Debt Buyer Unifund Required to Provide Proof of Debt in First Lawsuit But Not In Second on Same Debt
A recent debt-collection case from the North Carolina Court of Appeals addresses the issue of whether a debt buyer, Unifund CCR in this case, must comply with the Collection Agency Act when suing a debtor for a judgment.
The Collection Agency Act was passed by the North Carolina legislature in 2009. It addressed a major problem – debt buyers were filing countless lawsuits against North Carolina consumers without any evidence to prove that they owned the accounts they were collecting. Debt buyers and debt collectors were getting judgments by the score against the consumers without any proof. Some of the most common debt buyers in North Carolina are Unifund, LVNV Funding (operated by Resurgent), and Portfolio Recovery Associates.
A debt buyer is a type of collection agency or debt collector who buys bad debts in order to collect on them, usually by filing lawsuits. (This post uses the terms “collection agency” and “debt buyer” interchangeably.) The full definition of debt buyer as stated at G.S. 58-70-15 is as follows:
[T]he term “debt buyer” means a person or entity that is engaged in the business of purchasing delinquent or charged-off consumer loans or consumer credit accounts, or other delinquent consumer debt for collection purposes, whether it collects the debt itself or hires a third party for collection or an attorney-at-law for litigation in order to collect such debt.
Under the Collection Agency Act, when a collection agency or debt buyer files a lawsuit, they must provide documentation that they own the account. The collector must send the court a number of documents, including: (1) the signed contract, or, if there is no contract, receipts from when the credit card was used; and (2) the assignments of the account showing the debtor’s name and account number. These requirements are stated at G.S. § 58-70-150.
In the case before the Court of Appeals, Unifund obtained a judgment against a consumer almost 10 years earlier, and then filed a second lawsuit against the consumer. The second suit was filed because under North Carolina law, a judgment expires after 10 years. If, however, the judgment holder files a second lawsuit before the 10 years is up, they can get a second judgment that will last another 10 years. (The UNC School of Government has an excellent explanation of the process of renewing a judgment.)
When Unifund filed its second lawsuit, it did not comply with the Collection Agency Act. Rather than including the contract and assignments of the account, Unifund simply relied on the fact that it had gotten a judgment in the first case.
That was a violation, said the debtor. The debtor objected to Unifund not complying with the Collection Agency Act. Arguing that Unifund should have included documentation of the debt with its second lawsuit, the debtor said the second case should have been dismissed. Moreover, said the debtor, Unifund should be liable for penalties for violating the Collection Agency Act.
The North Carolina Court of Appeals disagreed with the debtor. The court distinguished between the first case and the second case. Though the first case was subject to the Collection Agency Act, the second one was not. Why? The first case, said the court, was collection of an assigned consumer debt and the protections of the Collection Agency Act therefore had to be followed. On the other hand, in the second case, liability had already been established and did not need to be proved against with the same documents.
Citing to a precedential case about the issue, the court said that no further evidence was required after the first judgment:
Once a judgment is entered, other evidence of indebtedness is extinguished by the higher evidence of record. Essentially, the judgment merges the debt upon which it was rendered. When this merger occurs, the judgment becomes the evidence, and the only evidence that can be used in a court, of the existence of the original debt.
As a result, the consumer lost the case and Unifund was not required to provide evidence a second time.
Despite the consumer’s loss, the case still stands for an important point. Any debt collector, debt buyer, or collection agency, when suing a consumer in North Carolina court, must provide the contract, receipts, and assignments.
In our firm’s experience, most debt buyers (including Unifund) rarely have this information. They will attach documents which they claim are those requirement, but upon close inspection the documents often are incomplete, inaccurate, and arguably inadmissible.
If you are dealing with a debt collector of any type, whether or not in a lawsuit, contact us at Culik Law. We are a consumer protection law firm located in Charlotte, North Carolina and Boston, Massachusetts. Our attorneys have been fighting back against debt collectors and debt buyers for over a decade, using all legal means available to champion our clients’ rights.