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New Standards in Credit Card Collection Litigation

I recently ran across two cases that present a small but significant shift in credit card collections law. The cases are Citibank South Dakota, N.A. v. Ryan, 160 Wn. App. 286 (2011), and Discover Bank v. Bridges, 154 Wn. App. 722 (2010). These cases clarify the legal standard of proof on summary judgment, and create a higher bar for credit card companies to collect on judgments.

Why are these cases new or different you might ask? To begin, you have to look at the way credit card companies and collection agencies litigate cases. For many years, collection attorneys have relied on presenting the Court with a generic credit card agreement, and the account statements to meet their burden on summary judgment. It is fairly easy for credit card companies to print off the latest card agreement, and a year's worth of statements, so this meant credit card collections lawsuits were efficient and inexpensive. However, the Court of Appeals (and King County Superior Court, but more on that in a minute) may have made this process a little more expensive, and given Seattle attorneys and their clients an extra bargaining chip.

The new case requires that the credit card company provide "evidence of the [Debtor's] personal acknowledgement of the account." This comes in a variety of forms such as 1) a signed application; 2) a cancelled check used to pay the balance; and 3) documentation of online payments. Now a Seattle collections attorney must present evidence specific to the individual debtor, instead of a generalized credit card statement purportedly sent to the debtor's address to be granted summary judgment. Further, the opinion does not requrie the debtor to "specifically and affirmatively" deny use of the card; meaning the bank must provide this evidence before a defendant is even required to present a case.

To an average business, producing these documents wouldn't be an issue. However, we are talking about CitiBank, Bank of America, Capital One, and debt buyers. These financial insituttions have developed well-oiled machines designed to collect on debts as quickly and efficiently as possible. This new standard will likely slow down the process on those cases in litigation, and make it more expensive. Fortunately for debtors, a slower and more expensive process also means greater incentive to settle these debts, something that Seattle collections attorneys representing debtors can take advantage of, if they position their clients appropriately.

A bigger issue will be faced by "debt buyers." Debt buyers purchase accounts payable that are delinquent by the truckload and attempt to collect on them. These accounts are for sale because the original creditor does not believe they will pay out. When these accounts are sold, they come with very little documentation generally and are unlikely to include specific information required by the Ryan decision. Debt buyers facing this new hurdle in litigation will be less likely to pursue litigation vigorously as it will require buying additional documents and paying more for the debts they purchase. The new standard could lead to parts of a debt buyer's portfolio being uncollectable because the proper document no longer exist, even when the opposing party has the ability to pay.

With banking becoming increasingly done online and checks being more rarely used, there will be less documents produced that contain the information required by the Court. Ask yourself this question, when was the last time you signed a  credit card application? When was the last time you paid your credit card with a check? People still do pay with checks, and physically sign credit card applications, but these activities continue to dissipate making the proof required by the Ryan decision even more scarce. This will have a greater impact down the road as this standard will become increasingly difficult for credit card companies to meet.

Finally, I mentioned the King County Superior Court earlier. The King County Superior Court had a significant hand in making this decision into law. Originally, the Ryan decision was not published and could not be cited as law. However, the Civil and Ex-Parte departments in King County petitioned the Court to publish the opinion, essentially making it law. They were victorious. This should be a signal to all Seattle collections attorneys that next time they stand before a judge on a credit card case, the judge is familiar with this new standard.