Maryland Has Adopted New Rules To Protect Consumers

creditor

On September 8th, 2011, the Court of Appeals of Maryland ordered amendments to Rules 3-306, 3-308, 3-509 be adopted and become effective January 1, 2012. These rules have been amended in response to a proposal by the Maryland Attorney General and hearings from the debt collection bar among others. In years past, creditors, particularly debt collection agencies who purchase debt already in default, have abused the current Rule 3-306 by filing cases against people without really having the right to file, filing cases asking for more than what is actually owed, and without providing the court with adequate evidence of their claims. These amendments are indended to make the rules stricter, protect consumers, and require due diligence by creditors.

Revised Maryland Rule 3-306 requires that when a creditor files a complaint against a person where it is asking the court to enter judgment based on an affidavit, the affidavit must show that the creditor is legally entitled to the amount claimed and must attach sufficient documents to show evidence of liability and damages. The affidavit must be based on personal knowledge of the underlying evidence and completed by an affiant who is competent to testify on the matters asserted. Supporting evidence of liability and damages includes interest worksheets, proof of reasonableness of attorney fees, and reliable copies of instruments on which the complaint is based.

There are specific evidentiary requirements for claims arising from assigned consumer debts (debt buyers) and an additional requirement of a Consumer Debt Check List for such debts when the plaintiff is not the original creditor. Creditors with claims arising from assigned consumer debt are required to show proof of existence of the debt, terms and conditions, ownership, and entitlement to damages under the contract in the case of a future services contract. Affidavits based on assigned consumer debt claims must also be accompanied by documents that identify the nature of the debt and list all Maryland collection agency licenses held by the creditor. Particulars of each license such as the number, date of issue, and name should be provided. In addition, charge- off accounts from such debts require specific supplementary documents showing particulars such as date, balance, fees, credits, payments, last transaction, and transaction/s giving rise to the claim. Accounts without a charge-off balance also require specific supplementary documents showing an itemization of all money claimed, amount and date of pertinent transactions, and the last payment. In other words, creditors will need to show that their right to collect the debt has not expired.

Revised Maryland Rule 3-509 provides that a defendant’s failure to file a timely notice to defend or does not appear in court for the trial, does not prevent the court from considering the evidentiary requirements under 3-306 or prevent the court from requiring proof of liability, in addition to damages when the claim arises from an assigned consumer debt that was purchased by a debt buyer.

If the plaintiff fails to comply with the evidentiary requirements of Rules 3-306, 3-308, or 3-509, the court may deny the demand for judgment or grant a continuance to allow plaintiff time to gather the necessary documents to meet compliance. These amended rules will become effective January 1, 2012.

A detail of the specific rule changes are below:

A. Rule 3-306

There are specific requirements for claims arising from assigned consumer debt, also known as debt buyers or collection agencies. Creditors with claims arising from assigned consumer debts must provide (1) proof of existence of the debt; (2) proof of the terms and conditions, (3) proof of ownership; (4) identification of the nature of the debt; (5) proof entitlement to damages under the contract in the case of a future services contract; (6) pertinent account charge off information; (7) pertinent non- charge off account information; and (8) all Maryland collection agency licenses currently held by the creditor and (9) provide a Consumer Debt Check List.

(1) Proof of the Existence of the Debt

Proof of the existence of an assigned consumer debt may be shown by authenticated or original documents with the defendant’s signature, bills or records of payments, or electronic documentation from the original creditor. Rule 3-306 (d)(1).

(2) Proof of Terms and Conditions of the Debt

Proof of terms and condition for an assigned consumer debt may be shown by an authenticated copy or original document evidencing the terms and conditions of the debt. However, such proof is not required, for credit card account balances where the original creditor is regulated by the Federal Financial Institutions Examination Council, and there is no request for attorney fees or interest of more than six percent per annum on the charge-off balance. Rule 3-306 (d)(2).

(3) Proof of the Plaintiff’s Ownership of the Debt

Proof of the plaintiff’s ownership should include a statement of the plaintiff’s ownership of the debt accompanied by a chronological listing of the chain of ownership and copies of the documents showing transfer of ownership. Rule 3-306 (d)(3).

(4) Identification of the Nature of the Debt

An identification of the nature of the debt account should include the name of the original creditor, defendant’s name as it is on the original account, last four digits of both the defendant’s social security number and the original account number, and the nature of the consumer transaction. Rule 3-306 (d)(4).

(5) Future Services Contracts; Proof of Damage

Claims based on future services contract require proof of entitlement to damages under the contract. Rule 3-306 (d)(5).

(6) Accounts with a Charge-off Balance

For accounts with a charge-off balance, the affidavit should contain the date of the charge off, the balance, an itemization fees in addition to the charge -off balance; an itemization post charge payments and credits; and the date of the last payment or transaction regarding the debt. Rule 3-306 (d)(6).

(7) Accounts without a Charge-off Balance

If there is no charge off amount the affidavit should contain an itemization of all money claimed by the plaintiff; the amount and date of the transaction or last transaction giving rise to the claim; and the amount and date of last the payment. Rule 3-306 (d)(7).

(8) Requirement of List of Licenses

The affidavit should include a list of all the Maryland collection agency licenses that the plaintiff currently holds, specifying each license number, name, and date of issue. Rule 3-306 (d)(8).

If the plaintiff does not sufficiently comply with the pleading and documentary evidence requirements, the court could either deny demand for judgment on the claim, or it may the grant the plaintiff a continuance to allow the plaintiff to provide the supplementary documents necessary for compliance with this rule. The court will also deny demand for judgment if the defendant has a meritorious defense. When a demand for judgment is denied or a continuance is granted, a new trial date will be set, unless the plaintiff is present and wish to proceed. Rule 3-306 (e)(2)(B).

While Rule 3-306 has been amended to create more protections for the debtor, the rule does not extinguish debtor from his responsibilities. The defendant debtor should (1) file a timely notice to defend and (2) appear in court on the trial date. A defendant’s failure to comply with either will result in the court proceeding as if a notice to defend was not timely filed. If the defendant does not wish to defend the claim or did not file a timely notice of defense, the plaintiff does not need to appear in court. In such a case, the court will use the documents filed with the claim to make its judgment. If the defendant does not appear in court, and the plaintiff has presented sufficient evidence for the claim, judgment will be granted in the plaintiff’s favor.

B. Rule 3-308 Demand for Proof

Generally, under Maryland Rule 3-308, a specific demand for proof may be raised at any time during the trial; otherwise, matters subject to demand for proof will be admitted. Where a demand has been raised, the trial date be may continued for reasonable time to obtain the proof demanded. However, these specific demand rules do not affect the proof requirements under 3-306(d) for claims arising from assigned consumer debt where the debt was purchased.

C. Rule 3-509 Trial on Default

Rule 3-509 was amended to provide that a defendant’s failure to file a timely notice or appear in court will not prevent the court from considering the evidentiary requirements under 3-306 or prevent the court from requiring proof of liability, in addition to damages when the claim arises from an assigned consumer debt that was purchased. It should be noted that when the defendant does not file a timely notice to defend, the court merely reserves the right to consider proof of liability and the proof requirements under Rule 3-306, but the court is not bound to consider such proofs. Rule 3-509 (a).

In addition, Rule 3-509 provides that a default judgment against an absent defendant in a property damage case requires an affidavit accompanied by an itemized repair bill or itemized repair estimates, or an estimate of the property value. The affidavit should be based on the personal knowledge of those responsible for making the estimates. The affidavit should include the relevant particulars of the affiant and a statement assuring reasonableness of the bill. Rule 3-5-9 (b).

The purpose of these amended rules was to provide more protections for consumers by requiring creditors to prove their right to collect with detailed evidentiary supplements to the affidavit. The court placed additional burdens on debt collection agencies to prove their entitlement to the amount claimed in their complaint. Creditors in the future will actually have to show they are entitled to the amount claimed and not just rely on form affidavits.

By: Laura Margulies and Ruth Clayton