, 915
N.E.2d 88 ([2d Dist.] 2009) (only admissible evidence may be
considered in support of or opposition to summary judgment).
Lochs statement about the date of the assignment was not
admissible, because it was unsupported by any foundation.
The use of affidavits on motions for summary judgment is
governed by Illinois Supreme Court Rule 191(a) (eff. July 1,
2002). Under that rule, affidavits must set out the facts on which
the affiants claims are based, and attach all documents upon
which the affiant relies. Loch, however, did not state how he

knew that the assignment took place on November 1, 2005, and

he failed to attach any documents supporting his assertion. (As
we noted, the Assignment itself provides no support for Lochs
assertion.) Accordingly, Lochs statement about the date of the
assignment does not comply with Rule 191(a) and may be
disregarded. Outboard Marine Corp. v. Liberty Mutual Insurance
Co., 154 Ill.2d 90, 132, 180 Ill.Dec. 692, 607 N.E.2d 1204 (1992)
(unsupported conclusions and opinions were insufficient to raise
an issue of fact); Madden v. Paschen/S.N. Nielson, Inc., 395
Ill.App.3d 362, 388, 334 Ill.Dec. 315, 916 N.E.2d 1203 ([1st Dist.]
2009) (legal conclusions and unsupported statements were
properly stricken). Disregarding Lochs unsupported statement,
the sole evidence that Deutsche Bank ever became the holder of
the indebtedness was the Assignment and, as Deutsche Bank
concedes, that document does not establish when Deutsche Bank
became the holder. [Emphasis in original.]
Similarly, in DNS Equity Group Inc. v. Lavallee, 26 Misc.3d
1228(A), 907 N.Y.S.2d 436, 2010 WL 682466 at **2 3 (Nassau
Cty.Dist. 2010) (text available in Westlaw), the court held:
[T]he other affidavits submitted in support of plaintiffs motion
contain a series of contradictory assertions by individuals who
claim, without documentary proof, that they have some form of
personal knowledge of facts relating to the chain of
assignment. One affidavit, from an authorized representative
of a non-party company named Dodeka, LLC, asserts that the
latter company has made a complete assignment of said debt
and that DNS Equity Group, Inc is the owner thereof . But
that affidavit, sworn to on May 11, 2009, is silent as to when the

assignment was made. It, too, appears to have been made on

information and belief. And the assignment, itself, is not
annexed or otherwise specifically described. Nor does the
affidavit disclose what position the affiant holds at Dodeka. Nor
does the affidavit describe her authority or describe what
records she has relied upon in making the subject assertions.
Such conclusory allegations, on their face, are insufficient to
prove plaintiffs entitlement to judgment as an assignee. See
Cach, LLC v. Davidson, 21 Misc.3d 1106(A), 2008 NY Slip Op
51987(U) (Civ Ct N.Y. Co).
Moreover, in contradiction to plaintiffs claim in this lawsuit, a
second affidavit, from a Chase Bank USA Team Leader,
swears that Dodeka, L.L.C. is now the owner of said account
. (emphasis added). A third affidavit, from an authorized
agent of DNS Equity Group, Inc., claims that Chase sold the
account to Dodeka, which sold it to DNS, but that [b]y valid
assignment CACV of Colorado, LLC, as the successor in
interest, is contractually entitled to collect the amount owed on
the Account, (emphasis added).
Do these affidavits constitute prima facie proof, in evidentiary
form, sufficient to prove that plaintiff, DNS Equity Group, Inc., is
entitled to judgment against defendant as the lawful assignee of
defendants alleged debt to Chase? The answer is obvious. The
deficiencies and contradictions, identified above, are more tha[n]
enough to require denial of plaintiffs motion. Cf [Palisades
Collection, LLC v. Kedik, 67 A.D.3d 1329, 890 N.Y.S.2d 230
(2009)]; Rushmore Recoveries, X, LLC v. Skolnick, supra.

Note that an assignment executed after the date of the purported

transfer may not be effective. In LaSalle Bank National Assn v.
Ahearn, 59 A.D.3d 911, 875 N.Y.S.2d 595, 597 (2009), the court
held that a purported assignment of a note and mortgage executed
after the commencement of the action was insufficient to confer
standing on the plaintiff:
An assignment of a mortgage does not have to be in writing and
can be effective through physical delivery of the mortgage .
However, if it is in writing, the execution date is generally
controlling and a written assignment claiming an earlier effective
date is deficient unless it is accompanied by proof that the
physical delivery of the note and mortgage was, in fact,
previously effectuated .
Here, the written assignment submitted by plaintiff was
indisputably written subsequent to the commencement of this
action and the record contains no other proof demonstrating that
there was a physical delivery of the mortgage prior to bringing
the foreclosure action. [Citations omitted.]
[A]n assignments language purporting to give it retroactive effect
prior to the date of the commencement of the action is insufficient to
establish the plaintiffs requisite standing. Washington Mutual
Bank v. Patterson, 21 Misc.3d 1145(A), 875 N.Y.S.2d 824, 2008
WL 5233195 at *1 (Kings Cty.Sup. 2008) (text available in
Westlaw). See also Countrywide Home Loans, Inc. v. Hovanec, 15
Misc.3d 1115(A), 839 N.Y.S.2d 432 (Suffolk Cty.Sup. 2007) (text
available in Westlaw); Countrywide Home Loans, Inc. v. Taylor, 17
Misc.3d 595, 843 N.Y.S.2d 495, 497 (Suffolk Cty.Sup. 2007); U.S.
Bank National Assn v. Kosak, 16 Misc.3d 1133(A), 847 N.Y.S.2d

905, 2007 WL 2480127 at *3 (Suffolk Cty.Sup. 2007) (text available

in Westlaw) (Although language in the purported assignment states
that the assignment is effective as of July 14, 2006, such attempt at
retroactivity is insufficient to establish the plaintiffs ownership
interest at the time the action was commenced. Indeed, foreclosure of
a mortgage may not be brought by one who has no title to it and
absent an effective transfer of the debt, the assignment of the
mortgage is a nullity.).

C. [5.3] Proof of Business Records of Original

Creditor
Attempts by a debt buyer to introduce business records of the
original creditor are often deficient. If records are submitted, they
must be properly authenticated. Kleet Lumber Co. v. Lucchese, 17
Misc.3d 1111(A), 851 N.Y.S.2d 64, 2007 WL 2962734 at *2
(Nassau Cty.Dist. 2007) (text available in Westlaw) (Additionally,
these documents are not submitted in admissible form. Simply
annexing documents to the moving papers, without a proper
evidentiary foundation is inadequate. Higen Associates v. Serge
Elevator Co., Inc., 190 A.D.2d 712, 593 N.Y.S.2d 319 (2nd Dept.
1993); Palisades Collection, LLC v. Gonzalez, 10 Misc.3d
1058(A), 809 N.Y.S.2d 482 (Civ.Ct. NY Co. 2005).).
Generally, an employee of a debt buyer is not competent to offer
testimony concerning the records of an assignor. PRA III, LLC v.
Mac Dowell, 15 Misc.3d 1135(A), 841 N.Y.S.2d 822, 2007 WL
1429026 at *1 (N.Y. City Civ. 2007) (text available in Westlaw)
(Elaine F. Lark, a legal specialist of the plaintiff is not an
employee of the original creditor (Sears) and cannot authenticate
documents from another business.); Cach, LLC v. Sliss, 28 Misc.3d

1230(A), 958 N.Y.S.2d 59, 2010 WL 3463717 at *2 (Auburn City

Sept. 3, 2010) (text available in Westlaw) (Plaintiffs agent based
her affidavit upon documentation provided by the original creditor.
As Plaintiffs agent does not have personal knowledge of the original
creditors business practices, the proof is insufficient to establish a
proper foundation for the account agreement and account
statements.).
In Citibank (South Dakota), N.A. v. Martin, 11 Misc.3d 219, 807
N.Y.S.2d 284, 289 (N.Y. City Civ. 2005), the court held:
As a part of a credit card issuers presentation of a prima facie
case, the motion papers also must include an affidavit sufficient
to tender to the court the original agreement, as well as any
revision thereto, and the affidavit must aver that the documents
were mailed to the card holder . The same affidavit typically
advances copies of credit card statements which serve to
evidence a buyers subsequent use of the credit card and
acceptance of the original or revised terms of credit . The
affidavit often addresses whether there was any proper protest
of any charged purchase within 60 days of a statement (15 U.S.C.
1601; 12 C.F.R 226.13[b][1], a provision in 12 C.F.R., part 226,
referred to as Regulation Z or Truth in Lending
regulations).
The affidavit must demonstrate personal knowledge of essential
facts . An attorneys affirmation generally cannot advance
substantive proof. [Citations omitted.] [Footnote omitted.]
In Palisades Collection LLC v. Haque, 235 N.Y.L.J., No. 71, 20,
col. 3 (N.Y. City Civ. Apr. 13, 2006) (Pineda-Kirwin, J.), the court

stated:
Inasmuch as the mere filing of papers received from other
entities, even if they are retained in the regular course of
business, is insufficient to lay a foundation for the business
records exception to [the] hearsay rule, the objections were
sustained and the documents were not admitted . Ms. Bergman
testified that she was not familiar with AT&Ts billing practices
and data entry. Thus, she could not lay a proper foundation for
the admission of these documents. Quoting Standard Textile Co. v.
National Equipment Rental, Ltd., 80 A.D.2d 911, 437 N.Y.S.2d 398
(1981).
In Palisades Collection, LLC v. Gonzalez, 10 Misc.3d 1058(A),
809 N.Y.S.2d 482, 2005 WL 3372971 at **1 2 (N.Y. City Civ.
2005) (Gesmer, J.) (text available in Westlaw), the court stated:
Plaintiff now moves for entry of summary judgment in its favor.
Plaintiff relies exclusively on an affidavit executed by one of its
employees, and various documents which appear to have been
created by AT&T. Since the affiant neither has personal
knowledge of the facts nor can attest to the genuineness or
authenticity of the documents, plaintiff has not made out its
prima facie case. Therefore, even though defendant did not
appear in opposition to this motion, it must be denied.
[N.Y.C.P.L.R.] 3212(b) requires that a motion for summary
judgment be supported by an affidavit of a person with requisite
knowledge of the facts, together with a copy of the pleadings and
by other available proof . The movant must tender evidence,
by proof in admissible form, to establish the cause of action

sufficiently to warrant the court as a matter of law in directing

judgment. Failure to make such showing requires the denial
of the motion, regardless of the sufficiency of the opposing
papers. A conclusory affidavit, or an affidavit by a person
who has no personal knowledge of the facts, cannot establish a
prima facie case . When the affiant relies on documents, the
documents relied upon must be annexed and the affiant must
establish an adequate evidentiary basis for them. Mere
submission of documents without any identification or
authentication is inadequate . When the movant seeks to have
the Court consider a business record, the proponent must
establish that it meets the evidentiary requirements for a
business record, by, for example, having a corporate officer
swear to the authenticity and genuineness of the document.
[Citations omitted.] Quoting Zuckerman v. City of New York, 49
N.Y.2d 557, 404 N.E.2d 718, 720, 427 N.Y.S.2d 595 (App.Div.
1980), and Winegrad v. New York University Medical Center, 64
N.Y.2d 851, 476 N.E.2d 642, 643 644, 487 N.Y.S.2d 316
(App.Div. 1985).
The court held that affidavits based on books and records but not
executed by someone familiar with the manner in which the entity
that engaged in the transactions prepared and maintained the books
and records are insufficient:
Plaintiff relies on an affidavit executed by Joanne Bergmann
who identifies herself as the Vice President of plaintiffs Legal
Department. She does not claim to have any personal knowledge
of the transaction underlying this complaint but rather states
that she is making the affidavit based upon the books and
records in my possession. She claims that she is familiar with

plaintiffs methods for creating and maintaining its business

records, including records of the accounts purchased by plaintiff.
She then annexes and discusses various records. Through her
affidavit, she seeks to establish four facts on which to ground
plaintiffs claim: that defendant executed a contract with
AT&T; that defendant defaulted in making payments under the
contract; that AT&T sent defendant bills which defendant did
not dispute; and that plaintiff is entitled to sue as AT&Ts
assignee. Ms. Bergmanns affidavit is not adequate to establish
any of these facts.
To establish the contract, Ms. Bergmann asserts that defendant
entered into a contract with AT&T, and alleges that it is
attached as Exhibit A. Her bald statement that defendant
entered into a contract is not probative, since Ms. Bergmann
acknowledges that she is simply relying on the documents in her
possession. Moreover, the document attached as Exhibit A is
equally ineffective to establish that defendant signed a contract,
since it is merely an unsigned 9-page form, headed Terms and
Conditions for Wireless Service. Putting aside the question of
whether Ms. Bergmann could properly authenticate a contract
which appeared to be signed by defendant, her proffer of an
unexecuted document certainly does not establish that defendant
signed a contract with AT&T.
Next, Ms. Bergmann seeks to establish that defendant is in
default by making various conclusory statements to that effect
and then attaching, as Exhibit D, documents she refers to as
account statements which allegedly reflect the activity on
defendants account. On the simplest level, the Court cannot rely

on Ms. Bergmanns description of the documents annexed as

Exhibit D because her description is inconsistent with the
documents themselves and with her own prior statements as to
defendants obligation to plaintiff. Specifically, she describes the
documents as account statements that reflect purchases made
by defendant along with periodic payments. The statements
reflect the finance charges on the balance as provided in the
retail installment credit agreement. However, the account
statements do not, on their face, reflect purchases but rather
monthly charges for cell phone usage. Similarly, the account
statements do not appear to be based on charges on a retail
installment credit agreement, but rather on a cell phone service
plan. Consequently, since Ms. Bergmann has described
incorrectly the document she claims to rely on, the Court will not
credit the statements she makes based on it .
Even if the Court were to overlook the inaccuracy of Ms.
Bergmanns description of the documents attached as Exhibit D,
the Court could not rely on them. Since the documents are outof-court statements offered for their truth, Ms. Bergmann must
establish that they fall within an exception to the hearsay rule in
order for them to be admissible . Presumably, Ms. Bergmann is
asking the Court to treat them as a business record since she
describes herself as being familiar with plaintiffs business
records . However, the records attached at Exhibit D were
created not by plaintiff but by plaintiffs assignor, AT&T. In
order to establish a business records foundation, the witness
must be familiar with the entitys record keeping practices .
Ms. Bergmann does not claim to be familiar with AT&Ts record
keeping practices, but only with the method by which plaintiff

maintains the accounts it purchases from others. The mere fact

that plaintiff obtained the records from AT&T and then retained
them is an insufficient basis for their introduction into
evidence . Therefore, the Court cannot rely on the account
statements which Ms. Bergmann proffered to establish
defendants default. [Citations omitted.] [Footnotes omitted.] 2005
WL 3372971 at *2.
In note 4, the court stated:
This is not a situation where the relationship between the
proponent of the record and the maker of the record guarantees
the reliability of the records, such as where the maker of the
record was acting on behalf of the proponent and in accordance
with its requirements when making the records, (People v.
Cratsley, 86 N.Y.2d 81, 89 91 [1995]) or where the proponent of
the records relies contemporaneously on the accuracy of the
other entitys records for the conduct of its own business (People
v. DiSalvo, 284 A.D.2d 547, 548 9 [2d 2001]; Plymouth Rock
Fuel Corp. v. Leucadia, Inc., 117 A.D.2d 727, 728 [2d Dept
1986]). Here, there is no evidence that there was any
relationship between AT&T and plaintiff at the time that the
records were created. 2005 WL 3372971 at *2 n.4.
The court also held insufficient affidavits that documents had been
mailed when the affiant neither mailed them nor was able to testify
on personal knowledge that a routine practice of mailing such
documents existed within the business. The court also found that a
reproduction of the document mailed was required and that a later
printout prepared using data in the system would not do:

Ms. Bergmann also asserts that the account statements were

mailed to defendant and the statements were neither returned
nor disputed. Presumably, Ms. Bergmann is making this
statement in order to support a claim for an account stated.
However, plaintiffs complaint does not include a cause of action
for an account stated, so these statements by Ms. Bergmann are
irrelevant.
Even if plaintiff were asserting a claim for an account stated,
Ms. Bergmanns statement would be totally inadequate to
support it. Ms. Bergmann does not even assert whether she
claims that the documents were sent by AT&T or by plaintiff,
but, either way, her statements are not sufficient to establish
mailing. As stated above, Ms. Bergmann does not claim to have
personal knowledge of this account. Certainly, she does not claim
to have mailed these statements herself. Where an affiant does
not have personal knowledge that a particular document was
mailed, she can establish that it was mailed by describing a
regular office practice for mailing documents of that type .
However, Ms. Bergmann did not do that in this case .
Consequently, plaintiff has failed to prove that the account
statements were in fact mailed to defendant. 2005 WL 3372971
at *3.
In note 5, the court stated:
Moreover, the account statements could not be a true copy of
the documents allegedly mailed to defendant since they indicate,
on their face, that they were printed out on June 29, 2005, after
this action was commenced. 2005 WL 3372971 at *3 n.5.

In Rushmore Recoveries X, LLC v. Skolnick, 15 Misc.3d 1139(A),

841 N.Y.S.2d 823, 2007 WL 1501643 at **1 4 (Nassau Cty.Dist.
2007) (text available in Westlaw), another attempt by a debt buyer to
testify to the records of the creditor was rejected:
The Plaintiff attempts to support its motion with the affidavit of
Todd Fabacher, who identifies himself as an authorized and
designated custodian of records for the plaintiff regarding the
present matter. (Fabacher Affidavit 3/14/07, 1) Mr. Fabacher
describes his duties as including the obtaining, maintaining and
retaining, all in the regular course of plaintiffs business,
including obtaining records and documents from or through
CITIBANK or any assignee or transferee previous to plaintiff,
any and all records and documentation regarding the present
debt. (Fabacher Affidavit 3/14/07, 1) While Mr. Fabacher
attempts to portray himself as one who is personally familiar
with, and hav[ing] knowledge of, the facts and proceedings
relating to the within action (Fabacher Affidavit 3/14/07, 1), it
is readily apparent from a reading of his affidavit that his
claimed personal familiarity with this matter is taken from the
documents and records ostensibly created by Citibank, and/or
assignees who have preceded the Plaintiff, which have now come
into the Plaintiffs possession. Clearly, Mr. Fabacher has no
personal knowledge of the retail charge account agreement
between the Defendant and Citibank .
The Plaintiffs reliance upon the documents it submits is
insufficient to make out a prima facie case entitling the Plaintiff
to summary judgment. Simply annexing documents to the moving
papers, without a proper evidentiary foundation is inadequate .

The documents the Plaintiff attempts to submit, specifically the

purported account statements and assignments, are being
offered for the truth of the statements contained therein and
are, by definition, hearsay . They may be considered only if
they fall within one of the recognized exceptions to the hearsay
rule . The Plaintiff attempts to rely upon the business records
exception to the hearsay rule in its effort to establish a prima
facie case.
***
[T]he proponent of the offered evidence must establish three
general elements, by someone familiar with the habits and
customary practices and procedures for the making of the
documents, before they will be accepted in admissible form: (1)
that the documents were made in the regular course of business;
(2) that it was the regular course of the subject business to make
the documents; and, (3) that the documents were made
contemporaneous with, or within a reasonable time after, the act,
transaction, occurrence or event recorded .
The repetitive statements of Mr. Fabacher, the Plaintiffs
custodian of records, to the effect that he collects and maintains
the records and documents of Citibank and/or any other prior
assignees, in the regular course of plaintiffs business
(Fabacher Affidavit 3/14/07, 1), as if they were magic words,
does not satisfy the business records exception to the hearsay
rule. That phrase, standing alone, does not establish that the
records upon which the Plaintiff relies were made in the regular
course of the Plaintiffs business, that it was part of the regular

course of the Plaintiffs business to make such records, or that

the records were made at or about the time of the transactions
recorded. Contrary to the misconception under which the
Plaintiff labors, the mere filing of papers received from other
entities, even if they are retained in the regular course of
business, is insufficient to qualify the documents as business
records (citation omitted). Standard Textile Co., Inc. v. National
Equipment Rental, Ltd., 80 A.D.2d 911, 437 N.Y.S.2d 398 (2nd
Dept. 1981) . The statements of Mr. Fabacher, who merely
obtained the records from another entity that actually generated
them, was an insufficient foundation for their introduction into
evidence [citing Standard Textile Co., Inc. v. National Equipment
Rental, Ltd., supra.]. Insurance Company of North America v.
Gottlieb, 186 A.D.2d 470, 588 N.Y.S.2d 571 (1st Dept. 1992)
***
The Plaintiff has also failed to submit any competent proof of an
agreement between Citibank and the Defendant. The Plaintiffs
reliance on Chase Manhattan Bank (National Association), Bank
Americard Division v. Hobbs, 94 Misc.2d 780, 405 N.Y.S.2d 967
(Civ.Ct. Kings Co. 1978) is misplaced. The plaintiff therein was
not an assignee, but the party with which the defendant had
entered into a retail charge account agreement and could
properly lay a business record foundation for the entry of the
documents necessary to prove the existence of same.
Additionally, the plaintiff therein provided proper proof of
mailing of the subject account statements, along with copies of
the retail charge account agreement, and demonstrated the
defendants use of the credit card in question, thereby accepting

the terms of use of that card.

In the matter sub judice, the account statements upon which the
Plaintiff relies do not show any usage of the credit card in
question by the Defendant. The four (4) statements submitted
show only an alleged open balance, with the accrual of fees and
finance charges thereon. The Plaintiff also fails to submit any
proof that a copy of the retail installment credit agreement or
the statements upon which it relies were ever mailed to the
Defendant. Neither Mr. Fabacher nor Plaintiffs counsel mailed
these documents or have personal knowledge of their mailing;
nor does the Plaintiff even attempt to describe a regular office
practice and procedure for the mailing of the documents
designed to insure that they are always properly addressed and
mailed. [Citations omitted.] [Footnote omitted.]

D. [5.4] Proof of Contract Terms

Collection defense counsel should always beware of generic
contracts that cannot be identified as pertaining to the specific
account sued on. Velocity Investments, LLC v. Alston, 397
Ill.App.3d 296, 922 N.E.2d 538, 337 Ill.Dec. 415 (2d Dist. 2010);
Asset Acceptance, LLC v. Tyler, 2012 IL App (1st) 093559, 966
N.E.2d 1039, 359 Ill.Dec. 351; MBNA America Bank, N.A. v.
Nelson, 15 Misc.3d 1148(A), 841 N.Y.S.2d 826, 2007 WL 1704618
(N.Y. City Civ. 2007) (text available in Westlaw). In Nelson, the
court required proof of the actual terms of the agreement with the
particular debtor:
The notion that the terms of a valid offer be communicated to
the offeree, regardless of whether the contract is unilateral,

bilateral or otherwise, before they can become binding is well

settled law . Therefore, absent a definite and certain offer
outlining the terms and conditions of credit card use with the
users actual signature, the Petitioner has the burden of
establishing the binding nature of the underlying contract,
including any allegedly applicable arbitration clauses, which
entails proof, at a most basic level, that the debtor was provided
with notice of the terms and conditions to which Petitioner
now seeks to hold Respondent .
Petitioner must tender the actual provisions agreed to, including
any and all amendments and not simply a photocopy of
general terms to which the credit issuer may currently demand
debtors agree. For example, Petitioners Exhibit A which is
labeled Credit Card Agreement and Additional Terms and
Conditions lacks Respondents signature. Neither does it
contain a date indicating when these terms were adopted by
MBNA nor how the terms were amended or changed, if at all,
over the years appear anywhere on the document. Furthermore,
the contract does not contain any name, account number or other
identifying statements which would connect the proffered
agreement with the Respondent in this action. In fact, petitioners
appear to have attached the exact same photocopy, which as
noted is not specific to any particular consumer, to many of its
confirmation petitions. While on its face there is nothing
necessarily unusual about a large commercial entity such as
MBNA providing a standard form contract that all credit card
consumers agree to, the burden nevertheless remains with
MBNA to tie the binding nature of its boiler-plate terms to the
user at issue in each particular case and to show that those terms

are binding on each Respondent it seeks to hold accountable

(the Respondents intent to be bound after notice of terms is
established can be shown via card use ) . The fact that
MBNA issues a particular agreement with particular terms with
the majority of its customers is of little relevance in determining
the actual terms of the alleged agreement before this Court, if
not linked directly to respondent in some way shape or form. Just
because a petitioner provides a photocopy of a document entitled
Additional Terms and Conditions, certainly does not mean
those terms are binding on someone who could have theoretically
signed a completely different agreement when they were
extended credit. Whether the physical card itself or some
solicitation agreement with Respondents signature referenced
the terms and conditions or whether the terms were made
readily accessible to Respondent by e-mail or the internet, and
Respondent was in fact aware of this, may all be relevant to an
inquiry into constructive notice but such notice must still be
established. At bar, MBNA Bank has failed to establish that the
provided terms and conditions were the actual terms and
conditions agreed to by Nelson. As such, applying [First Options
of Chicago, Inc. v. Kaplan, 514 U.S. 938, 131 L.Ed.2d 985, 115
S.Ct. 1920 (1995),] the Court does not find objective intent on
the part of the Respondent to be bound to the contractual
statements proffered by MBNA requiring the question of
arbitrability to be decided by the arbitrator or that arbitration is
the required forum for either party to bring claims against the
other.
While these deficiencies of proof are fatal to Petitioners claim,
such a problem is not without a solution. Since the credit card

issuer is the party in the best position to maintain records of

notification it may provide an affidavit from someone with
knowledge of the policies, procedures and practices of its
organization affirming (1) when and how the notification of the
original terms and conditions was provided including any
solicitations or applications containing the Respondents
signature, (2) what those terms and conditions were at the time
of the notification, (3) whether the mandatory arbitration clause,
and any other additional provisions Petitioner now treats as
binding, were included in the terms and conditions of card use at
the time Respondent entered into the retail credit agreement,
and if they were not, then when they were added, as well as a
statement certifying that (a) such addition was made pursuant to
the applicable law chosen by the parties to apply to the
agreement, not limited to but especially including mandatory optout requirements, and (b) a statement indicating that upon
reasonable and diligent inspection of the records maintained by
the Petitioner, and to the best of Petitioners knowledge
Respondent never opted out of said clause, and the basis for this
determination. The use of such affidavits to support confirmation
of arbitration awards is not novel. [Emphasis added.] [Footnotes
omitted.] 2007 WL 1704618 at **7 8.
Accord Lucas v. MBNA, 18 Misc.3d 1109(A), 856 N.Y.S.2d 499
(Kings Cty.Sup. 2008) (text available in Westlaw).
In Palisades Collection LLC v. Haque, 235 N.Y.L.J., No. 71, 20,
col. 3 (N.Y. City Civ. Apr. 13, 2006) (Pineda-Kirwin, J.), the court
held:
Plaintiff attempted to introduce into evidence a document

entitled Terms and Conditions which does not name defendant,

contains no specific terms as to this defendants particular
account, and contains no signatures, claiming that AT&T
Wireless sent it to defendant with the information regarding
defendants account. Ms. Bergman testified that plaintiff
received it from AT&T Wireless along with the electronic
transmission. In light of the earlier testimony that the account
came to plaintiff via electronic transmission, it was not clear
from the testimony how the Terms and Conditions document
was sent along with the other information.
Defendant examined the document and objected on the grounds
that the document was not his contract with AT&T Wireless as it
did not contain the terms of his agreement and that he had never
received such a document from AT&T Wireless. As plaintiff
could not demonstrate that AT&T Wireless ever sent defendant
this document, as the document was introduced to prove the
truth of its contents, and as plaintiff failed to lay an adequate
foundation for its admission as a business record, the objection
was sustained .
Plaintiff again sought to introduce the Terms and Conditions
document by claiming that AT&T Wireless sent the document to
plaintiff as part of the purchase of defendants account.
Defendant again objected on the basis that it was not his
contract, and the objection was again sustained. Plaintiff essayed
several more times to introduce the Terms and Conditions
contract, defendant objected, and each time the objection was
sustained. Thus, plaintiff was unable to offer evidence of the
terms of the agreement between AT&T Wireless and defendant.

***
While it is well settled that the absence of an underlying
agreement, if established, does not relieve a defendant of his
obligation to pay for goods and services received on credit,
(Citibank (SD) NA v. Roberts, 304 AD2d 901 [3rd Dept 2003],)
that is not the sole impediment to this plaintiffs case. Here,
without any admissible evidence from its alleged assignor,
plaintiff was unable to establish that AT&T Wireless and
defendant entered into a contract pursuant to which defendant
was obligated to pay for the additional charges for which
defendant now sues.
Other cases holding that proof of agreements was insufficient include
Unifund CCR Partners v. Harrell, No. FSTCV054003017, 2005
WL 2082731 at *2 (Conn.Super. Aug. 3, 2005) (failure to produce
signed agreement or affidavit authenticating purported agreement as
that entered into with defendant resulted in denial of summary
judgment; affidavit of plaintiffs legal coordinator that she has
access to the records of Unifund CCR Partners and therefore has
personal knowledge of the facts not sufficient); First Select Corp.
v. Grimes, No. 2-01-257-CV, 2003 WL 151940 (Tex.App. Jan. 23,
2003) (summary judgment for debtor affirmed when there was no
evidence that debtor used credit card after First Select sent out
agreement modification and no copy of written agreement between
original creditor and consumer or consumers acceptance of such
agreement); CACV of Colorado, LLC v. Cassidy, No.
NNHCV054014939, 2005 WL 2981680 (Conn.Super. Oct. 19,
2005); CACV of Colorado, LLC v. Acevedo, No.
NNHCV054014933, 2005 WL 2981673 (Conn.Super. Oct. 19,
2005); CACV of Colorado, LLC v. Werner, No. NNHCV054014937,

2005 WL 2981677 (Conn.Super. Oct. 19, 2005); CACV of Colorado,

LLC v. McNeil, No. NNHCV054014938, 2005 WL 2981676
(Conn.Super. Oct. 19, 2005); CACV of Colorado, LLC v. Corda, No.
NNHCV054016053, 2005 WL 3664087 (Conn.Super. Dec. 16,
2005). In the CACV cases, the court refused applications to confirm
arbitration awards when the only document containing the arbitration
clause was an affidavit signed with a signature stamp to which was
attached a form agreement containing no dates or signatures; the
court also noted that the National Arbitration Forum does not
provide that the arbitrator find the defendant has received actual
notice of the demand for arbitration. Accord MBNA America Bank,
N.A. v. Straub, 12 Misc.3d 963, 815 N.Y.S.2d 450 (N.Y. City Civ.
2006); CACH, LLC v. Viscuso, No. 7034/09, 2009 NY Slip Op
32031(U), 2009 N.Y.Misc. LEXIS 5463 at *4 (N.Y. Cty.Sup. Sept.
1, 2009) (As proof of a written agreement to arbitrate, petitioner
submits only a photocopy of a general form of Credit Card
Agreement issued by MBNA America Bank, N.A. (the Credit Card
Agreement), portions of which are illegible or cut off. The Credit
Card Agreement is undated and unsigned, and lacks specific
reference to the respondent, or to any other obligor on the credit card
account. (Nor does the agreement reflect the specific terms agreed
to, including interest rate and account fees.) There is no affidavit or
documentary evidence that the Credit Card Agreement was the actual
agreement between the petitioner and respondent, or that respondent
received actual or constructive notice of the terms and conditions of
the Credit Card Agreement, including the arbitration section, and that
respondent manifested an intent to be bound by such terms. Such
intent may be shown by respondents use of the credit card after such
notice, but petitioner submits no monthly credit card statements, or
other proof demonstrating respondents use of the card.); FIA Card
Services, N.A. v. Faucera, 2009 NY Slip Op 31466(U), 241

N.Y.L.J. 124, 2009 N.Y.Misc. LEXIS 5954 at *3 (Nassau Cty.Sup.

June 29, 2009) ([I]nsofar as the Credit Card Agreement is undated
and unsigned, and consists of a general form which lacks specific
reference to the Respondent, the Court requires additional evidence
that the Credit Card Agreement was the actual agreement between
the parties, and was binding upon the Respondent. The evidence
must establish that the Respondent received actual or constructive
notice of the terms and conditions of the Credit Card Agreement,
including the arbitration provisions, and that Respondent manifested
an intent to be bound by such terms, which may be shown by
Respondents use of the credit card after such notice.).

E. [5.5] Facsimile Statements

Collection defense counsel should beware of facsimile statements,
which are computer-generated, nonimage documents. If the records
are generated by computer, a person familiar with the computer
system who can testify that the output is an accurate reflection of the
input must lay a foundation. American Express Travel Related
Services Co. v. Vinhnee (In re Vinhnee), 336 B.R. 437 (B.A.P. 9th
Cir. 2005). Among pertinent subjects of inquiry are system control
procedures, including control of access to the pertinent databases,
control of access to the pertinent programs, recording and logging of
changes to the data, backup practices, and audit procedures utilized
to assure the continuing integrity of the records. 336 B.R. at 449. In
Vinhnee, [t]he trial court concluded that the declaration in the posttrial submission was doubly defective. First, the declaration did not
establish that the declarant was qualified to provide the requisite
testimony. Second, the declaration did not contain information
sufficient to warrant a conclusion that the American Express
computers are sufficiently accurate in the retention and retrieval of
the information contained in the documents. 336 B.R. at 448.

Illinois likewise holds that a foundation for computer-generated

records is established when it is shown that the equipment which
produced the record is recognized as standard, the entries were
made in the regular course of business at or reasonably near the
happening of the event recorded and the sources of information,
method and time of preparation were such as to indicate their
trustworthiness and to justify their admission. Riley v. Jones
Brothers Construction Co., 198 Ill.App.3d 822, 556 N.E.2d 602,
606, 144 Ill.Dec. 924 (1st Dist. 1990). This foundational
requirement does not appear to have been altered by the adoption of
the Illinois Rules of Evidence. Michael H. Graham, GRAHAMS
HANDBOOK OF ILLINOIS EVIDENCE 803.6, p. 803 (10th ed.
2010).
Business records must be prepared in the regular course of
business, where there is little or no motive to falsify. Documents
prepared after the event for litigation purposes are not admissible as
business records. People v. Smith, 141 Ill.2d 40, 565 N.E.2d 900,
914, 152 Ill.Dec. 218 (1990) (prison incident reports are not
admissible under business-records exception to hearsay rule when
offered to prove truth of disciplinary infractions or confrontations
between prison employees or law enforcement personnel or prison
inmates); Kelly v. HCI Heinz Construction Co., 282 Ill.App.3d 36,
668 N.E.2d 596, 218 Ill.Dec. 112 (4th Dist. 1996); People ex rel.
Schacht v. Main Insurance Co., 114 Ill.App.3d 334, 448 N.E.2d
950, 957, 70 Ill.Dec. 72 (1st Dist. 1983) (since the probability of
trustworthiness is the rationale for the business records rule, records
prepared for litigation are not normally admissible even if it is a part
of the regular course of business to make such records); Palmer v.
Hoffman, 318 U.S. 109, 87 L.Ed. 645, 63 S.Ct. 477 (1943). No
document prepared by a debt buyer regarding a charged-off account

as a predicate for suing the consumer should be a business record.

In Melendez-Diaz v. Massachusetts, 557 U.S. 305, 174 L.Ed.2d
314, 129 S.Ct. 2527, 2538 2540 (2009), the Court held:
Documents kept in the regular course of business may ordinarily
be admitted at trial despite their hearsay status. See Fed. Rule
Evid. 803(6). But that is not the case if the regularly conducted
business activity is the production of evidence for use at trial.
Our decision in Palmer v. Hoffman, 318 U.S. 109, 63 S.Ct. 477,
87 L.Ed. 645 (1943), made that distinction clear. There we held
that an accident report provided by an employee of a railroad
company did not qualify as a business record because, although
kept in the regular course of the railroads operations, it was
calculated for use essentially in the court, not in the business.
Id., at 114, 63 S.Ct. 477 . The analysts certificates like
police reports generated by law enforcement officials do not
qualify as business or public records for precisely the same
reason. See Rule 803(8) (defining public records as excluding,
however, in criminal cases matters observed by police officers
and other law enforcement personnel).
***
Business and public records are generally admissible absent
confrontation not because they qualify under an exception to the
hearsay rules, but because having been created for the
administration of an entitys affairs and not for the purpose of
establishing or proving some fact at trial they are not
testimonial. [Footnote omitted.]

F. [5.6] Secondary Evidence of Documents

Secondary evidence of documents should be objected to. Prior to the
adoption of the Illinois Rules of Evidence, Illinois courts did not
allow a party who had disposed of a document, knowing that it might
be necessary to use it as evidence, to prove its contents by secondary
evidence. Lam v. Northern Illinois Gas Co., 114 Ill.App.3d 325,
449 N.E.2d 1007, 1012, 70 Ill.Dec. 660 (1st Dist. 1983). The Lam
court stated:
To introduce secondary evidence of a writing, a party must first
prove prior existence of the original, its loss, destruction or
unavailability; authenticity of the substitute and his own
diligence in attempting to procure the original. (Gillson v. Gulf,
Mobile & Ohio R.R. Co. (1969), 42 Ill.2d 193, 199, 246 N.E.2d
269.) Here, NI-Gas established that the original customer
service cards did exist. NI-Gas, however, destroyed the cards. If
the original document has been destroyed by the party who
offers secondary evidence of its contents, the evidence is not
admissible unless, by showing that the destruction was accidental
or was done in good faith, without intention to prevent its use as
evidence, he rebuts to the satisfaction of the trial judge, any
inference of fraud. (McCormick on Evidence, sec. 237 (2d ed.
1972); 29 Am.Jur.2d, Evidence, secs. 454, 463; 32A C.J.S.
Evidence 824.) In Illinois, if a party has voluntarily destroyed a
written instrument, he cannot prove its contents by secondary
evidence unless he repels every inference of a fraudulent design
in its destruction. (Blake v. Fash (1867), 44 Ill. 302, 304; accord,
Palmer v. Goldsmith ([1st Dist.] 1884), 15 Ill.App. 544, 546.) We
note further that the resolution of loss or destruction issues is a

matter necessarily consigned to the sound discretion of the trial

judge. Wright v. Farmers Co-Op of Arkansas and Oklahoma
(8th Cir. 1982), 681 F.2d 549, 553; accord, People v. Baptist
(1979), 76 Ill.2d 19, 27, 27 Ill.Dec. 792, 389 N.E.2d 1200. Id.
Accord Sears, Roebuck & Co. v. Seneca Insurance Co., 254
Ill.App.3d 686, 627 N.E.2d 173, 176, 194 Ill.Dec. 57 (1st Dist.
1993) (The best or secondary evidence rule provides that in order
to establish the terms of a writing, the original must be produced
unless it is shown to be unavailable for some reason other than the
serious fault of the proponent.); Zurich Insurance Co. v.
Northbrook Excess & Surplus Insurance Co., 145 Ill.App.3d 175,
494 N.E.2d 634, 652, 98 Ill.Dec. 512 (1st Dist. 1986), affd, 118
Ill.2d 23 (1987).
The Illinois Rules of Evidence restate the test as allowing evidence
other than the original if [a]ll originals are lost or have been
destroyed, unless the proponent lost or destroyed them in bad faith.
Ill.R.Evid. 1004(1). Michael H. Graham, GRAHAMS
HANDBOOK OF ILLINOIS EVIDENCE 1004.1, p. 1097 (10th ed.
2010), indicates that the above decisions remain good law.
Thus, a creditor that disposes of signed applications on active
accounts, or a debt buyer that does not acquire documents because it
wants to save money, is not entitled to introduce secondary evidence
of the missing documents.

G. [5.7] Illinois Law

Illinois likewise holds that a sufficient foundation for admitting
[business] records may be established through testimony of the
custodian of records or another person familiar with the business and

its mode of operation. In re Estate of Weiland, 338 Ill.App.3d 585,

788 N.E.2d 811, 824, 273 Ill.Dec. 220 (2d Dist. 2003). Under
Illinois law:
Anyone familiar with the business and its procedures may testify
as to the manner in which records are prepared and the general
procedures for maintaining such records in the ordinary course of
business. Raithel v. Dustcutter, Inc., 261 Ill.App.3d 904, 909, 199
Ill.Dec. 809, 634 N.E.2d 1163 ([4th Dist.] 1994) (Cook, J.,
specially concurring). The foundation requirements for admission
of documents under this exception are that it is a writing or
record made as memorandum of the event made in the ordinary
course of business and it was the regular course of the business
to make such a record at that time. [Weiland, supra.] City of
Chicago v. Old Colony Partners, L.P., 364 Ill.App.3d 806, 847
N.E.2d 565, 576, 301 Ill.Dec. 555 (1st Dist. 2006).
Under Illinois law prior to the adoption of the Illinois Rules of
Evidence, if the records were those of business A, they could be
treated as records of business B only if A was authorized by B to
generate the records on behalf of B as part of Bs ordinary business
activities. In Argueta v. Baltimore & Ohio Chicago Terminal R.R.,
224 Ill.App.3d 11, 586 N.E.2d 386, 392, 166 Ill.Dec. 428 (1st Dist.
1991), appeal denied, 144 Ill.2d 631 (1992), the court held:
A number of Illinois cases have held that documents produced by
third parties were inadmissible as business records. In each of
these cases, the documents were not commissioned by the
business seeking to introduce them into evidence, albeit the
documents were retained in the business files. International
Harvester Credit Corp. v. Helland ([2d Dist.] 1986), 151

Ill.App.3d 848, 104 Ill.Dec. 833, 503 N.E.2d 548 (minutes of board
of directors meeting of a company were not the business records
of a second company); Pell v. Victor J. Andrew High School ([1st
Dist.] 1984), 123 Ill.App.3d 423, 78 Ill.Dec. 739, 462 N.E.2d 858
(letter from a manufacturer was not the business record of a
second manufacturer); Benford v. Chicago Transit Authority
([1st Dist.] 1973), 9 Ill.App.3d 875, 293 N.E.2d 496 (a note made
by employees private physician was not the business record of
employer).
By contrast, a business report generated by a third party has
been held to be admissible when it was commissioned in the
regular course of business of the party seeking to introduce it.
Birch v. Township of Drummer ([4th Dist.] 1985), 139 Ill.App.3d
397, 94 Ill.Dec. 41, 487 N.E.2d 798 (survey of an engineering firm
commissioned by county admissible as business record of the
county).
The key consideration is the authority of the third party to act on
the business behalf. Where a third party is authorized by a
business to generate the record at issue, the record is of no use
to the business unless it is accurate and, therefore, the record
bears sufficient indicia of reliability to qualify as a business
record under the hearsay rule. See also N.L.R.B. v. First Termite
Control Co., Inc. (9th Cir. 1981), 646 F.2d 424; Fed.R.Evid.
803(6); M. Graham, Cleary & Grahams Handbook of Illinois
Evidence 803.10, at 647 (5th ed. 1990).
Accordingly, we find that the trial court erred in its ruling that
the ultrasonic test reports were inadmissible. The reports were

the business records of [the railroad]. Although the reports were

generated by Calumet and Conam, the tests were performed at
the direction of the railroad in the regular course of its business.
Accord Kimble v. Earle M. Jorgenson Co., 358 Ill.App.3d 400, 830
N.E.2d 814, 294 Ill.Dec. 402 (1st Dist. 2005).
Applying a test similar to that followed in Illinois, a Missouri court
rejected a debt buyers attempt to introduce records of the original
creditor in Asset Acceptance v. Lodge, 325 S.W.3d 525, 528 529
(Mo.App. 2010):
The qualification of records within the business records
exception to the hearsay rule requires testimony as to the mode
of preparation of the record and that it was made at or near the
time of the act, condition or event it purports to show. [In re
Estate of West, 32 S.W.3d 648, 653 (Mo.App. 2000).] A witness is
qualified to testify regarding a business record if he or she has
sufficient knowledge of the business operation and methods of
keeping records of the business to give the records probity. Id.
Exhibits 1 and 2 do not meet the statutory requirements for
admission under the business records exception. The only
testimony regarding the documents came through Beach, an
employee of Asset. Beach could not specifically testify to the
mode of the documents preparation or the time of their
preparation given the documents were prepared by HSBC.
Although personal knowledge of the sponsoring witness as to the
mode of preparation of the documents sought to be admitted as
business records is not required for the admission of those
documents, C & W Asset Acquisition, LLC v. Somogyi, 136

S.W.3d [134,] 137 [(Mo.App. 2004)], these documents were not

even prepared by Asset in its ordinary course of business. The
documents prepared by HSBC were merely transferred to Asset
by HSBC as part of the transaction between Asset and HSBC.
In Zundel v. Bommarito, 778 S.W.2d 954, 958 (Mo.App. E.D.
1989), the court held [t]he business records exception to the
hearsay rule applies only to documents generated by the business
itself. Thus, documents that are part of a file belonging to a
holders business but were not generated or prepared by the
holder in the holders ordinary course of business do not fall
under the business records exception. Id. In Zundel, the court
found the trial court properly excluded documents contained in a
file that were not generated by the holder in the businesss
ordinary course of business but were generated elsewhere. Id.
The court in Zundel stated, [w]here the status of the evidence
indicates it was prepared elsewhere and was merely received
and held in a file but was not made in the ordinary course of the
holders business it is inadmissible and not within a business
record exception to the hearsay rule under [Mo.Ann.Stat.
490.680]. Id.
In the present case, as in Zundel, Asset did not prepare the
documents in question, but rather only received the documents
from HSBC and held them in their files. Beach was not qualified
to testify regarding documents not prepared by Asset. Thus, the
documents do not fall under the business records exception. The
trial court erred and abused its discretion in admitting Exhibits 1
and 2 into evidence under the business records exception. Point
granted.

Debt buyers often rely on Krawczyk v. Centurion Capital Corp., No.

06-C-6273, 2009 WL 395458 (N.D.Ill. Feb. 18, 2009), a Fair Debt
Collection Practices Act case applying the Federal Rules of
Evidence. The Krawczyk court stated:
The Court also is persuaded by Defendants argument that the
records of Centurion and Palisades fall under the business
records exception to the hearsay rule. Rule 803(6) provides that
regularly kept business records may be admitted to prove the
truth of the matters asserted therein because they are presumed
to be exceptionally reliable. Fed.R.Evid. 803(6); U.S. v.
Emenogha, 1 F.3d 473, 483 484 (7th Cir. 1993). To qualify as
business records under Rule 803(6), 1) the document must be
prepared in the normal course of business; 2) it must be made at
or near the time of the events it records; and 3) it must be based
on the personal knowledge of the entrant or on the personal
knowledge of an informant having a business duty to transmit the
information to the entrant. Datamatic Servs., Inc. v. United
States, 909 F.2d 1029, 1032 (7th Cir. 1990). The admissibility of
business records is entrusted to the broad discretion of the trial
court, and the courts ruling will not be disturbed absent an abuse
of that discretion. Id.
As recognized by the Massachusetts Supreme Judicial Court in
Beal Bank, SSB v. Eurich, [t]he problem of proving a debt that
has been assigned several times is of great importance to
mortgage lenders and financial institutions. 444 Mass. 813, 831
N.E.2d 909, 914 (Mass. 2005) (citing New England Sav. Bank v.
Bedford Realty Corp., 246 Conn. 594, 717 A.2d 713 (1998)).
Given the common practice of financial institutions buying and

selling loans, the court in Beal determined that it is normal

business practice to maintain accurate business records
regarding such loans and to provide them to those acquiring the
loan. Id.; see also Federal Deposit Ins. Corp. v. Staudinger, 797
F.2d 908, 910 (10th Cir. 1986) (foundation for admissibility may
at times be predicated on judicial notice of the nature of the
business and the nature of the records particularly in the case
of bank and similar statements). The court concluded that the
bank was not required to provide testimony from a witness with
personal knowledge regarding the maintenance of the
predecessors business records because the banks reliance on
this type of record keeping by others rendered the records the
equivalent of the banks own records. See also U.S. v. Adefehinti,
510 F.3d 319, 326 (D.C.Cir. 2007) (finding that pursuant to the
rule of incorporation, the record of which a business takes
custody is thereby made by the business within the meaning of
the rule); Matter of Ollag Construction Equipment Corp., 665
F.2d 43, 46 (2d Cir. 1981) (finding that business records are
admissible if witnesses testify that the records are integrated
into a companys records and relied upon in its day-to-day
operations); U.S. v. Carranco, 551 F.2d 1197, 1200 (10th Cir.
1977) (holding that freight bills, though drafted by other
companies, were business records of a shipping company because
they were adopted and relied upon by the shipping company).
The Beal court also stated that to hold otherwise would
severely impair the ability of assignees of debt to collect the debt
due because the assignees business records of the debt are
necessarily premised on the payment records of its
predecessors. 831 N.E.2d at 914 .

***
Relying on the previously set forth principles as well as those
espoused by the court in Beal, this Court finds that Centurion
integrated the Capital One records into its own records and
relied upon them in its daily operations. Centurion relied upon
the information provided by Capital One when attempting to
collect on Plaintiffs defaulted debt. Centurion, as a debt
collector, was aware of the penalties for attempting to collect
bogus debts; therefore, its reliance on the records provides
another assurance of reliability. Kavanaghs affidavit attests
that she has personal knowledge of Centurions record-keeping,
she is competent to testify to those matters, and she has
reviewed and is familiar with the records relating to Plaintiffs
debt. She further explains how Centurions automated collection
system database created the record of Plaintiffs alleged
defaulted debt on December 8, 2005, the same day Centurion
purchased the debt from Capital One as part of a portfolio of
defaults. As soon as Centurion had the information available to
it, it created a record containing Plaintiffs credit card number,
the amount of the debt, the last date of payment, and the
debtors last known address and social security number.
Additionally, the record was transferred from Capital One to
Centurions automated collection system database without
alteration. Although Kavanagh did not author the record in
question, the business record exception does not impose any such
requirement. See [United States v. Duncan, 919 F.2d 981, 986 (5th
Cir. 1991)]. Kavanaghs affidavit, testifying to the records that
Centurion received from Capital One, is reliable and can be
relied upon in support of summary judgment. And, for the same

reasons, the affidavit of Peter Fish is deemed reliable and also

can be used in support of Defendants motion for summary
judgment. [Footnotes omitted.] 2009 WL 395458 at **4 5.
The author submits that the above-quoted statement is wrong even
under federal law. Beal Bank and similar cases did not involve
situations in which the records pertained entirely to defaulted debts.
They involved situations in which one business incorporated
accounts of another, most or all of which were not in default, and
made use of the acquired records in the ordinary course of its
business, subjecting them to normal accounting and auditing
procedures. In addition, the incorporating business was dealing with
non-defaulted customers whose goodwill and business it wanted to
preserve. These facts furnished circumstantial guarantees of
reliability equivalent to those that exist when a business is offering
records that it generated itself. Indeed, this is how Beal Bank has
been interpreted by the Massachusetts courts. In Provenzano v.
Plymouth Rock Assurance Corp., 2006 Mass.App.Div. 155, 156
157, the court stated:
Beal Bank may not be read, however, to obviate the
requirements of [the business-records statute] as to all records
prepared or maintained in the course of business. As stated in
Beal Bank, because it was the normal business practice [of the
separate company] to maintain accurate business records
regarding such loans and to provide them to those acquiring the
loan, it was not necessary for the bank to provide testimony
from a witness with personal knowledge regarding the
maintenance of the predecessors business records. Beal Bank,
supra, at 817 818, 831 N.E.2d 909. In this case, however,
Plymouth Rock did not have access to Scopes records on a daily

basis, and Scope did not have the same business duty to maintain
records accurately. It follows, therefore, that Plymouth Rock
should have introduced testimony from a witness with personal
knowledge of how the Scope records were kept. It would have
been incumbent upon such a witness to demonstrate that each
person in the chain of communication, from the observer to the
record preparer, reported the information in question as a
matter of business duty.
According to the Advisory Committee on the Federal Rules of
Evidence, Fed.R.Evid. 803(6) is based on the premise that the
reliability of business records is supplied by systematic checking,
by regularity and continuity which produce habits of precision, by
actual experience of business in relying upon them, or by a duty to
make an accurate record as part of a continuing job or occupation.
Advisory Committee Notes, 1972 Proposed Rules, Note to
Paragraph (6), Fed.R.Evid. 803. The same circumstantial guarantee
of trustworthiness is not present when a debt buyer or debt collector
acquires a portfolio of defaulted accounts. The debt collector is not
interested in the goodwill of the defaulted debtors, or in avoiding
overcharges, but in collecting as much money as possible. If a debt
buyers records do not satisfy the normal standard of admissibility,
and it does not produce someone who can testify that the recordkeeping procedures of the pre-default creditor meet this standard, the
records should not be admitted. The fact that an out-of-court
declarant was aware that there are penalties for making false
statements has never been considered a basis for allowing testimony
that does not otherwise satisfy the requirements of a hearsay
exception; if it did, any affidavit would be competent evidence.
The Krawczyk courts conclusion is basically inconsistent with the

distinction made in the FDCPA between persons who acquire

current debts and persons who acquire defaulted debts; the latter are
covered by the FDCPA because the need to preserve customer
goodwill does not exist and requires that they be regulated. The
Krawczyk courts conclusion is also inconsistent with MelendezDiaz v. Massachusetts, 557 U.S. 305, 174 L.Ed.2d 314, 129 S.Ct.
2527, 2538 2540 (2009), quoting Palmer v. Hoffman, 318 U.S.
109, 87 L.Ed. 645, 63 S.Ct. 477, 481 (1943), which distinguished
between records calculated for use essentially in the court, not in
the business and inquires whether records were created for the
administration of an entitys affairs and not for the purpose of
establishing or proving some fact at trial.
In Webb v. Midland Credit Management, Inc., No. 11 C 5111, 2012
WL 2022013 at **4 5 (N.D.Ill. May 31, 2012), the court refused to
allow information from a debt seller to be admitted into evidence
based on testimony by the purchaser when it was clear that the
purchasers witness had no idea how the records were generated or
whether they were reliable:
Minford admits that some of the business records he reviewed
were created by businesses other than Midland Credit, but
defendants argue that these third party records are admissible
under Rule 803(6) because they have been incorporated into
the business records of Midland Credit and relied upon by
Midland Credit in conducting its business. (Minford Decl. 3.)
Indeed, some courts in this circuit have recognized that a third
party document may qualify as another business entitys record,
provided that the entity integrated the third party document into
its records and relied upon it in its day-to-day operations.
Cunningham Charter Corp. v. Learjet, Inc., No. 07-CV-233-

DRH-DGW, 2012 WL 1565532, at *3 (S.D.Ill. May 2, 2012);

accord Makor Issues & Rights, Ltd. v. Tellabs, Inc., 735
F.Supp.2d 856, 867 n.2 (N.D.Ill. 2010); BP Amoco Chem. Co. v.
Flint Hills Res., LLC, 697 F.Supp.2d 1001, 1021 (N.D.Ill. 2010);
see also Krawczyk v. Centurion Cap. Corp., No. 06-C-6273, 2009
WL 395458, at *5 (N.D.Ill. Feb. 18, 2009) (admitting evidence of
assignment of debt under Rule 803(6) where collection agency
integrated assignors records into its own and relied on them in
conducting its daily operations).
The Seventh Circuit has not directly addressed this issue, but
courts applying this approach have held that the proponent of
such records must do more than assert that it relied on the third
party record in conducting its day-to-day business activities.
Rather, the proponent of the document must demonstrate that
the other requirements of Rule 803(6) are satisfied.
Cunningham Charter Corp., 2012 WL 1565532, at *3; see also
Datamatic Servs., Inc., 909 F.2d at 1033 (if the source of the
information [contained in the business record] is an outsider,
Rule 803(6) does not, by itself, permit the admission of the
business record (internal quotation marks and citation
omitted)); United States v. Borrasi, 639 F.3d 774, 780 (7th Cir.
2011) (courts may not permit the introduction of hearsay
contained within hearsay unless each layer is properly admitted
under an exception to Rule 802 (citing Fed.R.Evid. 805)); 2
Kenneth S. Broun, McCormick on Evidence 290 (6th ed.) (The
common law exception for regularly kept records required that
[t]he entrant be acting in the regular course of business,
and if the information was supplied by another, that person also
was required to be acting in the regular course of business.).

Thus, to admit the third party documents attached as Exhibits A

through F to Minfords declaration as business records,
defendants must demonstrate that the third party author created
such documents on a regular basis and kept the document at
issue in the course of its regularly conducted business activity.
See Cunningham Charter Corp., 2012 WL 1565532, at *3.
Defendants must satisfy these foundational requirements
through the testimony of a qualified witness with knowledge of
the process by which the third party created the document,
thereby demonstrating that the document is trustworthy. See id.
A review of Minfords declaration demonstrates that defendants
have failed to lay the requisite foundation for admission of
Exhibits A through F. Minford does not claim to be
knowledgeable in the record keeping procedures of any of the
non-defendant entities. Moreover, when asked at his deposition
whether he had any information about what records Sherman
Originator and LVNV maintain and how Sherman Acquisition
keeps its records, Minford responded no or that he did not know.
(See Minford Dep. 21:11 18; 31:1 25.) Thus, by his own
admission, Minford is not qualified to testify as to the process by
which Sherman Originator, LVNV, and Sherman Acquisition
created and maintained Exhibits A through D. As to Exhibits E
and F, which include a bill of sale signed by representatives of
Sherman Originator III and Citibank South Dakota and credit
card statements issued by Sears, Minford does not claim to be
knowledgeable in the record keeping procedures of either
Sherman Originator III or Citibank and admitted under oath that
he did not know anything about Citibanks computer system. (Id.
32:13 15.) Based on this record, it is clear that Minford lacks

personal knowledge of the procedure used to create and

maintain Exhibits A through F, and he is not capable of testifying
as a qualified witness under Rule 902(11). See [United States v.
Reese, 666 F.3d 1007, 1017 (7th Cir. 2012)]. The court therefore
declines to admit Exhibits A through F as records of regularly
conducted business activity, and will not consider them in ruling
on defendants motion. [Emphasis in original.]
In River Dock & Pile, Inc. v. O & G Industries, Inc., 219 Conn.
787, 595 A.2d 839, 847 (1991), the court rejected incorporation
reasoning:
Robinson testified that the document would have been received in
the ordinary course of business, not that it would have been
made in the ordinary course of business . The mere fact that
the NHPA received this letter in the ordinary course of business
and included the document in its files tells us nothing about the
motivation of the maker of the record, and therefore would not
ordinarily satisfy the requirements of [Conn.Gen.Stat.] 52-180.
White Industries v. Cessna Aircraft Co., 611 F.Supp. 1049, 1059
(W.D.Mo. 1985); Orzechowski v. Higgins, 146 Conn. 463, 466,
152 A.2d 510 (1959). [Emphasis in original.]
In Borrasi, supra, 639 F.3d at 780, the court, citing Fed.R.Evid.
805, held that courts may not permit the introduction of hearsay
contained within hearsay unless each layer is properly admitted
under an exception to Rule 802. [Emphasis in original.] In
Datamatic Services, supra, 909 F.2d at 1033, the court held:
Although the Bell letter appears to satisfy the first two elements
of the business records exception, the third requirement that

the information in the record be based on the entrants personal

knowledge presents a problem. Bell may have been acting
within the regular course of his business in preparing the letter;
however, the sources he used were outsiders (albeit clients) with
respect to the business. [I]f the source of the information is an
outsider, Rule 803(6) does not, by itself, permit the admission of
the business record. The outsiders statement must fall within
another hearsay exception. United States v. Baker, 693 F.2d
183, 188 (D.C.Cir. 1982).
In LVNV Funding, LLC v. Mastaw, No. M2011-00990-COA-R3CV, 2012 WL 1534785 at *7 (Tenn.App. Apr. 30, 2012), debt buyer
records were held inadmissible as business records because they
were prepared for litigation. The court stated:
In the case at bar, the affidavits executed by Griffin were clearly
prepared specifically for the instant litigation, to trace the
assignments of Mastaws debt, establish LVNVs ownership of
the debt and the amount due from Mastaw. They do not
incorporate by reference or otherwise summarize or interpret
documents that are prepared in the normal course of regularly
conducted business activity. We must conclude that Exhibits 4
and 5 do not properly fit within Rule 803(6), the business records
exception to the hearsay rule, and that the trial court erred in
admitting them into evidence pursuant to this exception. Id.
In this regard, the FTC does not share the view of the Krawczyk
court regarding the accuracy of debt collector records. Collecting
Consumer Debts: The Challenges of Change: A Workshop Report
(Feb. 2009),
www.ftc.gov/sites/default/files/documents/reports/collecting-

consumer-debts-challenges-change-federal-trade-commissionworkshop-report/dcwr.pdf.
Under the Illinois Rules of Evidence, a person receiving a
document from a business could not solely by virtue thereof lay a
sufficient foundation for admitting the document as a business record
of the issuing business . An exception exists when the business
receiving the information, acting in the regular course of business,
integrates the information received into the businesss records and
relies on it in its day-to-day operations, and surrounding
circumstances indicate trustworthiness. Under such limited
circumstances, admissibility through the testimony of the receiving
custodian is warranted. Michael H. Graham, GRAHAMS
HANDBOOK OF ILLINOIS EVIDENCE 803.6, pp. 888 889
(10th ed. 2010).
A debt buyer does not rely on acquired records for non-litigation
purposes. The SEC filings of public debt buyers indicate that 30 40
percent of recoveries are through legal actions, and an unknown
additional percentage result from the threat of legal action. For
example, the annual report on Form 10-K for Asset Acceptance
Capital Corporation for the year ending December 31, 2008, states
that 40.9 percent of its revenue came from legal collections. Asset
Acceptance Form 10-K, p. 46 (filed Mar. 5, 2009). According to the
companys Form 10-Q for the quarter ending September 30, 2009,
this increased to 42.5 percent and was the largest single source of
revenue, outstripping traditional collections. Asset Acceptance Form
10-Q, p. 34 (filed Nov. 4, 2009). The corresponding figure for the
Midland entities is 47.7 percent. Encore Capital Group, Inc., Form
10-K, p. 26 (filed Feb. 8, 2010) (for year ending Dec. 31, 2009).
The literature offering debts for sale often shows that the purchaser

cannot rely on the records as accurate and that the parties

contemplate litigation. Literature advertising the portfolios may refer
to them as litigation ready. E.g., David G. Rosenberg, VCRs in an
On Demand Movie World, 22 Debt3, No. 3, 26 (May-June 2007)
(debt buyers are focusing more and more on litigation ready debt
versus contact collections); David G. Rosenberg, Me Buy Debt?
You Must Be Joking, 22 Debt3, No. 2, 14, 15 (Mar.-Apr. 2007) (In
fact, many legal collection firms are buying litigation ready
portfolios where the debtor account has an asset, typically a home.
These accounts are placed immediately into a legal process with no
collection floor time or effort and are viewed as more efficient to
collect upon.). (Mr. Rosenberg is the head of Unifund.)
PRACTICE POINTER

If you conduct discovery, ask for all advertising and

representations relating to the portfolio and the full text of each
agreement for the transfer of the debts, starting with the original
creditor and ending with the plaintiff.

H. [5.8] Disclaimers of Accuracy of Information

Furnished to Debt Buyers
The agreements for the sale of charged-off debts often provide that
the debts are sold without representation or warranty. The FTCs
2013 Structure and Practices report states: In many purchase and
sale agreements, sellers disclaimed all warranties and
representations regarding the accuracy of the information they
provided at the time of sale about individual debts, essentially
selling the debts, with some limited exceptions, as is. The

Structure and Practices of the Debt Buying Industry, p. 25 (Jan.

2013),
www.ftc.gov/sites/default/files/documents/public_events/life-debtdata-integrity-debt-collection/debtbuyingreport.pdf.
Such provisions deprive the purchaser of any right to complain about
the accuracy of the information furnished. For example, in
Worldwide Asset Purchasing, L.L.C. v. Rent-A-Center East, Inc.,
290 S.W.3d 554, 562 563 (Tex.App. 2009), debt buyers
Worldwide Asset, Atlantic Credit, and NCO sued creditor Rent-ACenter after paying $5 million for charged-off debts and finding that
an overwhelmingly high percentage of the information on the asset
schedule was inaccurate or incomplete, including customer
information, references, social security numbers, inventory
descriptions, inventory status, account and sales balances, as well as
whether the rental agreements were valid. The sale agreement
contained a provision stating that [Worldwide Asset] acknowledges
that the Assets may have limited or no liquidity and [Worldwide
Asset] has the financial wherewithal to own the Assets for an
indefinite period of time and to bear the economic risk of an outright
purchase of the Assets and a total loss of the Purchase Price for the
assets. [Worldwide Asset] acknowledges that the Assets may be
Unenforceable Assets. [Emphasis added by Worldwide Asset
court.] Id. Another provision stated:
No Other Representations or Warranties. EXCEPT AS
PROVIDED IN SECTIONS 8.1, 8.2, and 8.3, THE ASSETS ARE
BEING SOLD AS IS AND WITH ALL FAULTS,
WITHOUT ANY REPRESENTATION OR WARRANTY
WHATSOEVER, AND [RENT-A-CENTER] SPECIFICALLY
DISCLAIMS ANY WARRANTY, GUARANTY OR

REPRESENTATION, ORAL OR WRITTEN, PAST OR

PRESENT, EXPRESS OR IMPLIED, CONCERNING THE
ASSETS, THE STRATIFICATION OR PACKAGING OF THE
ASSETS. [RENT-A-CENTER] MAKES NO
REPRESENTATION OR WARRANTY AS TO THE NUMBER
OF UNENFORCEABLE ASSET(S) WHICH MAY BE
INCLUDED IN THIS SALE. [Emphasis in original.] Id.
The court held that because the creditor had sold the debts as is,
the purchasers had no right to complain about the inaccuracy of the
records. Id. Accord RAS Group, Inc. v. Rent-A-Center East, Inc.,
335 S.W.3d 630 (Tex.App. 2010).
If the seller of a debt is not willing to warrant the accuracy of its
records to the purchaser, the purchaser should not without more be
allowed to present them as accurate to a court. This should also be
requested in discovery. Courts have required production of such
documents. The full asset sale agreement must be produced. Osk II,
LLC v. Creek, No. 12-2145, 2012 WL 5386102 at *3 (C.D.Ill. Nov.
1, 2012) (Busey Banks orders to pay Plaintiff the Senior and
Junior Notes are conditional; they are without recourse,
representations or warranties or any kind, except as provided in that
Asset Sale Agreement. (#14-1, pp. 18, 42 (emphasis added).) The
Court agrees with Defendants that the Asset Sale Agreement could
limit Plaintiffs rights in the Notes, a possibility that cannot be
confirmed or denied without seeing the actual agreement.).

I. [5.9] Consent Judgments and Administrative

Actions Indicating That Records Are Inaccurate
There are a number of consent judgments and administrative orders

against both original creditors and debt buyers that cast serious
doubt on whether their records are trustworthy and whether their
accounts include charges that are not contractually authorized. The
firms subject to such orders include

American Express (consent orders with the Office of the

Comptroller of the Currency (OCC) and the Consumer Financial
Protection Bureau: In re American Express Bank, FSB, Salt Lake
City, Utah, No. AA-EC-2012-116 (OCC Sept. 28, 2012),
www.occ.gov/static/enforcement-actions/ea2012-212.pdf; In re
American Express Centurion Bank, Salt Lake City, Utah, File No.
2012-CFPB-0002 (CFPB Oct. 1, 2012),
http://files.consumerfinance.gov/f/201210_cfpb_001_Amex_Consent_
(case sensitive))

Asset Acceptance (consent judgment in action brought on behalf of

the FTC: United States v. Asset Acceptance, LLC, Case No. 8:12cv-00182-T-27EAJ (M.D.Fla. filed Jan. 30, 2012),
www.ftc.gov/sites/default/files/documents/cases/2012/01/120131asse

Capital One (consent order with the CFPB: In re Capital One

Bank (USA), N.A., File No. 2012-CFPB-0001 (CFPB July 16, 2012),
http://files.consumerfinance.gov/f/201207_cfpb_consent_order_0001.
Chase (consent order with OCC: In re JPMorgan Chase Bank,
N.A., Columbus, Ohio, No. AA-EC-13-76 (OCC Sept. 18, 2013),
www.occ.gov/static/enforcement-actions/ea2013-138.pdf)
Citibank (consent order with OCC: In re Citibank, N.A., Sioux
Falls, South Dakota, No. AA-EC-12-18 (OCC Apr. 4, 2012),
www.occ.treas.gov/news-issuances/news-releases/2012/nr-occ2012-57a.pdf)

 Discover Bank (joint consent order with the Federal Deposit

Insurance Corporation and the CFPB: In re Discover Bank,
Greenwood, Delaware, Docket No. FDIC-11-548b (FDIC Sept. 24,
2012), www.fdic.gov/news/news/press/2012/pr12108a.pdf)

Midland (actions by Texas and Minnesota Attorneys General

regarding robo-signing and improper documentation in collection
lawsuits: State of Texas v. Midland Funding LLC, No. 201140626
(Harris Cty., Tex., Dist. filed July 8, 2011),
www.texasattorneygeneral.gov/newspubs/releases/2011/070811encor
Press Release, Attorney General Lori Swanson Obtains Consent
Judgment in Robo-Signing Lawsuit Against One of Countrys
Largest Debt Buyers (Dec. 12, 2012),
www.ag.state.mn.us/consumer/pressrelease/121212debtbuyers.asp)
NCO (consent order with the FTC: News Release, FTC, NCO
Group to Pay Largest FCRA Civil Penalty to Date (May 13, 2004),
www.ftc.gov/news-events/press-releases/2004/05/nco-group-paylargest-fcra-civil-penalty-date; United States v. Expert Global
Solutions, Inc., Civil Action No. 3-13CV2611-M, 2013 WL
5870336 (N.D.Tex. July 16, 2013) (complaint and consent order
filed))

J. [5.10] Need To File Motion To Strike

Note that Illinois requires that the sufficiency of an affidavit must be
tested by a motion to strike the affidavit (or by a motion to strike the
motion for summary judgment setting forth the objections to the
affidavit). Duffy v. Midlothian Country Club, 92 Ill.App.3d 193,
415 N.E.2d 1099, 1104, 47 Ill.Dec. 786 (1st Dist. 1980).
Collection defense counsel should beware of complaints with

generic documents attached. See Palisades Collection, LLC v.

Gonzalez, 10 Misc.3d 1058(A), 809 N.Y.S.2d 482 (N.Y. City Civ.
2005) (text available in Westlaw). What is required is the agreement
between the plaintiff and the defendant.

VI. SUBSTANTIVE DEFENSES

A. [6.1] Is the Defendant the Correct Person?
Debt buyers in particular sometimes sue the wrong person. The
reasons may range from identity theft to bad skip tracing. See Erin
Services Co. v. Bohnet, 26 Misc.3d 1230(A), 907 N.Y.S.2d 100
(Nassau Cty.Dist. 2010) (text available in Westlaw), in which a
collection firm was sanctioned for pursuing a debtor based on
incorrect skip tracing.
A Washington Post article noted: Sometimes [debt collectors] go
after people with the same names as those who owe money. They
might also relentlessly call wrong phone numbers, hoping to pry
information out of whoever answers. Some finagle enough
identifying information to make people seem liable for debts they
never owed. Sonja Ryst, Debt tagging by collection agencies a
growing problem, Washington Post, Aug. 8, 2010, at G01.

B. [6.2] Is the Debt Unpaid?

It is not uncommon for consumers to be sued notwithstanding a prior
payment or settlement. Smith v. Mallick, 514 F.3d 48 (D.C.Cir.
2008); Miller v. Wolpoff & Abramson, LLP, No. 1:06-CV-207-TS,
2008 WL 474202 (N.D.Ind. Feb. 19, 2008); Dornhecker v.
Ameritech Corp., 99 F.Supp.2d 918, 923 (N.D.Ill. 2000); Northwest

Diversified, Inc. v. Desai, 353 Ill.App.3d 378, 818 N.E.2d 753, 288
Ill.Dec. 818 (1st Dist. 2004); Wood v. M & J Recovery LLC, No.
CV 05-5564, 2007 WL 1026372 (E.D.N.Y. Apr. 2, 2007);
Associates Financial Services Co. v. Bowman, Heintz, Boscia &
Vician PC, No. IP99-1725-C-M/S, 2001 WL 619381 (Apr. 25,
2001), later op., 2004 WL 826088 (S.D.Ind. Mar. 31, 2004);
Capital Credit & Collection Service, Inc. v. Armani, 227 Or.App.
574, 206 P.3d 1114 (2009).

C. [6.3] Disputes Regarding Goods or Services Paid

for with Credit Card; Unauthorized Charges
The assignee of a nonnegotiable chose in action (such as a credit
card debt) takes subject to claims against the creditor prior to
assignment. The rule is that an assignee of a contract takes it subject
to the defenses which existed against the assignor at the time of the
assignment. Allis-Chalmers Credit Corp. v. McCormick, 30
Ill.App.3d 423, 331 N.E.2d 832, 833 (4th Dist. 1975). Accord
Montgomery Ward & Co. v. Wetzel, 98 Ill.App.3d 243, 423 N.E.2d
1170, 1175, 53 Ill.Dec. 366 (1st Dist. 1981) (the assignee thus
takes the assignors interest subject to all legal and equitable
defenses existing at the time of assignment).
The Truth in Lending Act (TILA), 15 U.S.C. 1601, et seq., provides
that, with certain exceptions, a credit card issuer (or its successor) is
subject to defenses good against the merchant whose goods or
services were paid for with a credit card:
Assertion by cardholder against card issuer of claims and
defenses arising out of credit card transaction; prerequisites;
limitation on amount of claims or defenses

(a) Claims and defenses assertible

Subject to the limitation contained in subsection (b) of this
section, a card issuer who has issued a credit card to a
cardholder pursuant to an open end consumer credit plan shall be
subject to all claims (other than tort claims) and defenses arising
out of any transaction in which the credit card is used as a
method of payment or extension of credit if (1) the obligor has
made a good faith attempt to obtain satisfactory resolution of a
disagreement or problem relative to the transaction from the
person honoring the credit card; (2) the amount of the initial
transaction exceeds $50; and (3) the place where the initial
transaction occurred was in the same State as the mailing
address previously provided by the cardholder or was within 100
miles from such address, except that the limitations set forth in
clauses (2) and (3) with respect to an obligors right to assert
claims and defenses against a card issuer shall not be applicable
to any transaction in which the person honoring the credit card
(A) is the same person as the card issuer, (B) is controlled by the
card issuer, (C) is under direct or indirect common control with
the card issuer, (D) is a franchised dealer in the card issuers
products or services, or (E) has obtained the order for such
transaction through a mail solicitation made by or participated in
by the card issuer in which the cardholder is solicited to enter
into such transaction by using the credit card issued by the card
issuer.
(b) Amount of claims and defenses assertible
The amount of claims or defenses asserted by the cardholder
may not exceed the amount of credit outstanding with respect to

such transaction at the time the cardholder first notifies the card
issuer or the person honoring the credit card of such claim or
defense. For the purpose of determining the amount of credit
outstanding in the preceding sentence, payments and credits to
the cardholders account are deemed to have been applied, in the
order indicated, to the payment of: (1) late charges in the order
of their entry to the account; (2) finance charges in order of
their entry to the account; and (3) debits to the account other
than those set forth above, in the order in which each debit entry
to the account was made. 15 U.S.C. 1666i.
Both federal and Illinois law place the burden on a credit card issuer
or its successor to prove that disputed charges were authorized. The
federal statute, 15 U.S.C. 1643, is part of TILA and provides:
(b) Burden of proof
In any action by a card issuer to enforce liability for the use of a
credit card, the burden of proof is upon the card issuer to show
that the use was authorized or, if the use was unauthorized, then
the burden of proof is upon the card issuer to show that the
conditions of liability for the unauthorized use of a credit card, as
set forth in subsection (a), have been met.
(c) Liability imposed by other laws or by agreement with issuer
Nothing in this section imposes liability upon a cardholder for the
unauthorized use of a credit card in excess of his liability for such
use under other applicable law or under any agreement with the
card issuer.

(d) Exclusiveness of liability

Except as provided in this section, a cardholder incurs no liability
from the unauthorized use of a credit card.
The Illinois Credit Card Liability Act, 815 ILCS 145/0.01, et seq.,
provides:
(a) No person in whose name a credit card is issued without his
having requested or applied for the card or for the extension of
the credit or establishment of a charge account which that card
evidences is liable to the issuer of the card for any purchases
made or other amounts owing by a use of that card from which
he or a member of his family or household derive no benefit
unless he has indicated his acceptance of the card by signing or
using the card or by permitting or authorizing use of the card by
another. A mere failure to destroy or return an unsolicited card
is not such an indication. As used in this Act, credit card has
the meaning ascribed to it in Section 17-0.5 of the Criminal Code
of 2012[, 720 ILCS 5/17-0.5], except that it does not include a
card issued by any telephone company that is subject to
supervision or regulation by the Illinois Commerce Commission
or other public authority.
(b) When an action is brought by an issuer against the person
named on the card, the burden of proving the request,
application, authorization, permission, use or benefit as set forth
in Section 1 hereof shall be upon plaintiff if put in issue by
defendant. In the event of judgment for defendant, the court
shall allow defendant a reasonable attorneys fee, to be taxed as
costs. 815 ILCS 145/1.

The Credit Card Liability Act also requires the issuer to show that
challenged transactions were authorized and authorizes an award of
attorneys fees for successfully defending all or part of a suit on
credit card debt. 815 ILCS 145/2 provides:
(a) Notwithstanding that a person in whose name a credit card
has been issued has requested or applied for such card or has
indicated his acceptance of an unsolicited credit card, as
provided in Section 1 hereof, such person shall not be liable to
the issuer unless the card issuer has given notice to such person
of his potential liability, on the card or within two years
preceding such use, and has provided such person with an
addressed notification requiring no postage to be paid by such
person which may be mailed in the event of the loss, theft, or
possible unauthorized use of the credit card, and such person
shall not be liable for any amount in excess of the applicable
amount hereinafter set forth, resulting from unauthorized use of
that card prior to notification to the card issuer of the loss, theft,
or possible unauthorized use of that card:
Card without a signature panel . . $25.00
Card with a signature panel . $50.00
After the holder of the credit card gives notice to the issuer that
a credit card is lost or stolen he is not liable for any amount
resulting from unauthorized use of the card.
(b) When an action is brought by an issuer against the person
named on a card, issuance of which has been requested, applied
for, solicited or accepted and defendant puts in issue any

transaction arising from the use of such card, the burden of

proving benefit, authorization, use or permission by defendant as
to such transaction shall be upon plaintiff. In the event defendant
prevails with respect to any transaction so put in issue, the court
may enter as a credit against any judgment for plaintiff, or as a
judgment for defendant, a reasonable attorneys fee for services
in connection with the transaction in respect of which the
defendant prevails.
Unauthorized use is defined as use by a person other than the
cardholder who does not have actual, implied, or apparent authority
for such use and from which the cardholder receives no benefit. 15
U.S.C. 1602(p). A person who is given a credit card by the account
holder is an authorized user even if he or she uses it in a manner that
exceeds the authority given. For example, if the card is given for
making one charge purchase in the amount of $100 and the recipient
runs up $1,000 in charges, the charges are authorized because the
merchant has no way of knowing of the restriction on authority. The
only way to effectively revoke the authority is to have the account
canceled.
Once charges appear on the monthly statement, if no objection is
made, further charges of like nature may be considered authorized.
However, if the card issuer changes the address to which billing
statements are sent without the consumers permission, the consumer
may not have liability.
A merchant who processes a charge for an excessive amount is not
making unauthorized use of the card if the cardholder derives some
benefit (e.g., if a car repair shop exceeds an estimate). However,
there may be a billing error.

In addition to 15 U.S.C. 1666i, there is a billing error provision of

TILA, 15 U.S.C. 1666, that requires investigation by the credit card
issuer if a dispute (1) constitutes one of a limited class defined as a
billing error and (2) is made in writing within 60 days after the
disputed item appears on the statement. A dispute cannot be made on
a payment stub. It must give the name and account number of the
obligor, state that there has been an error in the bill and the amount
of the error, and provide an explanation.
Billing errors include that the charge is not the consumers; that the
amount is wrong; that the consumer does not recognize the merchant
name and wants evidence that the charge is the consumers; that
goods or services were not accepted or not delivered in accordance
with the agreement; failure to reflect payment/credit; and
computational or accounting errors. Breaches of warranty or
defective goods that are accepted are not cognizable as billing
errors.
The creditor may not take any action to collect before conducting the
investigation. If the account is reported to a credit reporting agency,
disputed amounts must be shown as disputed.
Failure to comply with 1666 does not bar rights under 1666i,
although creditors claim it does. There is no basis for the claim.
Citibank (South Dakota), N.A. v. Mincks, 135 S.W.3d 545
(Mo.App. 2004). However, failure to object to the earliest in a
series of charges appearing on a monthly statement may give rise to
apparent authority for later charges of the same nature.
Otherwise time-barred TILA and other claims against the creditor
(including billing error violations) may be asserted (1) as a setoff or
(2) pursuant to state statutes providing that the filing of a claim

waives the statute of limitations. See, e.g., 735 ILCS 5/13-207,

which provides:
A defendant may plead a set-off or counterclaim barred by the
statute of limitation, while held and owned by him or her, to any
action, the cause of which was owned by the plaintiff or person
under whom he or she claims, before such set-off or counterclaim
was so barred, and not otherwise. This section shall not affect
the right of a bona fide assignee of a negotiable instrument
assigned before due.

D. [6.4] Computation of Amount Due on Credit Card

Debt buyers generally are not in a position to demonstrate what the
debts consist of. If a good-faith challenge can be made to fees,
interest computations, and charges on underlying debt, the debt buyer
usually cannot prove its case. E.g., Citibank (SD) N.A. v. Hansen, 28
Misc.3d 195, 902 N.Y.S.2d 299 (Nassau Cty.Dist. 2010); Discover
Bank v. Owens, 129 Ohio Misc.2d 71, 822 N.E.2d 869 (Cleveland
Mun. Sept. 9, 2004).

E. [6.5] Is the Defendant Personally Liable on Credit

Card?
Generally, authorized users of a credit card are not personally
liable; only the cardholder is. Alabran v. Capital One Bank, No.
Civ.A. 3:04CV935, 2005 WL 3338663 (E.D.Va. Dec. 8, 2005);
Sears Roebuck & Co. v. Ragucci, 203 N.J.Super. 82, 495 A.2d 923
(Law Div. 1985); Cleveland Trust Co. v. Snyder, 55 Ohio App.2d
168, 380 N.E.2d 354, 9 Ohio Op.3d 354 (1978); Blaisdell Lumber
Co. v. Horton, 242 N.J.Super. 98, 575 A.2d 1386 (App.Div. 1990);

Sears, Roebuck & Co v. Stover, 32 Ohio Misc.2d 1, 513 N.E.2d 361

(Hamilton Cty.Mun. 1987); First National Bank of Findlay v. Fulk,
57 Ohio App.3d 44, 566 N.E.2d 1270 (1989); FCC National Bank
v. Laursen (In re Laursen), 214 B.R. 378, 381 (Bankr. D.Neb.
1997); Citibank (S.D.), N.A. v. Hauff, 668 N.W.2d 528 (S.D. 2003);
Chevy Chase Savings Bank v. Strong, 46 Va.Cir. 422 (1998); First
Deposit National Bank v. Houfek (In re Houfek), 126 B.R. 530
(Bankr. S.D. Ohio 1991); Nelson v. First National Bank Omaha,
No. A04-579, 2004 WL 2711032 (Minn.App. Nov. 30, 2004)
(unpublished); Lyon v. Chase Bank USA, N.A., No. CIV 07-1779AC, 2009 WL 2170518 (D.Or. Apr. 27, 2009), revd on other
grounds, 656 F.3d 877 (9th Cir. 2011).
There are several reasons for this:
1. Under the common law of agency, only the principal is liable on
the principals account. Agents, such as authorized users, who
purchase for a principal are not liable for the principals account.
2. By making a purchase using the obligors contract, the authorized
user does not have an opportunity to see or read the alleged contract.
It is unfair to hold a person to a contract he or she has not read nor
had any opportunity to read and that was created earlier between the
company and the cardholder.
3. The Truth in Lending Act provides that to be liable on a credit
card, one must have applied for the card or requested the card. TILA
states:
No credit card shall be issued except in response to a request or
application therefor. This prohibition does not apply to the
issuance of a credit card in renewal of, or in substitution for, an

accepted credit card. 15 U.S.C. 1642.

The Official Staff Interpretations to 12 C.F.R. 1026.2(a)(8)
(definition of cardholder) exclude authorized user. 12 C.F.R. pt.
1026, supp. I, Subpart A General, Section 1026.2 Definitions
and Rules of Construction, 2(a)(8) Cardholder. Thus, only persons
who sign the application or request credit under 15 U.S.C.
1642 should be cardholders and liable as obligors.
If two names appear on a monthly credit card statement and who is a
cardholder and who is an authorized user is disputed, the bank
cannot prevail without proving who signed the agreement. Banks
often have poor records and cannot prove this. Johnson v. MBNA
America Bank, National Assn, No. Civ. 1:05CV00150, 2006 WL
618077 (M.D.N.C. Mar. 9, 2006). It appears that many banks keep
applications or images of applications for not more than seven years
after the account is opened (not after the account is closed).
15 U.S.C. 1643(b) applies to both the original creditor and debt
buyers and requires them to show that charges were authorized by
the account holder.

F. [6.6] Issuance of an IRS Form 1099-C

Issuance of an IRS Form 1099-C, Cancellation of Debt, may bar
further collection efforts. Amtrust Bank v. Fossett, 223 Ariz. 438,
224 P.3d 935 (App. 2009); Franklin Credit Management Corp. v.
Nicolas, 73 Conn.App. 830, 812 A.2d 51, 61 (2002). However,
there are also decisions to the contrary. Federal Deposit Insurance
Corp. v. Cashion, 720 F.3d 169 (4th Cir. 2013) (two-one split);
Bononi v. Bayer Employees Fed. Credit Union (In re Zilka), 407
B.R. 684, 689 (Bankr. W.D.Pa. 2009); Leonard v. Old National

Bank Corp., 837 N.E.2d 543, 545 546 (Ind.App. 2005); Chivaho
Credit Union v. McGuire, No. 12CA3307, 2012 WL 6212706 (Ohio
App. Nov. 28, 2012); Capital One, N.A. v. Massey, Civil No. 4:10CV-01707, 2011 WL 3299934 at **3 4 (S.D.Tex. Aug. 1, 2011);
Lifestyles of Jasper, Inc. v. Gremore, 299 S.W.3d 275, 276 277
(Ky.App. 2009).

G. [6.7] Statute of Frauds

Under Illinois law, a promise to answer for the debt of another is
within the statute of frauds whether the debt is incurred before or
after the promise. Rosewood Care Center, Inc. v. Caterpillar, Inc.,
226 Ill.2d 559, 877 N.E.2d 1091, 1098 1100, 315 Ill.Dec. 762
(2007). However, the statute of frauds does not apply if the main
purpose or leading object of the promise was to benefit the
business interests of the promisor. Id. The Rosewood court quoted
RESTATEMENT (THIRD) OF SURETYSHIP AND GUARANTY
(1996):
A contract that all or part of the duty of the principal obligor to
the obligee shall be satisfied by the secondary obligor is not
within the Statute of Frauds as a promise to answer for the duty
of another if the consideration for the promise is in fact or
apparently desired by the secondary obligor mainly for its own
economic benefit, rather than the benefit of the principal
obligor. Restatement (Third) of Suretyship & Guaranty 11(3)
(c), at 42 (1996).
***
Where the secondary obligors main purpose is its own

pecuniary or business advantage, the gratuitous or sentimental

element often present in suretyship is eliminated, the likelihood
of disproportion in the values exchanged between secondary
obligor and obligee is reduced, and the commercial context
commonly provides evidentiary safeguards. Thus, there is less
need for cautionary or evidentiary formality than in other
secondary obligations. Restatement (Third) of Suretyship &
Guaranty 11, Comment to Subsection (3)(c), at 49 50 (1996).
877 N.E.2d at 1099.
It also quoted 72 AM.JUR.2d Statute of Frauds 134, p. 658
(2001):
Cases sometimes arise in which, although a third party is the
primary debtor, the promisor has a personal, immediate, and
pecuniary interest in the transaction, and is therefore himself a
party to be benefitted by the performance of the promisee. In
such cases the reason which underlies and which prompted this
statutory provision fails, and the courts will give effect to the
promise. 877 N.E.2d at 1099.
The court held that the purpose of making the promise was a question
of fact.
It is unclear whether the promise of one family member to pay debts
incurred by another would qualify. If there is a duty to support (e.g.,
spousal or parental), the promisors duty may be fulfilled by paying
a credit card or other credit obligation; however, this would not
constitute a commercial context or eliminate the gratuitous or
sentimental element. Rosewood involved an employers promise to
pay for medical services to be provided to an injured employee,

when there was an obvious business interest in having experienced

and medically qualified personnel negotiate with the provider rather
than leaving negotiations up to the patient, and so was commercial.
The statute of frauds is particularly important when dealing with
cardholder-authorized user issues and also with attempts to hold
employees liable for credit cards issued to businesses.
Illinois treats the statute of frauds as procedural, so it cannot be
avoided by a choice-of-law clause. McInerney v. Charter Golf,
Inc., 176 Ill.2d 482, 680 N.E.2d 1347, 1351, 223 Ill.Dec. 911
(1997) (The [Frauds Act, 740 ILCS 80/0.01, et seq.,] proceeds
from the legislatures sound conclusion that while the technical
elements of a contract may exist, certain contracts should not be
enforced absent a writing. It functions more as an evidentiary
safeguard than as a substantive rule of contract.); United Potato Co.
v. Burghard & Sons, Inc., 18 F.Supp.2d 894, 898 (N.D.Ill. 1998).
But see Traeger v. American Express Bank FSB, No. 13 C 05337,
2014 WL 340421 (N.D.Ill. Jan. 30, 2014).

H. [6.8] Statutes of Limitations

Defense counsel should be certain that the following statutes of
limitations have not been ignored by the plaintiff:
Retail installment contracts, leases of personal property
(including cars, deficiencies). The statute of limitations for retail
installment contracts and leases of personal property is four years
under 2-725 and 2A-506 of the Uniform Commercial Code, 810
ILCS 5/2-725 and 5/2A-506. Citizens National Bank of Decatur v.
Farmer, 77 Ill.App.3d 56, 395 N.E.2d 1121, 32 Ill.Dec. 740 (4th
Dist. 1979); Fallimento C.Op.M.A. v. Fischer Crane Co., 995 F.2d

789 (7th Cir. 1993). A store credit or charge card that can be used
only at the establishment of a single merchant is also governed by the
four-year UCC statute. Asset Acceptance LLC v. Scott, No. A-402105T5, 2007 WL 3145360 (N.J.Super.App.Div. Oct. 30, 2007)
(unpublished); May Co. v. Trusnik, 54 Ohio App.2d 71, 375 N.E.2d
72, 8 Ohio Op.3d 97 (1977); Gimbel Bros., Inc. v. Cohen, 46 Pa.D.
& C.2d 747 (Montgomery Cty.C.P. 1969); Hamid v. Blatt,
Hasenmiller, Leibsker, Moore & Pellettieri, No. 00 C 4511, 2001
WL 1035726 (N.D.Ill. Sept. 4, 2001). See Harris Trust & Savings
Bank v. McCray, 21 Ill.App.3d 605, 316 N.E.2d 209 (1st Dist.
1974); Johnson v. Sears Roebuck & Co., 14 Ill.App.3d 838, 303
N.E.2d 627 (1st Dist. 1973).
Utility bills. Gas, oil, and water are goods subject to the UCC
after severance. Phillips v. Asset Acceptance, LLC, 736 F.3d 1076
(7th Cir. 2013). Electricity may be goods also, depending on local
interpretations.
Checks. 810 ILCS 5/3-118 governs liability on the check and
provides a three-year statute of limitations, measured from dishonor.
A two-year statute applies to statutory penalties under the bad check
statute. 735 ILCS 5/13-202. The underlying obligation paid for with
the check may be governed by the ordinary contract statute.
Cellular charges. Cellular charges are probably governed by the
state statute for unwritten or written contracts. Castro v. Collecto,
Inc., 634 F.3d 779 (5th Cir. 2011).
Credit cards. The statute of limitations on credit cards is five years
unless a complete agreement signed by both parties and not subject
to change upon notice, without the debtors signature, is attached to
the complaint. Portfolio Acquisitions, L.L.C. v. Feltman, 391

Ill.App.3d 642, 909 N.E.2d 876, 330 Ill.Dec. 854 (1st Dist. 2009);
Nicolai v. Mason, 118 Ill.App.3d 300, 454 N.E.2d 1049, 73 Ill.Dec.
800 (5th Dist. 1983); Parkis v. Arrow Financial Services, LLC, No.
07 C 410, 2008 WL 94798 (N.D.Ill. Jan. 8, 2008); Ramirez v.
Palisades Collection LLC, Civil Action No. 07 C 3840, 2008 WL
2512679 (N.D.Ill. June 23, 2008).
Numerous state legislatures have enacted statutes authorizing banks
to change the terms of credit card agreements by simply mailing a
notice to the cardholder, with or without an opportunity to close the
account and opt out. These include the legislatures in Delaware
and South Dakota, where many credit card issuers are chartered to
take advantage of federal exportation law and the absence of
interest rate regulation in those states.
The principal Delaware credit card statute, Del. Code tit. 5, 952,
provides:
952. Amendment of agreement
(a) Unless the agreement governing a revolving credit plan
otherwise provides, a bank may at any time and from time to
time amend such agreement in any respect, whether or not the
amendment or the subject of the amendment was originally
contemplated or addressed by the parties or is integral to the
relationship between the parties. Without limiting the foregoing,
such amendment may change terms by the addition of new terms
or by the deletion or modification of existing terms, whether
relating to plan benefits or features, the rate or rates of periodic
interest, the manner of calculating periodic interest or
outstanding unpaid indebtedness, variable schedules or formulas,

interest charges, fees, collateral requirements, methods for

obtaining or repaying extensions of credit, attorneys fees, plan
termination, the manner for amending the terms of the
agreement, arbitration or other alternative dispute resolution
mechanisms, or other matters of any kind whatsoever. Unless the
agreement governing a revolving credit plan otherwise expressly
provides, any amendment may, on and after the date upon which
it becomes effective as to a particular borrower, apply to all then
outstanding unpaid indebtedness in the borrowers account under
the plan, including any such indebtedness that arose prior to the
effective date of the amendment. An agreement governing a
revolving credit plan may be amended pursuant to this section
regardless of whether the plan is active or inactive or whether
additional borrowings are available thereunder. Any amendment
that does not increase the rate or rates of periodic interest
charged by a bank to a borrower under 943 or 944 of this title
may become effective as determined by the bank, subject to
compliance by the bank with any applicable notice requirements
under the Truth in Lending Act (15 U.S.C. 1601 et seq.), and
the regulations promulgated thereunder, as in effect from time to
time. Any notice of an amendment sent by the bank may be
included in the same envelope with a periodic statement or as
part of the periodic statement or in other materials sent to the
borrower.
(b)(1) If an amendment increases the rate or rates of periodic
interest charged by a bank to a borrower under 943 or 944 of
this title, the bank shall mail or deliver to the borrower, at least
15 days before the effective date of the amendment, a clear and
conspicuous written notice that shall describe the amendment

and shall also set forth the effective date thereof and any
applicable information required to be disclosed pursuant to the
following provisions of this section.
(2) Any amendment that increases the rate or rates of periodic
interest charged by a bank to a borrower under 943 or 944 of
this title may become effective as to a particular borrower if the
borrower does not, within 15 days of the earlier of the mailing or
delivery of the written notice of the amendment (or such longer
period as may be established by the bank), furnish written notice
to the bank that the borrower does not agree to accept such
amendment. The notice from the bank shall set forth the address
to which a borrower may send notice of the borrowers election
not to accept the amendment and shall include a statement that,
absent the furnishing of notice to the bank of nonacceptance
within the referenced 15 day (or longer) time period, the
amendment will become effective and apply to such borrower. As
a condition to the effectiveness of any notice that a borrower
does not accept such amendment, the bank may require the
borrower to return to it all credit devices. If, after 15 days from
the mailing or delivery by the bank of a notice of an amendment
(or such longer period as may have been established by the bank
as referenced above), a borrower uses a plan by making a
purchase or obtaining a loan, notwithstanding that the borrower
has prior to such use furnished the bank notice that the borrower
does not accept an amendment, the amendment may be deemed
by the bank to have been accepted and may become effective as
to the borrower as of the date that such amendment would have
become effective but for the furnishing of notice by the borrower
(or as of any later date selected by the bank).

(3) Any amendment that increases the rate or rates of periodic

interest charged by a bank to a borrower under 943 or 944 of
this title may, in lieu of the procedure referenced in paragraph
(2) of this subsection, become effective as to a particular
borrower if the borrower uses the plan after a date specified in
the written notice of the amendment that is at least 15 days after
the mailing or delivery of the notice (but that need not be the
date the amendment becomes effective) by making a purchase or
obtaining a loan; provided, that the notice from the bank includes
a statement that the described usage after the referenced date
will constitute the borrowers acceptance of the amendment.
(4) Any borrower who furnishes timely notice electing not to
accept an amendment in accordance with the procedures
referenced in paragraph (2) of this subsection and who does not
subsequently use the plan, or who fails to use such borrowers
plan as referenced in paragraph (3) of this subsection, shall be
permitted to pay the outstanding unpaid indebtedness in such
borrowers account under the plan in accordance with the rate or
rates of periodic interest charged by a bank to a borrower under
943 or 944 of this title without giving effect to the amendment;
provided however, that the bank may convert the borrowers
account to a closed end credit account as governed by
subchapter III of this chapter, on credit terms substantially
similar to those set forth in the then-existing agreement
governing the borrowers plan.
(5) Notwithstanding the other provisions of this subsection, no
notice required by this subsection of an amendment of an
agreement governing a revolving credit plan shall be required,

and any amendment may become effective as of any date agreed

upon between a bank and a borrower, with respect to any
amendment that is agreed upon between the bank and the
borrower, either orally or in writing.
(c) For purposes of this section, the following are examples of
amendments that shall not be deemed to increase the rate or
rates of periodic interest charged by a bank to a borrower under
943 or 944 of this title:
(1) A decrease or increase in the required number or amount of
periodic installment payments;
(2) Any change to a plan that increases the rate or rates in effect
immediately prior to the change by less than 1/4 of 1 percentage
point per annum; provided that a bank may not make more than
one such change in reliance on this paragraph with respect to a
plan within any 12-month period;
(3)a. A change in the schedule or formula used under a variable
rate plan under 944 of this title that varies the determination
date of the applicable rate, the time period for which the
applicable rate will apply or the effective date of any variation of
the rate, or any other similar change, or
b. Any other change in the schedule or formula used under a
variable rate plan under 944 of this title; provided, that the
initial interest rate that would result from any such change under
this paragraph (3), as determined on the effective date of the
change or, if notice of the change is mailed or delivered to the
borrower prior to the effective date, as of any date within 60

days before mailing or delivery of such notice, will not be an

increase from the rate in effect on such date under the existing
schedule or formula;
(4) A change from a variable rate plan to a fixed rate, or from a
fixed rate to a variable rate plan so long as the initial rate that
would result from such a change, as determined on the effective
date of the change, or if the notice of the change is mailed or
delivered to the borrower prior to the effective date, as of any
date within 60 days before mailing or delivery of such notice, will
not be an increase from the rate in effect on such date under the
existing plan;
(5) A change from a daily periodic rate to a periodic rate other
than daily or from a periodic rate other than daily to a daily
periodic rate; and
(6) A change in the method of determining the outstanding
unpaid indebtedness upon which periodic interest is calculated
(including, without limitation, a change with respect to the date
by which or the time period within which a new balance or any
portion thereof must be paid to avoid additional periodic
interest).
(d) The procedures for amendment by a bank of the terms of a
plan to which a borrower other than an individual borrower is a
party may, in lieu of the foregoing provisions of this section, be
as the agreement governing the plan may otherwise provide.
The equivalent South Dakota statute, S.D. Codified Laws 54-11-10,
provides:

Modification of credit card agreement Right to reject changes

Notice Acceptance
Upon written notice, a credit card issuer may change the terms
of any credit card agreement, if such right of amendment has
been reserved, regardless of whether the card holder can use the
card for new purchases. However, the following changes to the
credit card agreement, effective as to existing balances, do not
become binding on the parties if the card holder, within twentyfive days of the effective date of the change, furnishes written
notice to the issuer, at the address designated by the issuer, that
the card holder does not agree to abide by such changes:
(1) Modifying the circumstances under which a finance charge
will be imposed;
(2) Altering the method used to calculate finance charges; or
(3) Increasing finance charges, fees, and other costs.
Any other change to the credit card agreement modifying the
manner in which the issuer and card holder resolve disputes
arising out of their relationship do[es] not become binding on the
parties if the card holder, within twenty-five days of the
effective date of the change, furnishes written notice to the
issuer, at the address designated by the issuer, that the card
holder does not agree to abide by such changes.
Use of the card after the effective date of the change of terms is
deemed to be an acceptance of the new terms, even if the
twenty-five-day period has not expired. Unless otherwise

required by 12 C.F.R. 226, in effect on February 22, 2010, a

written change of terms notice is not required if the proposed
change in terms has been communicated by the issuer to the card
holder and the card holder agrees.
Recognizing such enactments, Illinois courts now hold that
cardholder agreements are not contracts but standing offers to
extend credit, subject to modification at will, which are accepted
each time the card is used according to the terms of the cardholder
agreement at the time of such use. Garber v. Harris Trust &
Savings Bank, 104 Ill.App.3d 675, 432 N.E.2d 1309, 1311, 60
Ill.Dec. 410 (1st Dist. 1982).
A necessary consequence of the notion that the terms of a credit card
agreement may be changed by mere notice is that a credit card
agreement subject to such alteration is not a written contract within
the meaning of 735 ILCS 5/13-206.
Section 13-206 requires that the writing be complete in that it
identifies the parties, states the date of the agreement, contains the
signatures of the parties, and sets forth all terms of the parties
agreement. Brown v. Goodman, 147 Ill.App.3d 935, 498 N.E.2d
854, 857, 101 Ill.Dec. 530 (1st Dist. 1986); Clark v. Western Union
Telegraph Co., 141 Ill.App.3d 174, 490 N.E.2d 36, 37, 95 Ill.Dec.
563 (1st Dist. 1986); Munsterman v. Illinois Agricultural Auditing
Assn, 106 Ill.App.3d 237, 435 N.E.2d 923, 925, 62 Ill.Dec. 125 (3d
Dist. 1982); Baird & Warner, Inc. v. Addison Industrial Park, Inc.,
70 Ill.App.3d 59, 387 N.E.2d 831, 838, 26 Ill.Dec. 1 (1st Dist.
1979).
[T]he test for whether a contract is written under the statute of
limitations in Illinois is not whether the contract meets the

requirements of the statute of frauds, but whether all essential terms

of the contract, including the identity of the parties, are in writing and
can be ascertained from the written instrument itself. [Emphasis
added.] Brown, supra, 498 N.E.2d at 858.
If any essential element of the contract is omitted from the writing,
then the contract must be treated as oral for purposes of the statute
of limitations. [Emphasis added.] Armstrong v. Guigler, 174 Ill.2d
281, 673 N.E.2d 290, 294, 220 Ill.Dec. 378 (1996), quoting Toth v.
Mansell, 207 Ill.App.3d 665, 566 N.E.2d 730, 733, 152 Ill.Dec. 853
(1st Dist. 1990). Accord Schmidt v. Niedert, 45 Ill.App.3d 9, 358
N.E.2d 1305, 1308, 3 Ill.Dec. 620 (1st Dist. 1976).
Illinois courts give a strict interpretation to the meaning of a written
contract within the statute of limitations. For statute of limitation
purposes a contract is considered to be written if all the essential
terms of the contract are in writing and are ascertainable from the
instrument itself. [Emphasis added.] Brown, supra, 498 N.E.2d at
856. If the agreement necessitates resort to parol testimony to make it
complete, the law is that, in applying the statute of limitations, it must
be treated as an oral contract. Toth, supra, 566 N.E.2d at 733.
[T]he law is clear in Illinois that to constitute a written contract
under the statute of limitations the written instrument itself must
completely identify the parties to the contract. [Emphasis added.]
Brown, supra, 498 N.E.2d at 857. Accord Railway Passenger &
Freight Conductors Mut. Aid & Ben. Assn v. Loomis, 142 Ill. 560,
32 N.E. 424 (1892); Munsterman, supra, 435 N.E.2d at 925; Pratl
v. Hawthorn-Mellody Farms Dairy, Inc., 53 Ill.App.3d 344, 368
N.E.2d 767, 770, 11 Ill.Dec. 216 (1st Dist. 1977); Matzer v.
Florsheim Shoe Co., 132 Ill.App.2d 470, 270 N.E.2d 75, 77 (1st
Dist. 1971); Wielander v. Henich, 64 Ill.App.2d 228, 211 N.E.2d

775, 776 (1st Dist. 1965).

The issue is not whether the identity of [the parties] can be readily
ascertainable from subsequent writings; the issue is whether the
identity of [the parties] can be readily ascertained from the alleged
written contract so as to avoid the resort to parol evidence.
[Emphasis added.] Brown, supra, 498 N.E.2d at 857.
If testimony is necessary to establish any of these elements, the
contract is treated as oral and subject to the five-year statute of
limitations. Wielander, supra; Armstrong, supra, 673 N.E.2d at 293
294. In the parol evidence cases, the dispositive question is
whether evidence of oral representations is necessary to establish
the existence of a written contract. If such evidence is required, then
the contract is treated as oral for purposes of the statute of
limitations. In other words, where a party is claiming a breach of
written contract, but the existence of that contract or one of its
essential terms must be proven by parol evidence, the contract is
deemed oral and the five-year statute of limitations applies.
Armstrong, supra, 673 N.E.2d at 293 294.
A credit card agreement that is subject to change upon notice does
not contain all essential terms. Even if the debtor signed a written
application that set forth all material terms at the time of the
application, the change by notice provision whether expressly
included in the contract or implied therein by statute makes it
impossible to determine from mere examination of the document that
those terms are still in effect. The creditor must either rely on the fact
that a current version of the agreement was sent to the debtor or
establish that no change notices were mailed. In either case, parol
testimony is essential, and there is no document that conclusively
establishes the terms of the agreement.

I. [6.9] Application of Statutes of Limitations

When statute accrues. A claim accrues upon a missed payment or
any other event that is defined as a default under the agreement.
Himelfarb v. American Express Co., 301 Md. 698, 484 A.2d 1013
(1984). This may not require the fault of the debtor; for example,
destruction of a vehicle being purchased on time is universally
defined as an act of default.
Relationship of charge-off date to date of default. The Uniform
Retail Credit Classification and Account Management Policy issued
by the Federal Financial Institutions Examination Council, which is a
consortium of the federal banking and financial regulatory agencies,
mandates that most federally examined financial institutions charge
off revolving credit accounts (credit cards, lines of credit) no later
than when they are 180 days past due and closed-end credit accounts
(retail installment contracts) no later than 120 days after they are
past due. 65 Fed.Reg. 36,903 (June 12, 2000). This is done to
prevent financial institutions from keeping bad debts on their books
at face value, thereby deceiving investors and regulators. It does not
affect the right to recover the debt, except insofar as the 180-day and
120-day periods suggest when the date of default was for limitations
purposes.
The date shown on a credit report for the anticipated removal of an
adverse trade line is also helpful in ascertaining the date on which
the statute of limitations starts running. Under 15 U.S.C. 1681c,
adverse information must generally be removed from a credit report
after 7 years. Under 15 U.S.C. 1681c(c), [t]he 7-year period
shall begin, with respect to any delinquent account that is placed for
collection (internally or by referral to a third party, whichever is
earlier), charged to profit and loss, or subjected to any similar

action, upon the expiration of the 180-day period beginning on the

date of the commencement of the delinquency which immediately
preceded the collection activity, charge to profit and loss, or similar
action. The delinquency date is therefore about 7.5 years prior to
the removal date. Note, however, that (1) this computation is not
affected by later payments that do not bring the account current, but
that may toll the statute; and (2) some furnishers may request removal
in less than 7.5 years, providing themselves with a margin of error.
Tolling of limitations by payment or promise. Payment may restart
the running of the statute of limitations. St. Francis Medical Center
v. Vernon, 217 Ill.App.3d 287, 576 N.E.2d 1230, 1231, 160 Ill.Dec.
276 (5th Dist. 1991). However, Illinois imposes restrictions on what
constitutes proof of payment or agreement. For example, in Illinois
an uncorroborated notation of a modest payment on a note or in the
records of the creditor is not sufficient evidence of payment to toll
the statute of limitations. First Nat. Bank of Wood River v. Carstens,
346 Ill.App. 474, 105 N.E.2d 786 (4th Dist. 1952).
Choice of law. Most credit card agreements contain a choice-of-law
clause specifying the law of the place where the issuer is domiciled,
typically Delaware or South Dakota. However, Illinois (unlike some
other states) treats the statute of limitations as procedural and not
affected by such clauses. Gas Technology Institute v. Rehmat, 524
F.Supp.2d 1058, 1069 (N.D.Ill. 2007) (quoting Telular Corp. v.
Mentor Graphics Corp., 282 F.Supp.2d 869, 871 (N.D.Ill. 2003),
for proposition that Illinois applies forum law to procedural
matters, which include statutes of limitations . This is true even
where the litigants are parties to a contract containing a choice of
law provision.); Thorogood v. Sears, Roebuck & Co., No. 06 C
1999, 2009 WL 632100 at *1 (N.D.Ill. Mar. 11, 2009) (Illinois
treats the statute of limitations as a procedural matter for choice of

law purposes and applies the Illinois statute of limitations to claims

filed in Illinois.); Kalmich v. Bruno, 553 F.2d 549, 553 (7th Cir.
1977) (The basic choice of law rule pertaining to statutes of
limitations is that such statutes are procedural in their nature,
Hilberg v. Industrial Commission, 380 Ill. 102, 105, 43 N.E.2d 671
(1942) and, thus, that the limitations statutes of the forum will
usually apply, even though the causes of action to which they are
applied may have arisen in and been governed by the substantive law
of another jurisdiction. [Citations omitted.]).

J. [6.10] Family Expense Statute

The Illinois family expense statute, 750 ILCS 65/15, imposes
liability on family members for necessaries:
(a)(1) The expenses of the family and of the education of the
children shall be chargeable upon the property of both husband
and wife, or of either of them, in favor of creditors therefor, and
in relation thereto they may be sued jointly or separately.
(2) No creditor, who has a claim against a spouse or former
spouse for an expense incurred by that spouse or former spouse
which is not a family expense, shall maintain an action against
the other spouse or former spouse for that expense except:
(A) an expense for which the other spouse or former spouse
agreed, in writing, to be liable; or
(B) an expense for goods or merchandise purchased by or in the
possession of the other spouse or former spouse, or for services
ordered by the other spouse or former spouse.

(3) Any creditor who maintains an action in violation of this

subsection (a) for an expense other than a family expense
against a spouse or former spouse other than the spouse or
former spouse who incurred the expense, shall be liable to the
other spouse or former spouse for his or her costs, expenses and
attorneys fees incurred in defending the action.
(4) No creditor shall, with respect to any claim against a spouse
or former spouse for which the creditor is prohibited under this
subsection (a) from maintaining an action against the other
spouse or former spouse, engage in any collection efforts against
the other spouse or former spouse, including, but not limited to,
informal or formal collection attempts, referral of the claim to a
collector or collection agency for collection from the other
spouse or former spouse, or making any representation to a
credit reporting agency that the other spouse or former spouse is
any way liable for payment of the claim.
The language an expense for goods or merchandise purchased by or
in the possession of the other spouse or former spouse, or for
services ordered by the other spouse or former spouse in 15(a)(2)
(B) does not extend to general-purpose loans and may not extend to
credit cards issued by financial institutions. In North Shore
Community Bank & Trust Co. v. Kollar, 304 Ill.App.3d 838, 710
N.E.2d 106, 237 Ill.Dec. 683 (1st Dist. 1999), the court, after
discussing Iowa decisions on the issue (the Illinois statute was
copied from that of Iowa), held that a note representing a loan of
money cannot be a family expense. [B]orrowed money does not
constitute a family expense; in contrast to specific goods, articles
and services, borrowed money has never been held to constitute a
family expense. 710 N.E.2d at 110 111. The court left open issues

relating to credit cards.

A federal decision held that a note and mortgage used to purchase a
family home constituted a family expense, distinguishing North
Shore on the ground that tracing of proceeds is not required in the
case of a mortgage. In re Flores, 345 B.R. 615 (N.D.Ill. 2006). The
Flores court did not address the statutory language or the
construction given it by the Iowa courts prior to its adoption by
Illinois.
A charge account that is maintained by a seller of goods or services
may qualify as a family expense. Saks & Co. v. Brown, 347 Ill.App.
289, 106 N.E.2d 755 (1st Dist. 1952).

K. [6.11] Preemption of Family Expense Statute by

Equal Credit Opportunity Act
The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691, et
seq., precludes the use of the family expense statute to impose
personal liability on a noncontracting spouse when a creditor obtains
the obligation of only one spouse on a contract.
The ECOA entitles each spouse to contract to purchase goods or
services on his or her own. 15 U.S.C. 1691d; 12 C.F.R. 1002.11.
It applies to any extension of credit, which is defined as the right
granted by a creditor to a debtor to defer payment of debt or to incur
debts and defer its payment or to purchase property or services
and defer payment therefor. [Emphasis added.] 15 U.S.C.
1691a(d). The fact that goods or services are billed on a monthly
basis, after they are furnished, is sufficient to trigger applicability of
this definition of credit. Murray v. New Cingular Wireless
Services, Inc., 523 F.3d 719, 722 (7th Cir. 2008) (circular offering

cell phone service, to be paid for monthly after service was used,
was offer of credit; the circular offers phone service on credit,
because the service is provided before payment is due (emphasis in
original)); Mays v. Buckeye Rural Electric Cooperative, Inc., 277
F.3d 873 (6th Cir. 2002) (standard utility billing, involving billing in
one month for service supplied during preceding month, involved
extension of credit within this definition); Williams v. AT&T
Wireless Services, Inc., 5 F.Supp.2d 1142, 1145 (W.D.Wash. 1998)
(wireless phone service constituted credit under ECOA and Fair
Credit Reporting Act); Baynes v. ALLTEL Wireless of Alabama,
Inc., 322 F.Supp.2d 1307 (M.D.Ala. 2004) (similar); Mick v. Level
Propane Gases, Inc., 183 F.Supp.2d 1014 (S.D. Ohio 2000) (when
gas was billed for 20 days after it was supplied, there was extension
of credit subject to ECOA).
Regulation B, 12 C.F.R. pt. 1002, provides:
12 C.F.R. 1002.7 Rules concerning extensions of credit.
(a) Individual accounts. A creditor shall not refuse to grant an
individual account to a creditworthy applicant on the basis of sex,
marital status, or any other prohibited basis.
***
(d) Signature of spouse or other person.
(1) Rule for qualified applicant. Except as provided in this
paragraph, a creditor shall not require the signature of an
applicants spouse or other person, other than a joint applicant,
on any credit instrument if the applicant qualifies under the
creditors standards of creditworthiness for the amount and

terms of the credit requested. A creditor shall not deem the

submission of a joint financial statement or other evidence of
jointly held assets as an application for joint credit.
(2) Unsecured credit. If an applicant requests unsecured credit
and relies in part upon property that the applicant owns jointly
with another person to satisfy the creditors standards of
creditworthiness, the creditor may require the signature of the
other person only on the instrument(s) necessary, or reasonably
believed by the creditor to be necessary, under the law of the
state in which the property is located, to enable the creditor to
reach the property being relied upon in the event of the death or
default of the applicant.
***
(5) Additional parties. If, under a creditors standards of
creditworthiness, the personal liability of an additional party is
necessary to support the credit requested, a creditor may
request a cosigner, guarantor, endorser, or similar party. The
applicants spouse may serve as an additional party, but the
creditor shall not require that the spouse be the additional party.
(6) Rights of additional parties. A creditor shall not impose
requirements upon an additional party that the creditor is
prohibited from imposing upon an applicant under this section. 12
C.F.R. 1002.7.
Regulation B further provides:
1002.11 Relation to state law.

(a) Inconsistent state laws. Except as otherwise provided in this

section, this regulation alters, affects, or preempts only those
state laws that are inconsistent with the Act and this regulation
and then only to the extent of the inconsistency. A state law is
not inconsistent if it is more protective of an applicant.
(b) Preempted provisions of state law.
(1) A state law is deemed to be inconsistent with the
requirements of the Act and this part and less protective of an
applicant within the meaning of section 705(f) of the Act to the
extent that the law:
(i) Requires or permits a practice or act prohibited by the Act or
this part;
(ii) Prohibits the individual extension of consumer credit to both
parties to a marriage if each spouse individually and voluntarily
applies for such credit;
***
(c) Laws on finance charges, loan ceilings. If married applicants
voluntarily apply for and obtain individual accounts with the
same creditor, the accounts shall not be aggregated or otherwise
combined for purposes of determining permissible finance
charges or loan ceilings under any Federal or state law.
Permissible loan ceiling laws shall be construed to permit each
spouse to become individually liable up to the amount of the loan
ceilings, less the amount for which the applicant is jointly liable.
12 C.F.R. 1002.11.

When the Federal Reserve Board was the administering agency (it is
now the Consumer Financial Protection Bureau), it interpreted these
provisions to mean that when a creditor extends credit to one spouse
only, the use of a family expense statute to impose liability on the
other spouse for that indebtedness is preempted. With reference to
what is now 12 C.F.R. 1002.11 (then 12 C.F.R. 202.8), the Board
held: This means that in States that have laws prohibiting separate
extensions of credit for married persons, this section of the
regulation will not only pre-empt such laws but also any other
provision of State laws which would hold one spouse responsible
for the debts contracted by the other, for example, a family
expense statute. [Emphasis added.] 40 Fed.Reg. 49,298, 49,304
(Oct. 22, 1975).
If the ECOA is violated, decisions differ as to whether the violation
merely entitles one to damages or makes the guaranty/signature
unenforceable. Bank of West v. Kline, 782 N.W.2d 453 (Iowa 2010)
(summarizing cases going each way).

L. [6.12] Medical Services

A hospital or physician normally does not have an agreement by the
patient to pay a specific price for services, except in a few cases
involving elective procedures such as plastic surgery. Absent such
an agreement, the provider must prove (1) what services were
provided, (2) that its charges are the usual and customary charges for
that particular establishment, and (3) that the charges are comparable
to the charges of other, similar establishments in the area. Victory
Memorial Hospital v. Rice, 143 Ill.App.3d 621, 493 N.E.2d 117,
119 120, 97 Ill.Dec. 635 (2d Dist. 1986); Temesvary v. Houdek,
301 Ill.App.3d 560, 703 N.E.2d 613, 234 Ill.Dec. 752 (2d Dist.
1998); Protestant Hospital Builders Club, Inc. v. Goedde, 98

Ill.App.3d 1028, 424 N.E.2d 1302, 54 Ill.Dec. 399 (5th Dist. 1981).
Examination of medical and hospital bills often discloses items that
are facially unreasonable ($50 for an aspirin), duplicative (charging
for the same item more than once), entered in error (comparison of
the bill with the underlying medical records and pharmacy record
discloses that the item billed was not in fact provided), or
nonbillable (charging for items that should be included in the cost of
hospital rooms, surgeons charging the full cost for more than one
procedure during the same operative session); separate charges for
standard hospital room supplies (toothbrushes, tissues); and charges
for multiple tests that should be incorporated in one test. Some
studies indicate that over 80 percent of hospital bills contain errors
of this nature. Barb Berggoetz, Decoding your medical bills: take
control of your health care costs, Saturday Evening Post, Sept. 1,
2010, at 28(2); Adam Voiland, How to Decipher a Hospital Bill,
U.S. News & World Report, July 15, 2007 (rev. Apr. 30, 2010),
http://health.usnews.com/health-news/managing-yourhealthcare/insurance/articles/2010/04/30/how-to-decipher-ahospital-bill.
Other defenses and issues unique to medical debts include:
Whether discounts given to insured patients must be considered
in determining the usual and customary charges. But see
Galvan v. Northwestern Memorial Hospital, 382 Ill.App.3d 259,
888 N.E.2d 529, 321 Ill.Dec. 10 (1st Dist. 2008).
Restrictions on balance billing in the state and federal
Medicaid and Medicare statutes and in contracts with insurers,
health maintenance organizations (HMOs), and preferred
provider organizations (PPOs). These restrictions limit (often to

zero) the amount for which the patient is liable if a claim is or should
have been submitted. E.g., 42 U.S.C. 1395cc; 42 C.F.R. 489.21,
447.15.
Whether an institution that undertook to apply for Medicaid or
similar benefits but failed to do so is barred on an estoppel
theory from recovery against the patient. Mount Sinai Hospital v.
Kornegay, 75 Misc.2d 302, 347 N.Y.S.2d 807 (N.Y. City Civ.
1973). The same logic should apply to failure to timely or properly
submit charges for payment to an insurer or other party that would
have paid them.
Whether a hospital is obligated under the Hill-Burton Act, 42
U.S.C. 291, et seq., or the Fair Patient Billing Act, 210 ILCS
88/1, et seq., or otherwise, to consider or evaluate the patient for
charitable care or a payment plan. See Davis v. Ball Memorial
Hospital Assn, 640 F.2d 30 (7th Cir. 1980) (Hill-Burton);
Collection Professionals, Inc. v. Schlosser, 2012 IL App (3d)
110519, 977 N.E.2d 315, 364 Ill.Dec. 826 (Fair Patient Billing Act).
The Fair Patient Billing Act and implementing Attorney General
regulations (see 77 Ill.Admin. Code pt. 4500) require (1) notice of
the right to apply for charity care, (2) procedures for application for
charity care, and (3) a reasonable payment plan for patients who do
not qualify for charity care. Ordinarily, a creditor is not legally
obligated to offer a payment plan that is not part of the original credit
terms; this is an exception.
Lack of medical necessity. An implicit term of the contract between
a medical provider and a patient is that only such services as are
reasonably determined to be medically necessary will be provided.
Explanation of benefits documents provided by insurers and other

benefits providers should be examined. If they deny reimbursement

on the ground that services provided were not medically necessary,
and that determination is correct, the medical provider should not be
able to recover payment from the patient, at least if the provider was
responsible for the decision to require the services. Sisters of Third
Order of St. Francis v. Summerson, 217 Ill.App.3d 377, 577 N.E.2d
177, 160 Ill.Dec. 301 (3d Dist. 1991) (matter is affirmative defense;
however, hospital may not be at liberty to disregard instructions of
patients own physician, even if instructions call for procedures that
are not medically necessary). A third-party complaint against the
benefits provider is often appropriate in this situation.
Account stated theory. By analogy to the law with respect to
attorneys, an account stated theory may not be sufficient to preclude
inquiry into the necessity and reasonableness of the services
rendered. Lieberman v. Stollman, 230 Ill.App.3d 203, 595 N.E.2d
8, 171 Ill.Dec. 880 (1st Dist. 1991).
Reasonable billing and collection requirements for not-forprofit hospitals. If the provider is a not-for-profit hospital, the
Patient Protection and Affordable Care Act, Pub.L. No. 111-148,
9007, 124 Stat. 119 (2010), amended 26 U.S.C. 501 to require
not-for-profit hospitals to follow reasonable billing and collection
requirements, but did not define what qualifies as reasonable.
Section 9007 provides:
SEC. 9007. ADDITIONAL REQUIREMENTS FOR
CHARITABLE HOSPITALS.
(a) REQUIREMENTS TO QUALIFY AS SECTION 501(c)(3)
CHARITABLE HOSPITAL ORGANIZATION Section 501
of the Internal Revenue Code of 1986 (relating to exemption

from tax on corporations, certain trusts, etc.) is amended by

redesignating subsection (r) as subsection (s) and by inserting
after subsection (q) the following new subsection:
(r) ADDITIONAL REQUIREMENTS FOR CERTAIN
HOSPITALS.
(1) IN GENERAL. A hospital organization to which this
subsection applies shall not be treated as described in subsection
(c)(3) unless the organization
(A) meets the community health needs assessment
requirements described in paragraph (3),
(B) meets the financial assistance policy requirements described
in paragraph (4),
(C) meets the requirements on charges described in paragraph
(5), and
(D) meets the billing and collection requirement described in
paragraph (6).
(2) HOSPITAL ORGANIZATIONS TO WHICH
SUBSECTION APPLIES.
(A) IN GENERAL. This subsection shall apply to
(i) an organization which operates a facility which is required by
a State to be licensed, registered, or similarly recognized as a
hospital, and

(ii) any other organization which the Secretary determines has

the provision of hospital care as its principal function or purpose
constituting the basis for its exemption under subsection (c)(3)
(determined without regard to this subsection).
***
(4) FINANCIAL ASSISTANCE POLICY. An organization
meets the requirements of this paragraph if the organization
establishes the following policies:
(A) FINANCIAL ASSISTANCE POLICY. A written
financial assistance policy which includes
(i) eligibility criteria for financial assistance, and whether such
assistance includes free or discounted care,
(ii) the basis for calculating amounts charged to patients,
(iii) the method for applying for financial assistance,
(iv) in the case of an organization which does not have a
separate billing and collections policy, the actions the
organization may take in the event of non-payment, including
collections action and reporting to credit agencies, and
(v) measures to widely publicize the policy within the
community to be served by the organization.
(B) POLICY RELATING TO EMERGENCY MEDICAL
CARE. A written policy requiring the organization to provide,
without discrimination, care for emergency medical conditions

(within the meaning of section 1867 of the Social Security Act

(42 U.S.C. 1395dd)) to individuals regardless of their eligibility
under the financial assistance policy described in subparagraph
(A).
(5) LIMITATION ON CHARGES. An organization meets
the requirements of this paragraph if the organization
(A) limits amounts charged for emergency or other medically
necessary care provided to individuals eligible for assistance
under the financial assistance policy described in paragraph (4)
(A) to not more than the lowest amounts charged to individuals
who have insurance covering such care, and
(B) prohibits the use of gross charges.
(6) BILLING AND COLLECTION REQUIREMENTS. An
organization meets the requirement of this paragraph only if the
organization does not engage in extraordinary collection actions
before the organization has made reasonable efforts to
determine whether the individual is eligible for assistance under
the financial assistance policy described in paragraph (4)(A).
(7) REGULATORY AUTHORITY. The Secretary shall
issue such regulations and guidance as may be necessary to carry
out the provisions of this subsection, including guidance relating
to what constitutes reasonable efforts to determine the eligibility
of a patient under a financial assistance policy for purposes of
paragraph (6)..
In 2012 and 2013, the IRS issued proposed regulations to implement

revised 26 U.S.C. 501 that would define reasonable and restrict

how patient medical debt can be collected. See 77 Fed.Reg. 38,148
(June 26, 2012); 78 Fed.Reg. 20,523 (Apr. 5, 2013).
On December 30, 2013, the IRS published a notice of reliance
stating that while it had not yet issued final regulations, hospitals
could rely on the proposed regulations as written at least until
the final regulations are published. IRS Notice 2014-2, 2014-3
Int.Rev.Bull. 407. The Treasury Department and the IRS confirm
that tax-exempt organizations may rely on all of the provisions of
both the 2012 and 2013 proposed regulations pending the publication
of final or temporary regulations or other applicable guidance. Id.
Under the proposed regulations, nonprofit hospitals must give
patients up to 120 days to decide whether they wish to apply for
financial assistance and begin the application process. The
regulations then allow for another 120 days for the patient to fill out
an application. During that initial period, not-for-profit hospitals
cannot engage in extraordinary collection actions. Prop.Treas.Reg.
1.501(r)-6(b), 77 Fed.Reg. at 38,166.
The proposed IRS regulations state that [c]haritable hospitals are
prohibited from engaging in certain collection methods (for example,
sending a debt to a credit agency or garnishing wages) until they
make reasonable efforts to determine whether an individual is
eligible for assistance under the hospitals financial assistance
policy. Betsy Bourassa, Charitable Hospitals: Roles and
Responsibilities, Treasury Notes (Dec. 30, 2013). The regulations
define extraordinary as
1. commencing a civil action against a patient;

2. reporting a patients delinquent debt to a credit bureau;

3. selling a patients debt to a third party;
4. placing a lien on a patients property;
5. foreclosing on a patients real property;
6. attaching or seizing a patients bank account or any other personal
property;
7. causing a patients arrest;
8. causing a patient to be subject to a writ of body attachment; and
9. garnishing a patients wages. Prop.Treas.Reg. 1.501(r)-6(b), 77
Fed.Reg. at 38,166.
Not-for-profit hospitals can still engage a third-party debt collector
to collect a patient debt. 77 Fed.Reg. at 38,149.

M. [6.13] Nursing Home Contracts

Many contracts for nursing home services are signed by a family
member on behalf of the patient. Under Illinois law, a signature as
agent does not personally obligate the agent, even if fine print in
the text of the agreement purports to impose such liability. Kankakee
Concrete Products Corp. v. Mans, 81 Ill.App.3d 53, 400 N.E.2d
637, 36 Ill.Dec. 217 (3d Dist. 1980); Capital One Bank, N.A. v.
Czekala, 379 Ill.App.3d 737, 884 N.E.2d 1205, 318 Ill.Dec. 934 (3d
Dist. 2008).
Furthermore, a federal statute, 42 U.S.C. 1396r, prohibits a nursing

home that receives Medicare or Medicaid funds (in connection with

anyone, not just the patient) from requiring a personal guaranty of
someone other than the resident. The nursing home may only
requir[e] an individual, who has legal access to a residents income
or resources available to pay for care in the facility, to sign a
contract (without incurring personal financial liability) to provide
payment from the residents income or resources for such care. 42
U.S.C. 1396r(c)(5)(B)(ii). The statute should also bar liability
under the Illinois family expense statute.

N. [6.14] Retail Installment Contracts

Among the debts that are commonly sold to debt buyers are
deficiencies allegedly owed under motor vehicle retail installment
contracts. The finance company has the burden of proving the
commercial reasonableness of any disposition of the collateral,
including compliance with notice requirements. The burden on a debt
buyer is the same, and it is quite difficult to satisfy. Beacham v.
Calvary Portfolio Services, LLC, 304 Ga.App. 37, 695 S.E.2d 368
(2010).

VII. FAIR DEBT COLLECTION

PRACTICES ACT ISSUES
A. [7.1] In General
The Fair Debt Collection Practices Act regulates the conduct of
debt collectors in collecting debts owed or allegedly owed by
consumers. It is designed to protect consumers from unscrupulous
collectors, whether there is a valid debt. The FDCPA broadly
prohibits unfair or unconscionable collection methods; conduct that

harasses, oppresses, or abuses any debtor; and any false, deceptive,

or misleading statements in connection with the collection of a debt.
It also requires debt collectors to give debtors certain information.
15 U.S.C. 1692d 1692g.
The FDCPA also contains a venue provision requiring suit to be
brought where the consumer signed a written contract or where the
consumer resides at the time suit is filed. 15 U.S.C. 1692i.
Generally, the FDCPA covers the activities of a debt collector.
There is a two-part definition of debt collector: any person [1]
who uses any instrumentality of interstate commerce or the mails in
any business the principal purpose of which is the collection of any
debts, or [2] who regularly collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to be owed or due
another. 15 U.S.C. 1692a(6). The creditor itself is excluded from
the definition of debt collector unless it uses a name that suggests
that a third-party debt collector is involved in the collection process.
(The creditors outside collection attorney is a debt collector if the
balance of the test is met.)
Also excluded from the definition of debt collector are the
following:
1. officers and employees of the creditor while collecting the debt in
the creditors name;
2. affiliates of the creditor (15 U.S.C. 1692a(6)(B) creates an
exemption for any person while acting as a debt collector for
another person, both of whom are related by common ownership or
affiliated by corporate control, if the person acting as a debt
collector does so only for persons to whom it is so related or

affiliated and if the principal business of such person is not the

collection of debts. There is no requirement that the affiliate
identify itself as an affiliate of the creditor. Aubert v. American
General Finance, Inc., 137 F.3d 976 (7th Cir. 1998).);
3. officers or employees of the United States or any state (Private
debt collectors collecting student loans and other obligations that
meet the definition of a debt and were originally owed to a
governmental unit do not qualify for this exemption. Brannan v.
United Student Aid Funds, Inc., 94 F.3d 1260 (9th Cir. 1996); Jones
v. Intuition, Inc., 12 F.Supp.2d 775 (W.D.Tenn. 1998). However, in
Davis v. United Student Aid Funds, Inc., 45 F.Supp.2d 1104
(D.Kan. 1998), the court held that the guaranty agency itself is
covered by the fiduciary exception.);
4. process servers (This exemption does not extend to the person
who hired the process server. Romea v. Heiberger & Associates,
163 F.3d 111, 117 (2d Cir. 1998); Alger v. Ganick, OBrien &
Sarin, 35 F.Supp.2d 148, 153 (D.Mass. 1999).);
5. bona fide nonprofit debt counselors;
6. persons who service debts that are not in default (e.g., servicers
of mortgages and student loans) (Perry v. Stewart Title Co., 756
F.2d 1197 (5th Cir. 1985); Coppola v. Connecticut Student Loan
Foundation, No. Civ.A. N-87-398(JAC), 1989 WL 47419 (D.Conn.
Mar. 22, 1989). This servicer exemption does not operate in favor
of such entities when they acquire a loan after default. Brannan,
supra, 94 F.3d at 1262 (The FDCPA does not provide an
exemption for guaranty agencies that acquire a student loan after
default in order to pursue its collection.); Student Loan Fund of
Idaho, Inc. v. Duerner, 131 Idaho 45, 951 P.2d 1272 (Idaho 1997).

However, when a loan is restructured and the restructured loan is not

in default, the fact that the loan was in default prior to being
restructured does not make entities purchasing or servicing the loan
FDCPA debt collectors. Bailey v. Security National Servicing
Corp., 154 F.3d 384 (7th Cir. 1998).);
7. any person collecting or attempting to collect any debt owed or
due or asserted to be owed or due another to the extent such activity
is incidental to a bona fide fiduciary obligation or a bona fide
escrow arrangement (15 U.S.C. 1692a(6)(F). The fiduciary
relationship must exist for purposes other than debt collection. Thus,
a receiver or trustee of a corporate creditor or the personal
representative or trustee of an individual creditor is treated as if it
were the original creditor. The fact that a collection attorney or
agency is the agent, and therefore the fiduciary, of the creditor does
not give rise to an exemption.);
8. persons who collect debts originated by such person[s] (15
U.S.C. 1692a(6)(F)(ii). An originator is one who played a
significant role in originating the obligation. Buckman v. American
Bankers Insurance Company of Florida, 115 F.3d 892 (11th Cir.
1997), affg 924 F.Supp. 1156 (S.D.Fla. 1996).); and
9. a secured party who takes possession of the creditors receivables
by enforcing its security interest (That is, if consumer lender ABC
pledges its consumer receivables to commercial lender XYZ, and
XYZ, pursuant to its rights under the security agreement, takes the
collateral and directs the consumer to pay XYZ, XYZ is not a debt
collector.).
Debt buyers are covered. A company that regularly purchases
delinquent debts is a debt collector within the meaning of the

FDCPA with respect to the delinquent debts. Schlosser v. Fairbanks

Capital Corp., 323 F.3d 534 (7th Cir. 2003); McKinney v.
Cadleway Properties, Inc., 548 F.3d 496 (7th Cir. 2008); Federal
Trade Commission v. Check Investors, Inc., 502 F.3d 159 (3d Cir.
2007); Pollice v. National Tax Funding, L.P., 225 F.3d 379 (3d Cir.
2000); Ballard v. Equifax Check Services, Inc., 27 F.Supp.2d 1201
(E.D.Cal. 1998); Kimber v. Federal Financial Corp., 668 F.Supp.
1480 (M.D.Ala. 1987); Durkin v. Equifax Check Services, Inc., No.
00 C 4832, 2002 WL 31426397 (N.D.Ill. Oct. 28, 2002); Cirkot v.
Diversified Financial Systems, Inc., 839 F.Supp. 941 (D.Conn.
1993); Ruble v. Madison Capital, Inc., No. C-1-96-1693, 1998
U.S.Dist. LEXIS 4926 (N.D. Ohio Mar. 19, 1998); Holmes v.
Telecredit Service Corp., 736 F.Supp. 1289, 1292 (D.Del. 1990);
Farber v. NP Funding II L.P., No. CV-96-4322 (CPS), 1997 WL
913335 at *3 (E.D.N.Y. Dec. 9, 1997) (those who are assigned a
defaulted debt are not exempt from the FDCPA if their principal
purpose is the collection of debts or if they regularly engage in debt
collection); Stepney v. Outsourcing Solutions, Inc., No. 97 C
5288, 1997 WL 722972 (N.D.Ill. Nov. 13, 1997); Coppola, supra;
Commercial Service of Perry, Inc. v. Fitzgerald, 856 P.2d 58, 62
(Colo.App. 1993) (a company which takes an assignment of a debt
in default, and is a business the principal purpose of which is to
collect debts, may be subject to the Act, even if the assignment is
permanent and without any further rights in the assignor). As long as
the purchaser asserts that the debt was in default when acquired, the
FDCPA applies, even if the assertion proves to be false. Schlosser,
supra.
Collection lawyers who regularly collect consumer debts are
covered. Heintz v. Jenkins, 514 U.S. 291, 131 L.Ed.2d 395, 115
S.Ct. 1489, 1493 (1995).

B. [7.2] Typical Collection Litigation Violations

The following are typical violations in connection with collection
litigation:
False statements in the complaint, affidavits, etc., e.g., that the
affiant has personal knowledge of records establishing debt, that
the plaintiff is the holder in due course, etc. Filing false affidavits
in state court collection litigation is actionable. Todd v. Weltman,
Weinberg & Reis Co., 434 F.3d 432 (6th Cir. 2006); Delawder v.
Platinum Financial Services Corp., 443 F.Supp.2d 942 (2005),
reconsideration denied in part, 2007 WL 1245848 (S.D. Ohio Apr.
27, 2007); Griffith v. Javitch, Block & Rathbone, LLP, No.
1:04cv238 (S.D. Ohio July 8, 2004); Hartman v. Asset Acceptance
Corp., 467 F.Supp.2d 769 (S.D. Ohio 2004); Gionis v. Javitch,
Block & Rathbone, 405 F.Supp.2d 856 (S.D. Ohio 2005); Blevins v.
Hudson & Keyse, Inc., 395 F.Supp.2d 655, motion denied, 395
F.Supp.2d 662 (S.D. Ohio 2004); Stolicker v. Muller, Muller,
Richmond, Harms, Meyers & Sgroi, P.C., No. 1:04-CV-733, 2005
WL 2180481 (W.D.Mich. Sept. 9, 2005); Eads v. Wolpoff &
Abramson, LLP, 538 F.Supp.2d 981 (W.D.Tex. 2008). See also
Sayyed v. Wolpoff & Abramson, 485 F.3d 226 (4th Cir. 2007).
However, in ORourke v. Palisades Acquisition XVI, LLC, 635 F.3d
938, 941 (7th Cir. 2011), the court held that fraud on the court is
not a viable theory.
Suing or threatening to sue on time-barred debts. Phillips v.
Asset Acceptance, LLC, 736 F.3d 1076 (7th Cir. 2013); Kimber v.
Federal Financial Corp., 668 F.Supp. 1480 (M.D.Ala. 1987);
Goins v. JBC & Associates, P.C., 352 F.Supp.2d 262 (D.Conn.
2005); Parkis v. Arrow Financial Services, LLC, No. 07 C 410,

2008 WL 94798 (N.D.Ill. Jan. 8, 2008); Ramirez v. Palisades

Collection LLC, Civil Action No. 07 C 3840, 2008 WL 2512679
(N.D.Ill. June 23, 2008); Schutz v. Arrow Financial Services, LLC,
465 F.Supp.2d 872 (N.D.Ill. 2006). A threat to sue a consumer on a
claim that the debt collector knows is barred by the statute of
limitations violates section 1692e(2)(A) of the FDCPA. Aronson v.
Commercial Financial Services, Inc., No. Civ. A. 96-2113, 1997
WL 1038818 at *2 (W.D.Pa. Dec. 22, 1997). It should be noted that
the FTCs February 2009 Collecting Consumer Debts report states:
It thus is a violation of the FDCPA to sue or threaten to sue
consumers to recover on time-barred debt. Collecting Consumer
Debts: The Challenges of Change: A Workshop Report, p. 63 (Feb.
2009),
www.ftc.gov/sites/default/files/documents/reports/collectingconsumer-debts-challenges-change-federal-trade-commissionworkshop-report/dcwr.pdf.
Failure to provide validation notice, or providing one that does
not contain all of the required disclosures. 15 U.S.C. 1692g.
Adding unauthorized amounts to debts, e.g., attorneys fees.
Shula v. Lawent, 359 F.3d 489 (7th Cir. 2004), affg 2002 WL
31870157 (N.D.Ill. Dec. 23, 2002).
Misrepresentation of components of debts. Fields v. Wilber Law
Firm, P.C., 383 F.3d 562 (7th Cir. 2004).
Proceeding with collection attempts after verification is
demanded but not provided. Failure to verify a debt before
proceeding with a collection lawsuit may entitle the consumer to
damages, but not to dismissal of the collection case. Midland
Funding, LLC v. Pipkin, 283 P.3d 541, 542 n.1 (Utah App. 2012).

See Statement of Policy Regarding Communications in Connection

With the Collection of Decedents Debts, 76 Fed.Reg. 44,915 (July
27, 2011) (FTC release on collecting debts of decedents).
Threatening to enforce creditor remedies that cannot be
enforced at the time stated or to the extent stated. For example,
a debt collector may threaten to obtain a wage garnishment or
execution without disclosing that this can be done only after notice,
hearing, and judgment or may threaten to garnish all of a
consumers wages when the law clearly imposes limitations on the
amount that may be garnished. Oglesby v. Rotche, No. 93 C 4183,
1993 WL 460841 (N.D.Ill. 1993) (threat to garnish all wages and
attach all property); Woolfolk v. Van Ru Credit Corp., 783 F.Supp.
724 (D.Conn. 1990) (oppressive list of postjudgment remedies);
Seabrook v. Onondaga Bureau of Medical Economics, Inc., 705
F.Supp. 81 (N.D.N.Y. 1989) (threat to garnish wages in excess of
amounts permitted under federal law); Cacace v. Lucas, 775 F.Supp.
502 (D.Conn. 1990) (letter stating that litigation could result in
seizure of real estate and bank account deceptive; mere filing of
litigation could not have any of stated effects); Holt v. Wexler, No.
98 C 7285, 1999 U.S.Dist. LEXIS 8785 at *1 (N.D.Ill. May 28,
1999) (Additional legal proceedings will be implemented to
enforce collection; credit bureaus have recorded the fact in your
credit report that you are a judgment debtor and skip tracers may
contact your references, your former employers, your relatives and
your neighbors in an effort to gain information about your assets.).
In addition, while filing a single lawsuit without having in hand the
means of proving it is not a violation (Harvey v. Great Seneca
Financial Corp., 453 F.3d 324, 330 (6th Cir. 2006)), a practice of
filing lawsuits with the intent of dismissing them if they are contested
may be a violation (Mello v. Great Seneca Financial Corp., 526

F.Supp.2d 1020 (C.D.Cal. 2007)).

VIII. [8.1] TELEPHONE CONSUMER

PROTECTION ACT ISSUES
Among other things, the Telephone Consumer Protection Act of 1991
(TCPA), 47 U.S.C. 227, regulates the use of automated telephone
dialing equipment or a recorded/artificial voice to call cellular
telephones. Violations can result in substantial damages of $500 to
$1,500 per call. 47 U.S.C. 227(b)(3), 227(c)(5). (Other TCPA
provisions prohibit telemarketing robocalls to homes without
express written consent, prohibit spam text messages without express
consent, restrict junk fax advertising, authorize the National Do Not
Call Registry and prohibit most telemarketing calls to persons on it,
and require telemarketers to maintain internal do not call lists and
honor requests to be placed on them.)
The TCPA prohibits calls using an artificial or recorded voice or
placed with an autodialer (robocalls) to any telephone number
assigned to a paging service, cellular telephone service, specialized
mobile radio service, or other radio common carrier service, or any
service for which the called party is charged for the call without the
express consent of the called party. 47 U.S.C. 227(b)(1)(A)(iii).
This prohibition is not limited to telemarketing calls; debt collection
calls are covered. Brown v. Hosto & Buchan, PLLC, 748 F.Supp.2d
847 (W.D.Tenn. 2010). The FCC has expressly rejected the
argument that debt collection calls are not covered. In re Rules &
Regulations Implementing Telephone Consumer Protection Act of
1991, Request of ACA International for Clarification &
Declaratory Ruling, 23 F.C.C.R. 559, 565 (2008) (ACA
Declaratory Ruling).

The phrases cellular telephone service and any service for which
the called party is charged for the call are alternative; it is not
essential that the cellular consumer be charged for the call. Smith v.
Microsoft Corp., No. 11-CV-1958 JLS (BGS), 2012 WL 2975712 at
*4 (S.D.Cal. July 20, 2012); Buslepp v. Improv Miami, Inc., No. 1260171-CIV, 2012 WL 1560408 at *2 (S.D.Fla. May 4, 2012).
The Federal Communications Commission has determined that the
standard type of predictive dialing equipment used by debt
collectors and telemarketers is covered by the TCPA. In re Rules &
Regulations Implementing Telephone Consumer Protection Act of
1991, 18 F.C.C.R. 14014 (2003); ACA Declaratory Ruling, supra,
23 F.C.C.R. at 566. A predictive dialer is equipment that dials
numbers and predicts when a collection or sales agent will be
available to take calls.
Suit may be brought by the cell phone subscriber (Harris v. World
Financial Network National Bank, 867 F.Supp.2d 888 (E.D.Mich.
2012); Kane v. National Action Financial Services, Inc., No. 11cv-11505, 2011 WL 6018403 (E.D.Mich. Nov. 7, 2011); Tang v.
Medical Recovery Specialists, LLC, No. 11 C 2109, 2011 WL
6019221 at *3 (N.D.Ill. July 7, 2011) (finding called party was
actual recipient)) and the person who carries and regularly uses the
cell phone (Page v. Regions Bank, 917 F.Supp.2d 1214 (N.D.Ala.
2012); D.G. v. William W. Siegel & Associates, Attorneys at Law,
LLC, 791 F.Supp.2d 622 (N.D.Ill. 2011); Cellco Partnership v.
Wilcrest Health Care Management Inc., Civil Action No. 09-3534
(MLC), 2012 WL 1638056 (D.N.J. May 8, 2012); Fini v. Dish
Network L.L.C., 955 F.Supp.2d 1288 (M.D.Fla. 2013); Swope v.
Credit Management, LP, No. 4:12CV832 CDP, 2013 WL 607830
(E.D.Mo. Feb. 19, 2013); Breslow v. Wells Fargo Bank, N.A., 857
F.Supp.2d 1316, 1320 (S.D.Fla. 2012)).

The FCC has determined that consumers who provide their cell
phone numbers to a business as contact information expressly
consent to the use of robocalls, either by that business or its
collection agent. ACA Declaratory Ruling, supra, 23 F.C.C.R. at
564. However, businesses that capture incoming numbers or
obtain them through skip tracing do not qualify. ACA Declaratory
Ruling, 23 F.C.C.R. at 564 n.34 (The Commission also noted,
however, that if a callers number is captured by a Caller ID or an
ANI device without notice to the residential telephone subscriber,
the caller cannot be considered to have given an invitation or
permission to receive autodialer or prerecorded voice message
calls.); Castro v. Green Tree Servicing LLC, No. 10-CV-7211
(ER), 2013 WL 4105196 (S.D.N.Y. Aug. 14, 2013) (placing call
from cell phone to creditor is not consent).
Consent may be revoked by the called party. In re Rules &
Regulations Implementing Telephone Consumer Protection Act of
1991, SoundBite Communications, Inc. Petition for Expedited
Declaratory Ruling, 27 F.C.C.R. 15391 (2012). A contrary decision
was reversed by the Third Circuit in Gager v. Dell Financial
Services, LLC, 727 F.3d 265 (3d Cir. 2013), revg 2012 WL
1942079 (M.D.Pa. May 29, 2012).
Creditors are liable for improper robocalling by their collection
agents. Similarly, a creditor on whose behalf an autodialed or
prerecorded message call is made to a wireless number bears the
responsibility for any violation of the Commissions rules. Calls
placed by a third party collector on behalf of that creditor are treated
as if the creditor itself placed the call. ACA Declaratory Ruling,
supra, 23 F.C.C.R. at 565.