Jimenez Paper: Illegality in Consumer Debt Contracts and What to Do About it

Dalie Jimenez of Connecticut has written Illegality in Consumer Debt Contracts and What to Do About it.  Here's the abstract:

Many of the contracts for the sale of consumer debts that are publically available contain “quitclaim” language disclaiming all warranties about the underlying debts sold or the information transferred, generally referring to the debts as being sold “as is” and “with all faults.” Some of the contracts contain even more specific language, disclaiming any representations as to the “validity, enforceability, or collectability” of the debts sold as well as “the accuracy or completeness of any information provided by the seller to the buyer, including … current balance or accrued interest.”   

This paper argues that the collection of a consumer debt that was sold or assigned through a contract containing this quitclaim language is a per se violation of the Fair Debt Collection Practices Act's prohibition against using false, deceptive, or misleading representations in connection with the collection of a debt. The paper argues that collectors make a misleading representation when they seek to collect from a consumer when they state that the consumer owes a particular dollar amount on the debt or a particular amount in interest. The paper also argues  that where the underlying debt was sold subject to quitclaim language, collectors who seek to collect by bringing a lawsuit are not only violating the FDCPA, they are also materially misrepresenting facts to the court and potentially violating state analogs to Fed. R. Civ. P. 11.

Given the high likelihood that any given attempt at collection by a debt buyer to collect a consumer debt is based on a contract that contains quitclaim language, the Article proposes steps that could be taken by various actors in the collection system to ameliorate this issue. The first solution focuses on federal or state regulators using their enforcement and supervisory powers to stop the collection of debts based on underlying contracts with this language. The second focuses on courts, state legislators, and the consumer attorney bar, and urges them to require or request the production of the underlying contracts. The third recommendation is a novel proposal for a national debt registry system that I argue would go a long way towards solving this (and other problems) going forward.