Dramatic (Positive) Change in Tennessee Debt Collection Law

By Marti Lythgoe, National List Editor

“There is currently some unique legislation that is before the General Assembly of Tennessee that will benefit debt buyers and banks in TN if it is passed in the next few weeks,” Attorney Kelly Dicken of Finkelstein, Kern, Steinberg, & Cunningham, P.C. (FKSC) told The National List of Attorneys in the blog post published on insideARM on April 3, 2013.

I kept in touch with Dicken, and when the Governor signed TN SB Bill 224/HB 443, she generously granted me an interview. What follows are some of the questions I asked her and her candid responses.

What prompted proposing/drafting the Bill?
Over the last few years, there has been a dramatic increase in Federal and state lawsuits surrounding the collection of debt in TN. One prominent issue is the claim of false affidavits. At issue is whether a debt buyer can file an affidavit under TN sworn account statute, if the debt buyer was not the originator of the documents used to establish the debt (ex: charge-off statements).

A further problem for debt collection in TN has been the increased use of the double-hearsay objection that, in many jurisdictions, has been used to keep out business records of debt buyers. Although TN has adopted the Federal hearsay exception 803(6), which allows for the admittance of business records as evidence, the TN courts have remained silent regarding the reliability of acquired records of the creditor, thus enabling the exclusion of these records in trial. As a result, debtors who simply said, “I don’t remember what I owe” could get away with not paying their debt, because the proof/paper was inadmissible as evidence.

This “loophole” in the TN law allowed an increasing number of consumers to “work the system.” The spirit of the law behind the 803(6) hearsay exception is to allow records that are relied upon by the business into evidence. The Federal Courts have recognized the validity of this and have addressed the issue of acquired records. Drafting this Bill was our attempt to eliminate the loophole by bringing the TN standard regarding the admittance of acquired business records up to the Federal standard.

What is the main purpose of the bill?
The Bill redefines “Business Records” to include “Acquired Records”—both purchased records and records involved in a contractual relationship. This Bill is not anti-consumer. Allowing the records in as evidence in a trial cuts off no consumer rights. He/she may still bring any defense before the court, and any legitimate defenses will still prevail. This Bill simply removes the loophole in the TN law that was being exploited by some consumer attorneys and defendants. Acquired business records can now come in, so that the judge can rely on evidence admitted from both parties when ruling in a trial, which is what the law intended.

Who will it benefit?
Banks benefit because it increases the value of paper to be sold. Those buying debt know that they have a better chance of collecting on the debt. Additionally, bank employees now can testify to the validity of their own records that have been generated by a management company but incorporated into the bank’s business records. Debt buyers benefit from a decrease in unnecessary litigation and related costs. We think the Bill will do away with false affidavit claims and double-hearsay objections, as the debt buyer’s custodian of records can now testify as to all of the creditor’s records, whether they were acquired by the creditor or are their own records.

Did your firm help to draft the Bill &/or support lobbying efforts in any way?
FKSC (Ron Cunningham and I) spearheaded and did the main drafting of the bill. We did our own lobbying, appearing before all the members of the TN House and Senate Committees. We were assisted by Thomas Norris, Jr., and Bill Shick. Thomas helped to edit the Bill throughout all the revisions, as well as to draft a memo explaining the need for this legislation. He attended several meetings with us and helped educate us on the legislation process. He is very knowledgeable, and has authored two books on TN law. He is “of counsel” with The Law Offices of Barry J. Gammons, PLLC. Bill is an attorney with Buffaloe & Associates, PLC, and is the Chairman of the Creditor Rights section of the Tennessee Bar Association. He also helped with revisions to the bill, as well as meeting with our Senators and Representatives. We could not have completed this process without the help of these excellent attorneys.

Was passage of the Bill a long process? What did it involve?
The 4-month-long process was a great learning experience. It was very costly, if you consider all the time our firm put into it. However, because of the positive impact this Bill will have on our clients, the cost was worth it. We realized how critical it is, when trying to pass a bill, to get face time with every Senator and Representative and explain the Bill to them one-on-one. We were pleasantly surprised to find that if we gave them enough notice, they would work us into their days. As they are very busy, we learned to send the Bill before meeting with them so they could review it. Then, when we met with them, we summarized the Bill and explained the need for it and its anticipated impact. The concerns they expressed were valid. They didn’t want the Bill to adversely affect anyone, and they wanted to understand why the current process was a problem, why it hadn’t been corrected before. They were happy to learn about the reduced costs and that a loophole in the system would be closed by the Bill. The Legislators and the Governor are very pro-business. They want TN to be a place where businesses want to come. They could see that the Bill would help the economy.

Is this the first time that a bill of this nature has been submitted in TN? Have other states tried it?
To our knowledge, this is the only bill of its kind in the country.

Are there any obstacles that attorneys will have to face when the Bill takes effect? What is your firm doing to be prepared to use this new “tool”?
Certain judges will undoubtedly put up some resistance. Ron Cunningham, the President of the Tennessee Creditors Bar Association, is overseeing the development of a Brief outlining how this statute impacts the current law surrounding business records in TN. After the statute is enacted on July 1, 2013, TCBA members can submit this brief to the judges when a trial arises. We are also adapting our current 902(11) affidavit and corresponding filings to reflect the language in this statute. It is our hope that the TCBA members can use these tools to more successfully litigate cases on behalf of their clients in TN. We want to have a united front on how these cases are presented.

What additional advice would you give to a law firm trying to pass a bill like this in another state?
We quickly realized how easily something could be opposed. We got opposition from some sources that later supported us once they understood what we were trying to accomplish. We had to negotiate. Our advice is to work out any opposition and be willing to compromise. Don’t make enemies. Make friends.

There has been a lot of new resistance, a lot of negative legislation passed against banks and creditors in the last 2-3 years. Our industry as a whole has been under a lot of scrutiny.  As attorneys, it’s critical that we be watchdogs, lobbying against negative legislation and proposing and/or advocating positive legislation. At FKSC, we are doing both. We believe that, ultimately, the changes will be very positive. At FKSC, it is our belief that we should always be conscious of doing excellent work in the most ethical way possible, and that by doing so, our firm, our employees, our clients, our customers, and our industry will be better because of it.

Kelly concluded by graciously adding, “If anyone is interested in finding out more about the process we went through to get the Bill passed, feel free to contact me (Kelly Dicken) or Ron Cunningham at 865-525-0238.” To read the entire Bill, click here.

The full white paper on Tennessee Debt Collection Law can be found on The National List of Attorneys website under Legal Resources.