Business Records Exception

The main legal battle in debt collection is usually fought over whether the debt collector has the records it needs to prove its right to collect from you. It usually does not. It will try to sneak the evidence in using something called "the business records exception" to the rule against hearsay. If you're ready, you should be able to win this fight.

Analysis of the Business Records Exception Starts with "Hearsay"

As you may know, hearsay is an “out of court statement, introduced for the purpose of proving that the contents of that statement are true.” And hearsay (sometimes popularly called “he-said, she-said,” is normally not allowed as evidence. There are some exceptions to this rule, and the most important one of these, from the point of view of debt litigation, is the “business records exception.” If you are going to defend yourself the debt collectors are almost certainly going to invoke this exception. And if you can prevent it from applying you will almost certainly win your case.

What Is the Business Records Exception?

The “business records exception,” in the Federal Rules of Evidence is located in Rule 803(6). Most or all of the states have adopted this rule, so for analytical purposes, it's a great place to start. Before you go to trial, and before any point where evidence will be important (i.e., for a motion for summary judgment), you need to look up the rule in your jurisdiction. It is very likely the single most important rule in the whole case. I repeat: if you can prevent it from applying, you will likely win at trial. If you cannot, and the case goes all the way to trial, you may very well lose. It is that important.
The business records exception allows a party to use records which were created “(1) at or near the time the recorded event occurred (2) by, or from information transmitted by, (3) a person with knowledge, (4) if kept in the course of a regularly conducted business activity, and (5) if it was the regular practice of that business activity to make [such records]... all as (6) shown by the testimony of the custodian or other qualified witness...” or as established by certain documentary evidence.

The debt collector must prove every aspect of the exception in order to use it.

What Business Records Will this Apply to?

The records the debt collector will want to use are the records regarding how you generated the debt in the first place and any payment records. Remember that the debt collector must prove that you owed the money in the first place and that you haven't already paid it off. The only way they can do that is either by your admitting it all (are you crazy?) or using the original creditor's records. If another debt collector has been involved, then I have argued that they must also prove that you didn't pay the other debt collector. But for present purposes let's just consider the original creditor.
The original creditor, if it was any kind of a sophisticated business entity, will at one point have kept careful and complete records of the debt and all your payments. You would think that it would be easy for the original creditor to hand over all of these records along with an affidavit by a records keeper to your debt collector. But in fact the process often breaks down because of the scale of the transactions. The debt collectors often buy accounts with debts totaling many millions of dollars—hundreds or thousands of accounts. And the accounts may be old enough so that even the original creditor may have lost some of the records. 

Usually, the original creditors apparently do <i>not</i> include a records affidavit. Perhaps it is because they are only receiving a few cents per dollar owed, or perhaps it is the general anonymity of the auction process. And certainly it has a lot to do with the fact that most people sued do not require any proof of the debt because they do not defend themselves. In any event, the debt collectors usually start out without records or affidavit. A lot of the time they cannot get one. You want to push your discovery home before they have time to go to the trouble and expense of figuring out who could testify, and getting an affidavit the records. That is another reason for pushing your discovery hard as quickly as possible.

Debt Collector Records are Not Business Records of the Debt

Notice that a computer summary of the debts was not created “at or near the time” the recorded event occurred but in fact rely on other records. The debt collector's computer-generated summary, therefore, should not come in under the business records exception, even if it was generated by the original creditor. Anything relied upon must come under the exception.

Advanced Notice Requirement of Affidavit Proof of Records

Most jurisdictions require that a party offering an affidavit to prove that the business records exception applies provide you notice in advance of the intention to use a sworn statement that would satisfy the business records exception. Most or all of the jurisdictions have elaborate requirements for the contents and form of the statements.

You should know the hearsay rule, the business records exception, and the local rules regarding notice requirements by heart.