In comments submitted to the Consumer Financial Protection Bureau on the Advance Notice of Proposed Rulemaking under the Fair Debt Collection Practices Act, the attorneys general of 31 states condemned the use of third-party prepared, integrated business records in civil lawsuits to collect debt as an example of “unfair, deceptive, and abusive acts or practices.”
When a record, like an account statement, is prepared by a lender in its ordinary course of business, it can be admitted in a civil lawsuit under the business records exception to the rule against hearsay. Admission of the record typically requires testimony from a person who has knowledge of how the account statement was prepared. If the credit account and its account information are sold to a debt buyer, the debt buyer will “integrate” the original creditor’s record into their own and rely on it in collecting the debt. In a civil lawsuit, the debt buyer will offer testimony from their own representative on their preparation of the account statement, part of which includes the “integrated” account information from the original creditor.
According to their Feb. 28, 2014 letter, the attorneys general wrote that debt buyers should not be permitted to argue that they can integrate the business records purchased from original creditors into their own account records, citing as their sole authority the Missouri Supreme Court case, CACH, LLC v. Askew, 358 S.W.3d 58 (Mo. Sup. Ct. 2012). Suggesting that the Askew decision is the majority rule, in a footnote, the attorneys general wrote that “while some federal cases provide for a limited use of incorporated records . . . others do not.”
Their supposition is flawed.
Nearly All States and Federal Courts Allow Integrated Business Records
A large body of federal law supports the use of integrated business records under the federal business records exception to hearsay and so do nearly all state courts, except Missouri’s. As a Missouri federal district court noted in Hinten v. Midland Funding, LLC, 2013 U.S. Dist. LEXIS 151383 (E.D. Mo. Oct. 22, 2013) , “the holdings of the Eighth Circuit sharply contrast with the Supreme Court of Missouri’s in Askew.” There is only one reported decision from a state court outside of Missouri which follows Askew, LVNV Funding, LLC v. Mastaw, 2012 Tenn. App. LEXIS 282 (Tenn. Ct. App. Apr. 30, 2012).
In sharp contrast, the supreme courts of several of the states represented by the attorneys general who signed onto the comment letter permit the admission of integrated business records. And, in many instances, integrated business records were used in criminal cases by the attorneys general who condemned its use in the comment letter.
Many Attorneys General Use the Integrated Business Records Exception
Although the letter identified the use of the integrated business records exception among “unfair, deceptive and abusive” practices, several of the attorneys general who signed the letter seemingly have no qualms with its use in criminal prosecutions. Typically, these cases involved financial frauds and the records were critical to their prosecutions.
Decisions from some of the state courts of the comment letter’s attorneys general are representative of the majority view allowing integrating business records:
Illinois also allows the use of integrated business records in both civil and criminal trials. For example, an Illinois appeals court affirmed the conviction of Jason Doggett for financial exploitation of the elderly and critical to the prosecution were a series of cancelled checks admitted as integrated business records. In People v. Doggett, 2014 IL App (4th) 120773-U, P37 (Ill. App. Ct. 4th Dist. 2014), prosecutors introduced the cancelled checks through bank statements and offered them through a witness from the bank that prepared the statements. Doggett argued the cancelled checks were inadmissible because they were not the bank’s records, but were records prepared by another and delivered to the bank which simply integrated them into its bank statements. The bank witness, Doggett argued, had no personal “knowledge of when the checks were written and who authored them.”
The Illinois appellate court agreed, but still found the cancelled checks admissible under the integration of business records doctrine. “Clearly, the Bank, and banks in general, rely on the information written on the checks to maintain customer accounts. If the information in checks were generally unreliable, then the entire banking system would fail.” This is exactly what occurs when a debt purchaser acquires an account from a creditor, it acquires the account information from the creditor who created it, integrates it into its own records and relies upon it in its day to day operations.
The comment letter’s admonition against the use of integrated business records as among “unfair, deceptive, and abusive acts or practices,” did not deter Illinois prosecutors from using integrated business records to convict Doggett.
Other recent cases from Illinois appellate courts, Kondaur Capital Corp. v. Sreenan, 2013 IL App (1st) 122711-U (Ill. App. Ct. 1st Dist. 2013) and Texas 1845, LLC v. Dvorkin, 2013 IL App (2d) 120330-U (Ill. App. Ct. 2d Dist. 2013), firmly support the use of integrated records in debt purchases.
In State v. Reynolds, 746 N.W.2d 837 (Iowa 2008), Iowa prosecutors successfully argued that a local bank’s official could offer records prepared by the Federal Reserve Bank because they had been received by and integrated into the local bank’s own business records.
In State v. Musser, 721 N.W.2d 734, 750 (Iowa 2006), a lab report was admitted as a business record of the Iowa Department of Public Health even though it was created by a third party. Although the Department of Public Health witness had no knowledge of how the report was created, prosecutors argued it was still trustworthy because it was delivered to and maintained by the Department of Public Health in its ordinary course of business.
Maine’s highest court has allowed integrated business records for at least 30 years (Ne. Bank & Trust Co. v. Soley, 481 A.2d 1123, 1127 (Me. 1984)). In Beneficial Maine Inc. v. Carter, 2011 ME 77 (Me. 2011), the Main Supreme Court continued to support admission noting “if the records were received and integrated into another business’s records and were relied upon in that business’s day-to-day operations, an employee of the receiving business may be a qualified witness.”
The Massachusetts Supreme Court also allows admission of integrated business records, particularly in debt transactions. In Beal Bank, SSB v. Eurich, 444 Mass. 813 (Mass. 2005) it recognized a “common practice of banks buying and selling loans” and found it a “normal business practice to maintain accurate business records regarding such loans and to provide them to those acquiring the loan.” Under this principle, loan records prepared by one lender are admissible when they are “integrated in the [purchaser’s] records and relied on.”
In State v. Cain, 260 Ore. App. 626 (Or. Ct. App. 2014), an Oregon Supreme Court decision, a criminal defendant challenged the Oregon Attorney General’s use of a portion of a business record prepared by one business which had been integrated into a report prepared by the state in its ordinary course of business. The Oregon Supreme Court allowed the integrated business record in affirming the conviction, “[b]ecause information in a business record that was supplied by a third party is admissible if the third party was acting pursuant to a duty or in the ordinary course of business when supplying the information.”
Wisconsin too allows admission of integrated business records with a proper foundation. In Cent. Prairie Fin. LLC v. Doa Yang, 2013 WI App 82 (Wis. Ct. App. 2013) a Wisconsin appellate court affirmed a judgment in favor of a debt buyer who had integrated the original creditor’s account records into its own.
AG’s Position Leads to an Absurd Result
The attorneys general, while advocating for restricting admissibility of account documents, simultaneously bemoan the lack of documentation in the practice of debt collection, stating, “debt buyers receive documentation…in less than 1/8 of the accounts they seek to collect.”
Integrated business records are part of most states’ evidence law. They are used widely in criminal prosecutions. That many of the same attorneys general who signed the comment letter use integrated business records in their own criminal cases with approval by their own state courts, demonstrate the principle is neither abusive nor deceptive.
Seeking to even further restrict the documentation and evidence debt buyers can use in court seems to go far beyond the CFBP’s role of protecting the consumer. Each state has its particular evidence rules and law, designed to afford justice to all litigants. CFPB regulation prohibiting integrated business records as an “unfair…and abusive” practice, would not stop its use in other civil and criminal cases. But it would lead to an absurd result — you could use an integrated cancelled check contained in a bank statement to put a criminal behind bars, but it would be unfair and deceptive to use the same integrated business record to collect a bounced check.