Simien v Unifund's shaky premise - U.S. Comptroller of the Currency (OCC) enforcement action against Chase Bank punctures presumption of trustworthiness of credit card debt records established by Houston Court of Appeals in 2010

The Comptroller of the Currency has now fined Chase Bank $30 million dollars for robosigning and other less than kosher debt collection practices that have been known for years. See July 8, 2015 Press release here. Consent Order for the Assessment of a Civil Money Penalty here.

But meanwhile our local courts of appeals have gone out of their way to accommodate and legitimize wrongful collection conduct, and other intermediate courts around Texas (but not all) have followed their lead. In light to the regulatory actions involving robosigning, including the most recent consent order against a major bank, the time seems ripe to revisit Simien v. Unifund CCR Partners, 321 S.W.3d 235 (Tex. App.-Houston [1st Dist.] 2010, no pet.)(overruling objections to admissiblity of credit card bank records sought to be admitted through an employee testifying for debt buyer).

THE LOWERING OF EVIDENTIARY STANDARDS IN COLLECTION CASES 

This is how the issue was handled in Texas when assignees of credit card debt used dubious affidavits and documentation in credit card debt collection cases: Rather than holding debt collection plaintiffs and their attorneys to the same evidentiary standards that others have to live by, the Houston appellate courts fashioned special interest jurisprudence to accommodate debt collection firms' interest in efficient and fast-paced mass-litigation and procurement of judgments.

The First Court of Appeals (later followed by some others) simply changed the case law governing admissibility of business records to accommodate the debt collectors, and provided them with a remedy for their problems in proving their debt claims with poor documentation in the trial courts. How so? By creating new controlling precedent for admissibility of original creditor records through otherwise unqualified witnesses on the premise that the records must be trustworthy because the bank that sold the account would be violating the law -- and face penalties -- if it had not acted properly in running its business.

BANK RECORDS TRUSTWORTHY QUA BANK RECORDS

The debt buyer was therefore justified in relying on whatever documentation they had received upon purchase of portfolios of charged-off credit card accounts because those records were deemed inherently trustworthy. That exempted them from the need to actually know anything about the operations of the original creditor to put them in a position to vouch for the reliability of those records.

In other words, the Houston Court of Appeals blessed the practice of robosigning by employees of companies that bought charged-off accounts from banks such as Chase, Citibank, Capital One, GEMB, HSBC, and others. They substituted an evidentiary presumption of trustworthiness, thereby short-circuiting the safeguards for quality control that otherwise apply to use of documentary evidence in the litigation process, including authentication and hearsay.

Essentially, the justices on the court of appeals took the position that a major national bank could not possibly have done anything wrong, and that the records that the debtbuying company suing on the debt claims to have received must necessarily be trustworthy because they are business records created by a national bank. After all, if the bank were to engage in shady practices, they would face consequences.

Here is an example of a Houston appellate justice's reasoning used to affirm a judgment on a credit account sold by Chase Bank USA, N.A., citing her former colleague Elsa Alcala, who now sits on the CCA and took the lead in fashioning the precedent to lower the bar for admissibility of credit card debt records on the premise that a major bank like Citibank can do no wrong. See Simien v. Unifund CCR Partners, 321 S.W.3d 235, 240-43 (Tex. App.-Houston [1st Dist.] 2010, no pet.) (establishing alternative predicate for admissibility of business records).

Chief Justice Adele Hedges writes:

Chase's failure to keep accurate records could result in criminal or civil penalties. See Tex. Fin. Code Ann. § 392.304(a)(8) (prohibiting misrepresentations of amount of consumer debt); id. § 392.402 (providing for criminal penalties for violations of chapter 392 of Texas Finance Code); see also Fair Debt Collection Practices Act, 15 U.S.C.A. § 1692e(2)(a) (prohibiting misrepresentation of amount of debt); id. § 1692l (providing for administrative enforcement of Administrative Debt Collection Practices Act). These circumstances otherwise indicate the trustworthiness of the Chase Bank documents.[3] See Simien, 321 S.W.3d at 243-44. Accordingly, because the business-records affidavit at issue here meets the criteria for admission as business records under Texas Rule of Evidence 803(6), the trial court did not abuse its discretion in admitting these records. See id. We overrule Ainsworth's first issue.  

The OCC has now imposed penalties to the tune of $30 million on Chase Bank for practices that the Houston Court of Appeals justices simply presumed would not occur because Chase and its like would be deterred by the possibility of facing an enforcement action by regulators. And the OCC is not the only regulator whose attention Chase attracted with its dubious practices. The CFPB and a bevy of state attorneys general also took action against the bank over improper conduct.

CFPB Action against JPMorgan Chase over wrongful debt collection conduct
URL: http://www.consumerfinance.gov/blog/were-ordering-jp-morgan-chase-to-refund-50-million-and-stop-collecting-on-528000-accounts

But misconduct and illegal conduct by major financial institutions is hardly man-bites-dog news. Nor was that so when Siemien v Unifund was decided in 2009 (with a superseding opinion in 2010).

BANKS TRUSTWORTHY AS A MATTER OF LAW - EVEN FAILED ONES 

Not to mention that the FDIC had shut down and liquidated Washington Mutual Bank years ago because of unsound practices (and resulting lack of trustworthiness). Chase Bank acquired WaMu's credit card portfolio (and other assets) via the FDIC acting as receiver, which also included accounts originated by Providian Bank that had been assumed by WaMu before its demise by merger.

Yet the Houston Courts of Appeals found such records presumptively trustworthy, and instructed (through the precedent set in Simien and its progeny) the lower courts to overrule evidentiary objections made by consumers lucky enough to find a competent attorney to make evidentiary objections to offers of dubious records and shoddy affidavits by robosigners in credit card and other consumer debt collection cases.

The Texas Supreme Court was not asked to weigh in at the time; nor is it likely that it would have ruled differently. But the latest regulatory developments have again shown that the premise underlying Simien was wrong. It was wrong all along. -- An exercise not in legislating from the bench, but of handing down special-interest jurisprudence to ease the burdens of proof for a particular category of litigants at the expense of others. And that amounts to policymaking too: Policymaking by other means. On the back-end of the law.

Presumed Trustworthiness 

EXCERPT FROM AINSWORTH V. CACH, LLC

MEMORANDUM OPINION BY ADELE HEDGES, 

CHIEF JUSTICE, 14th COURT OF APPEALS 

Admissibility of the Business-Records Affidavit

Ainsworth challenged the admission of the business-records affidavit and supporting documentation on numerous grounds, including hearsay and that the supporting documents were unreliable and not trustworthy. The admission and exclusion of evidence are within the sound discretion of the trial court. Bayer Corp. v. DX Terminals, Ltd., 214 S.W.3d 586, 609 (Tex. App.-Houston [14th Dist.] 2006, pet. denied) (citing City of Brownsville v. Alvarado, 897 S.W.2d 750, 753 (Tex. 1995)). The complaining party must show that the trial court erred and that such error probably resulted in an improper judgment, which usually requires a showing that the judgment turned on the challenged evidence. Id.; see also Tex. R. App. P. 44.1(a)(1) (requiring that before a judgment can be reversed on appeal it must be determined that the error probably caused rendition of an improper judgment or prevented the appellant from properly presenting the case on appeal).

A proponent of hearsay evidence bears the burden of showing that testimony fits within an exception to the general rule prohibiting admission of the hearsay evidence. Volkswagen of Am., Inc. v. Ramirez, 159 S.W.3d 897, 908 n. 5 (Tex. 2004); see also Tex. R. Evid. 802. Rule of Evidence 803(6) provides an exception to the hearsay rule for business records if the offering party shows (1) the records were made and kept in the regular course of business; (2) the business kept the records as part of its regular practice; (3) the records were made at or near the time of the event they contain; and (4) the person making the records or submitting the information had personal knowledge of the events being recorded. See Tex. R. Evid. 803(6). Business records may also be "admissible in evidence in any court in this state upon the affidavit of [a] person" who can satisfy the requirements of Rule 803(6). Tex. R. Evid. 902(10)(a).

Finally, third-party documents can become the business records of an organization and, consequently, admissible under rule 803(6), if the records are (1) incorporated and kept in the course of the testifying witness's business; (2) the business typically relies upon the accuracy of the contents of the documents; and (3) the circumstances otherwise indicate the trustworthiness of the documents. Simien v. Unifund CCR Partners, 321 S.W.3d 235, 240-41 (Tex. App.-Houston [1st Dist.] 2010, no pet.) (citing Bell v. State, 176 S.W.3d 90, 92 (Tex. App.-Houston [1st Dist.] 2004, pet. ref'd)).

The business-records affidavit, described above, meets these criteria. Hwang stated that she is the custodian of records for CACH and that it is CACH's "regular business practice to obtain, integrate and rely upon documents prepared by the original creditor of the account at issue." She further averred that CACH relies on the accuracy of the documents in its day-to-day business activities and that the records are made and maintained by individuals who have a duty to keep the record accurately at or near the time of the event that they record. Finally, one of the documents attached to the business-records affidavit is the "affidavit of sale," which is notarized. Such a notarized document is self-authenticating under the Texas Rules of Evidence. See Tex. R. Evid. 902(8).

In this document, described above, an authorized agent of Chase Bank, N.A., stated that Chase had acquired Ainsworth's account from Washington Mutual Bank, sold it to CACH in December 2008, and that the amount due on the account at the time of the sale was $4,567.07.

Chase's failure to keep accurate records could result in criminal or civil penalties. See Tex. Fin. Code Ann. § 392.304(a)(8) (prohibiting misrepresentations of amount of consumer debt); id. § 392.402 (providing for criminal penalties for violations of chapter 392 of Texas Finance Code); see also Fair Debt Collection Practices Act, 15 U.S.C.A. § 1692e(2)(a) (prohibiting misrepresentation of amount of debt); id. § 1692l (providing for administrative enforcement of Administrative Debt Collection Practices Act).

These circumstances otherwise indicate the trustworthiness of the Chase Bank documents.[3] See Simien, 321 S.W.3d at 243-44. Accordingly, because the business-records affidavit at issue here meets the criteria for admission as business records under Texas Rule of Evidence 803(6), the trial court did not abuse its discretion in admitting these records. See id.

We overrule Ainsworth's first issue.

RELATED LINKS:  07/08/2015: OCC Fines JPMorgan Chase $30 Million for Deficiencies in Debt Collection Practices and Servicemembers Civil Relief Act Compliance