Guest Blog by Andrew E. Hoke, Sessoms & Rogers, P.A.
The North Carolina legislature passed the Consumer Economic Protection Act (CEPA) in 2009. It was one of the first laws in the U.S. to impose requirements on debt buyers. One of the most restrictive debt buyer laws in the country, many of its provisions are unclear, and have not been reviewed by North Carolina appellate courts. Since 2009, the landscape has changed significantly for debt buyers. In 2010, the Consumer Financial Protection Bureau (CFPB) was created by the Dodd-Frank Act. The CFPB released its proposed rulemaking for debt collectors and debt buyers in July 2016.
CEPA amended Article 70, Chapter 58 of the North Carolina General Statutes. The statute imposes civil penalties for unfair practices, institutes evidentiary requirements for debt buyer lawsuits, and sets forth prerequisites for default and summary judgment.
Copy of the Contract or Other Writing Evidencing the Debt
Chapter 58-70-150 requires debt buyers to attach certain documentation to its complaints. A debt buyer must attach “[a] copy of the contract or other writing evidencing the original debt, which must contain a signature of the defendant.” There is an exception for credit card lawsuits, in that the requirement can be satisfied by filing “copies of documents generated when the credit card was actually used.” The exception accounts for the reality that consumers generally do not sign contracts to open credit card accounts; rather, the contract is formed when the consumer uses the card. However, the wording of the statute is ambiguous. First, the exception only applies “[i]f a claim is based on a credit card debt and no such signed writing evidencing the debt ever existed.” This could be read to require debt buyers to prove the non-existence of a document, which is problematic.
The exception for credit card accounts is also unclear, since the legislature chose not to define what constitutes a “document generated when the card was actually used.” It would seem that an account statement would suffice. However, the term has not been interpreted by the appellate courts.
Among the most controversial provisions of CEPA is the itemization requirement. CEPA refers to “itemization” and “itemized accounting” in several places. § 58-70-115(5) requires debt buyers collecting on a debt to have “reasonable verification” of the amount of the debt, which is to include an “itemized accounting of the amount claimed to be owed, including all fees and charges.” § 58-70-115(6) requires debt buyers to send consumers 30 days’ notice prior to filing suit, which must include “an itemized accounting of all amounts claimed to be owed.” § 58-70-155 requires debt buyers seeking default or summary judgment to file with the court “an itemization of charges and fees claimed to be owed.”
It seems the purpose of this requirement is to ensure that debt buyers can prove the amounts they seek to collect. However, the legislature did not define “itemization” or “itemized accounting.” It is unclear whether debt buyers can satisfy the itemization requirement by proving the charge off balance, by itemizing the balance into interest and principal, or whether the law requires proof of every transaction over the life of the account. A bankruptcy court in North Carolina’s Eastern District rejected the argument that a debt buyer was required to possess a full transaction record of the account to meet the standard for “itemized accounting.” See In Re Parker, No. 09-09335-8-SWH, 2011 Bankr. LEXIS 895 (U.S. Bankr. E.D.N.C. Mar. 9, 2011). North Carolina appellate courts have not ruled on this issue.
Requirements for Default and Summary Judgment
Section § 58-70-155 of the statute requires debt buyer Plaintiffs to produce certain documents before they are entitled to default or summary judgment. These also contain ambiguities. In addition to the itemization requirement, debt buyers must prove the “original amount of the debt.” It is not specified whether that means the balance when the account was opened, which would typically be zero for credit card accounts, or the amount due when the account was purchased. Next, this section requires “[t]he amount of interest claimed, and the basis for the interest charged.” Since debt buyers typically seek to recover the charge-off balance, it is unclear whether a debt buyer must prove interest that occurred prior to charge-off, or whether this applies only to post charge-off interest.
Comparison to Laws in Other States and the CFPB’s Proposed Rules
Since North Carolina passed CEPA in 2009, other states have passed similar statutes. These laws have generally been clearer and less onerous on debt buyers. In Wisconsin, a debt buyer can meet the statute by filing a copy of an account statement showing the balance sought. See Wis. Stat. Ann. § 425.109. In New York, debt buyers are required to provide consumers with an “itemized accounting of the debt.” However, this itemized accounting is defined as the total amount of the debt at charge-off, in addition to any interest, charges, fees, or payments occurring after charge-off. See N.Y. Comp. Codes R. & Regs. tit. 23, § 1.2. California’s Fair Debt Buying Practices Act imposed evidentiary requirements on debt buyers, much like CEPA; however, the California law makes clear that the last account statement issued to the consumer is sufficient to prove the debt. See Cal Civ Code § 1788.58.
In July 2016, the CFPB released its outline of proposed debt collection rules. The proposal includes a requirement that debt collectors possess a “reasonable basis” for a debt prior to its initial claim of indebtedness. Among other things, the reasonable basis requirement would include “[t]he date of default, the amount owed at default, and the date and amount of any payment or credit applied after default” and “[e]ach charge for interest or fees imposed after default and the contractual or statutory source for such interest or fees.” Like New York’s statute, the CFPB proposal would require a debt buyer to specifically list only those transactions occurring after default.
Bills to revise CEPA were proposed in the North Carolina Senate and House of Representatives in 2015. These revisions would clarify the ambiguities in the statute described above. Change in the law is necessary to bring North Carolina in line with other states and the CFPB while the preserving consumer protections intended by the legislature.
Andrew E. Hoke is an Associate Attorney at Sessoms & Rogers, P.A., in Durham, NC. He received his J.D. from Elon University School of Law. Sessoms & Rogers. P.A. provides comprehensive legal and collections services for clients in North Carolina. The firm offers legal services for all matters related to debt collection, including litigation and compliance review. The National List is pleased to have Sessoms & Rogers as member of our list of esteemed collection attorneys. If you would like to use their services, register your claims through National List so they can be insured, and you can have both teams behind your collection needs.