I sued you, you didn’t file an answer,

and you didn’t come to court.

What more do I need to prove?

 –Remark made by an attorney for a junk-debt buyer.*

Junk debt is a debt that is sold by creditors at a deep discount with very little or no documentation of the original contract, no record of the payments and finance charges, and no records of the debt assignments.   In many cases the consumer owes no debt at all, and in most cases the consumer does not owe the interest, late fees, and legal fees demanded.

The shocking truth of credit card lawsuits is that it is nearly impossible for the plaintiff to provide a complete copy of the credit card agreement.  This is contrary to almost every other type of loan agreement.  Gosh, banks always keep a copy of the loan agreement, but when it comes to credit cards the banks make so many different offers to so many different people at so many different times that . . . well . . . it is hard to keep track of all those agreements.   

As a result of all the promotional offers and interest rate pricing, determining the actual agreement between the bank and its customer requires an examination of multiple documents.  And therein lies the problem for debt-buyer plaintiffs.  It is almost impossible for the bank, let alone a debt buyer, to produce a complete and coherent set of contract documents necessary to prove what the customer actually owes.

In an effort to avoid this legal hurdle, debt-buyers increasingly sue under the legal theory of “Account Stated.”  In short, you were mailed the credit card statements, and you didn’t object to the statements, so you must owe the amount stated. 

May a credit card company sue on the legal theory of Account Stated when an express written contract exists?  And what’s more, even if a suit can be sustained under this legal theory, isn’t proof of the terms of the written contract necessary to prove that the account is accurately stated?  If my credit card agreement provides for a fixed interest rate of 9.9% and I overlook the fact that I was charged 19.9% on the billing statement, am I obligated to pay 19.9% because I failed to object to the billing statement?

According to Texas attorney Jessica Lesser, author of How to Defend a Credit Card Case, courts should not extend the Account Stated cause of action to a credit card lawsuit since “modern credit card arrangements are invariably creatures of express contract in which the rights and responsibilities of the parties are specified in great detail.”  To the contrary, Lesser argues that there is a great danger in allowing creditors who have not kept good records to substitute their frequently inaccurate billing records for their contracts. 

Is it really asking too much for a bank to keep a copy of their contracts?  Does that really impose too much of a burden on credit card companies or their debt buyers?  And if we deny debtors the right to inspect the terms of their contract when sued in court, haven’t we taken away their basic contract rights? 

There is no ruling in Nebraska on whether credit card companies or junk-debt buyers may avoid producing a copy of their contract when litigating under the Account Stated doctrine, but I suspect it is only time before this issue reaches the appellate courts.  It would seem strange and unjust to allow sloppiness in record keeping to work to the advantage of the credit card industry.  

*Defending Junk-Debt-Buyer Lawsuits by Professor Peter A. Holland, Maryland School of Law