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ATTORN EY GENERAL OF MISSOURI
J E FFERSON G rTY

c mu s KOSTER
A TTo n"': £ YGE NERA.L

65 102

P .O. Box 8 0 0
(57 3 ) 751-:3:)2 1

December 3, 2015

Hon . Lisa White Hardwick
University of Missouri Inte rim Preside nt Michael A. Middleton
Willia m R. Bay
Commission on Racial and Ethnic Fairness
Mi ssouri Supreme Court

207 West High St.
Jeffer son City, MO 65101
RE:

Proposed rule changes to curb a busive debt collection via Mi ssouri's
judicial syste m

Deal' Chairpersons Ha rdwick, Middleton, a nd Bay:
I write to alert the Commission to a preva lent mi suse of Mi ssouri's
state court syste m a nd to suggest improvements that will fUl'th el' the wOl'k of
this Commission a nd adva nce the Ca lls to Action recomme nded by the
Governor's Fe rguson Commission.
In Missouri and elsewhere, abusive li tigation practices in the collection
of consumer debts resul t in a dispa rate negative impact on racial minori ties.
In large part, t hese a busive practices involve en tities t hat purchase defaul ted
debt from origin a l creditors at a steep di scount a nd the n atte mpt to collect
those ba lances witho ut substantiatin g that any debt is owed, the a mount of
debt owed, whethe r the claim to recovery is timely, or whethe r the creditor is
a uthorized to recover attorneys fees.

www.ago.mo.gov
W\V\y.ago.mo.gov

 I encourage the Commission to consider common-sense changes to two
existing court rules that wou ld prevent certain unscrupulous collection
practices and avoid their deleteriou s effect s on un su specting defenda nts.

First, I recommend amending Rule 55.22 to require pla intiffs filin g
petitions to collect consumer debt to attach docume ntation of a ll assignments
de monstrating the plaintiffs right to collect the debt from the consumer.
Second, I propose modify ing Rul e 74.05 to pe rmit entry of default
judgment against a defenda nt on ly a fte r t he defenda nt has received timely
summons and subsequently fa ils to appear at a t rial settin g. Thi s limitation
would que ll debt buye rs' opportuni stic behavior of postponing hearings at
which a defend a nt ap pears in an effor t to eventua lly obta in a defa ult
judgment.
Third, I su ggest further amending Ru le 74.05 to increase judicia l
scrutiny over applications for defa ul t judgment by requiri ng debt buyers to
produce docum entatio n: (1) evide ncing counsel's belief t hat t he lawsui t was
brought prior to expiration of the statute of limitation s; a nd (2) establishin g
any contractual right to attorneys fees and costs as we ll as an itemized
explanation of the pa rticula r fees a nd costs sought. These cha n ges would
e nsure that only legiti mate collection actions consume Ollr state's limited
judicial resources.
I believe these improve ments would increase participation in the
judicia l syst em by minorities who become ta rgets of such li tigation a nd
protect the m from the implicit bias of the existing system 1 Furthermore,
t hese changes would deter predatory debt collection practices, he lping
individua ls avoid default judgments for debts t hey may not even owe a nd
preventing negative impacts on the ir credit reports, which wou ld make it
more difficult for them to achieve fin ancial stability and success. t
I. Current Problems

In the past decade, the debt collection industry has under gone a
dramatic transformation. Today, numerous companies speciali ze as debt
buyers, p urchasing defaulted debt from origina l credi to rs at a steep discount
a nd t he n a ttemp tin g to collect those ba la nces t hrough a ny avail able means.
1

2

See In re: Com.m.ission on Racial and Elhnic Fairness Order at 2 (Mo. Oct. 6, 2015).
See Ferguson Co mmi ssion , Forward Throll gh Ferguson: A Palh 'lbward Racial Equity 5 1·

52.58 (20 15).

2

 Perhaps the most striking cha nge in recent year s is debt buye rs'
increasing use of our s tate courts to gain undue advantage over some of our
most economically vulnerable citizens. Just last month, the ABA Journal
featured a n in-depth report on debt buyers' collection practices and the
courts' complicity in the process, citing cri ticism that courts "have allowed
t hemselves to become co-opted a nd thu s part of the proble m." Terry Carter,
The Debt Buyers: Lax Court Review a.nd a Ra.venous Industry Are Burying
Defendants in Defaults , A.B.A. J. , Nov. 20 15, a t 55. 3 Ab usive debt collection
through litigation takes many form s, including suing individuals with little
or no s ubstantive evide nce to verify or prove the debt or the identity of the
purported debtor, exploiting proced ural mechanisms to increase the
likelihood that a pro se litigant will defa ul t , initiating suits outside t he
s tatute of limitation, a nd recovering uns ubstantiated attorneys fees. See id.
at 56 4
Last yea r , I joined a bipartisan group of 29 other state a ttorneys
general in calling for additional fede ral regulations under t he Fair Debt
Collection Practices Act ("FDCPA"). S tate Attorneys General Letter to
Director Cordray, Docket No. CFPB-2013-003 (Feb. 28, 2014). As observed in
t hat letter , "[sJtate debt collection litigation has surged in t he past decade,"
a nd the primary driver of t he surge has been debt buye rs on t he secondary
market- the companies who purchase la rge portfolios of cha rged-off debt for
pennies on the doll ar." As these collection accounts a re sold, reso ld, a nd th e n

sold again, t he paperwork evidencing such debts becomes ha rder to find.
Federal Trade Commission, The Strltetu.re and Praef.iees of the Debt Buying
Indu.stry iii (2013). The debts ofte n cha nge ha nd s so ma ny t im es that the
debt buye r has no evidence at all that t he debt is really owed.
Missouri has not escaped t his national trend. Every year, my office's
Cons umer Protection Division receives hundreds of compl aints regarding
3

A vai.lable 01.

http: //www .abajourna l.com/mobile/mag_3rticlc/de bt_buying_ind ustl'y_3 nd _ la~,,-co Ul' Ll'e v i e
w _ 3 J'e_bu ryi ng_defe ndan ts_i n_defa u lt/.
,JOne major debt se He t' co nceded that "a significant numbe r of its own 538,000 collections
s uits filed betwee n 2009 and 2013 we re questionable or serious ly fl awed" a nd many of the m
we,'e "based solely on robo-signed affidavits mad e with littl e or no review of pe rtine nt
docum e nts." Jd, at 57 .
;5 The Fede ra l Trade Commi ss ion found that debt buye rs pay a n ave rage of 3. 1 ce nts on the
doUar for de bts from three to six years old and 2.2 cents pe r doll ar for debts from six to 15
years old . Fede ral Trade Co mmission, Th e S ll"IIclure and Praclices of th e Debt, Blly ':ng
Indus try 23·24 (20 13).

3

 debt collection practices. Many of these compla ints involve laws uits filed on
debt th a t is decades old or suits wher e the individua l t a r geted is not the true
debtor.
Indeed , a recent Missouri appellate decision exe mplified a case in
which little t o no s ubs ta nce s upported t he debt buye r's pleadin gs. In Royal
Financial Gro up, LLC v. Perkins, the E aste rn District noted that t he debt
buyer "possessed no documentation linki ng the chain of ownership to [the
origi nal cr edi to r]." 414 S.W.3d 501 , 505 (Mo. App. 20 13). This effecti vely
r endered the debt buyer's case fa lse a nd decept ive as it ··opted to allow its
petition to be di smissed rathe r than go to the trouble of obtain ing evidence of
its status," ld. at 506. The e ntire litigat ion was an "emp ty threat to actua ll y
p rosec ute t he laws ui t beyond t he initial petition·' with the debt buyer
inte ndi ng from the outset to obtain a defaul t judgment. l d. at 503. The court
concluded t hat t he lawsuit itse lf ·'was a deceptive attempt to collect a debt
that [the debt buyer] cou ld not collect lega lly:' [d. at 507.
Unfort un ately. a search of Case. net revea ls t hat the facts of Perilins
were replicated in thou sands of lawsuits in Missouri initiated by the same
debt buye r conte mpora neous to Perkins. Nearly a ll of t hese s ui ts res ulted in
t he de bt buye r either obta ining defa ult judgments or volunta rily dis missing
against defenda nts who repeatedly a ppeared to defend t he mselves. In other
words, the debt buye r's lit iga tion was virt ua lly never resolved on t he merits.
The deprav ity of t he debt buye rs' lit iga tion practice was recently
exposed in Portfolio Recovery A ssocia.tes, LLC v. Mejia, Case No. 1216CV34184 (Ja ckson County Cir. Ct. May 11, 2015). Mejia. began with Portfolio,
the debt buye r, s uin g Ms . Mejia, a fin a ncia lly vulner a ble, legall y
un sophisticated woma n who spoke limited Englis h, to collect a debt Ms.
Mejia insisted s he did not owe. Mej ia., Case No. 1216-CV34184,
judgment/order denying motion to set aside verdict or remit damages at 4
(Nov. 4, 201 5).
Ms. Mejia, through an attorn ey from Legal Aid of Western Misso uri,
provided informa tion to Portfolio to prove that it ha d s ued the wrong person,
going so fa r a s to ma ke a vailable he r passport, but Portfolio simply moved
for ward in court, hoping to obtain a de fa ul t judgment. [ d. Ms. Mejia filed
coun terclaims a llegi ng ma licious prosecution and violation of I. he FDCPA . Id .
at 1.

4

 After hearing the evidence, the jury awarded $501,000 in compensatory
damages and $82,009,549 in punitive damages to Ms. Mejia. l d. at 1-2. In
de nying Portfolio's motion to remit t he damages, the court noted Portfolio's
unabashed commitment to its litigation practices:
Defe ndan t [Portfolio] testified through its a ttorneys a nd
corporate representative that its business mode l did not include

independent in vestigation of an accused's claim she did not owe
the debt at a ny point from purchase of the debt to litigationeven if legitim ate concerns we re ra ised. It maintained it is the
wrongly accused's burden to dispute the debt, prove it is not
theirs, and provide to Defenda nt pe rsonal inform ation. Defe ndant
testified the fa ult for the present litigation was Plaintiffs.
Defendant made no apologies, testified its policies were sound,
and no cha nges were anticipated.

l d. at 5. After furth e r recounting the evide nce and ide nt ifying applica ble law,
the court s ummed up its conclusion thusly:

The Court find s the harm to Plaintiff was the result of
intentional malice and not mere accident. This Defend ant owns
debt in a ll 50 states-750,000 accounts in Missouri, 37,500 of
which are in litigation. It s hows no re morse. It's [sic] bus iness
model is in"esponsible and preys against the financially

vulnerable. This Defendant does not respect t he Court's rules.
And, especially reprehe nsible is Defendant's use a nd a buse of our
cour t syste m to harm the Plaintiff.

Id. at 8.
Unfort una tely, t he magnitude of t he success that Ms. Mejia has had in
pushing back against Portfolio is unusua l, whereas the sha meful behavior
a kin to Portfolio's is all too common. The conclusion is inescapable that
current court rules, by permitting debt coll ectors to obta in default judgments
without presenting any evidence that the debt is even owed , a Ll ow debt
buyers to manipulate our court system to perpetrate fraud on a massive
sca le.

Earlie r this yea r, ProPublica released a report t hat confirms what
many consumer protection advocates ha ve long s uspected: economica lly

disadva ntaged popula tions, particularly in neighborhoods predominated by
5

 racial and ethnic minorities, have borne the brunt of debt collection litigation
in the state. Paul Kiel & Annie Waldm a n , The Color of Debt: How Collection
Suits Squeeze Blach Neighborhoods, ProPublica, Oct. 8, 2015,
h ttps:llwww.propublica.org/article/debt-collection-Iawsu its-sq ueeze-blackneighborhoods (accessed Nov. 23, 2015). The scope of this proble m is vast,
and there is a gro wing consensus that reforlll is desperately needed for Ollr
state court system.
My office h as acted to reign in some of the worst abuses in this a rea by
initiating enforcement actions targeted to these be haviors a nd offering
proposed regul ation s to bring certain types of unlawful collection activities
within the express scope of the Missouri Me rchandising Practices Act in
Chapter 407 RSMo. But as long as the state court syste m continues to
unwittingly serve as a vehicle for the drivers of abusive debt collection
practices, my office's actions, however successful, like ly will fall short of
providing the wide· ranging relief that Missourians deserve.
II. Potential Solutions
I propose the Commission consider changes to two existing court rules
to a ddress the proble ms outlined in t his letter.

First, the Commi ssion should recommend ame nding Rule 55.22 to
require plaintiffs in lawsuits to collect consumer debt to provide with their
petition documentation of all assignm ents demonstrating the pla intiffs r ight
to collect the debt from the consumer. The a mended rule should require
plaintiff debt buye rs to s how a clear chain of ownership between the debt
buyer and the original creditor through admissible, non-hea rsay evidence.
Tills is not a new concept-the Mi ssouri Supreme Court exp ressly identified
this require me nt for a ll debt buyers three years ago in CACH, LLC u. Asilew,
358 S .w.3d 58 (Mo. 2012) .
Second, the Commission s hould propose additional protections in Rule
74.05 to provide certa inty of trial settings to a pro se defendant to help avo id
defaults. One common tactic employed by unscrupulous debt buye rs involves
seeking repeated continuances when the target of a lawsuit appears in court,
hoping tha t eventually the defendant will miss a court appearance. When
that ha ppens, the debt buye r imm ed iately moves for a defall ltjlldgment.
As attorneys, we are all fa milia l' with the hardship imposed on clients
from protracted litigation requll'ing multiple court ap pearances. Many times,
6

 defendants must mi ss work or arrange childcare to attend a court hearing.
The debt buyers' strategic reliance on making it difficult for defendantsparticularly poor, working defendants with children- to attend successive
court appearances calls to mind the municipal court practices that recently
were harshly criticized by the U.S. Departme nt of Justice." Court rules
s hould recognize these practical rea lities a nd allow the defenda nt a n
opportunity to appea r on timely s ummons while precludin g a plai ntiff from
exploiting procedura l advantage against a defendant who has appeared for
tr ia l.
Third, the Commission should s uggest further amendi ng Rule 74.05 to
require that a consumer debt plaintiff certify that its claim is within the
statute of limitations. This would e ns ure that only tim ely claims occupy our
limited judiciall'esQlll'ces.
Although placing the pleading burden on a de fenda nt to asse rt an
affirmative statute of limitations defense makes abundant sense for general
disputes between represented parties. a n exception is approp ri ate when
experience exposes a pattern in which judgments are obtained in an abusive
fashion against pro se de fendants without their knowledge or understandin g.
The Fede ral Trade Commission has recognized that suing over time-barred
debt is an abusive practice, noting, "[il t is well-establis hed that it is a
viola tion of the FD CPA for a debt collector (including a debt buyer) to file an
action in court to collect on a time· barred debt." Federal Trade Commission ,
The Structure a.nd Practices of the Debt Buying Industry 45 (2013) .
The Commission's s uggested additions to Rule 74.05 s hould a lso
include a provision allowing attorney fees and costs for creditors only when
such application is made with docume ntation supporting the contractual
right to recover those fees and costs as we ll as a detai led hourly breakdown of
costs, tasks completed, a pplicable hourly rates, a nd counsel's attestation that
the costs and tasks listed were necessary to recover on the debt. The General
Assem bly has capped creditor and debt buyer attorneys fees at 15 percent of
the outstanding credit ba lance in default. § 408.092 RSMo. Typically, a
court would require a detailed justification for a fee awa rd , but some circuit
courts have allowed attorneys to simply claim the statutory maximum
a mount without specifically ide ntifying time expe nded prosecuting the debt.

(, See United States Department of Justice, Invesligat,ion of the Fergll son Police Departm ent,
43-52 (20 15).

7

 Worse yet, as in Perkins, some attorneys claim a contractual
e ntitlement to fees even though they do not possess the contracts
contemplating s uch fees. Collecting reasonable attorney fees under a
contract is proper; allowing attorneys to realize an extra·judicial windfall is
not.
The foregoing s uggestions align with recent improvements in other
states. The proposed changes would t rack court rules effected more than a
yea r ago by New York's chief judge, who implemented uniform statewide
rules to restrain unfettered default judgments, noting that "the judiciary 'has
an obligation to prevent inequitable debt· collection practices in the courts.'"
Terry Carter, The Debt Buyers: Lax COI.I.rt Review and a Ravenous I ndustry
Are Burying Defendants in Defal/.lts , A.B.A. J. , Nov. 2015, at 6l. The changes
likewise are similar to California laws enacted in 2013 t hat target debt
buyers' collection methods. Id.

Moreover, the suggestions also correspond with the expectation s of
legitimate debt collectors. Indeed, a core tenet of DBA Inte rn atio nal, a major
trade association for the debt collection industry, is that its me mbers must
not assert legally frivolous claims, and the organization has been vigilant in
reminding its members to be mindful of statutes of limitations. See DBA
International, Code of Ethics, Canon 6,
http://www.dbainternational.org/about-dbalcode-of-ethics/ (accessed Nov. 23,
2015); DBA Internationa l, Member Alert on t he Statute of Limitations,
http://www.dbainternational.or g/statute-of-limitation s (accessed Nov. 23 ,
20 15).

III.

Conclusion

The recommendations posited in this letter are not a panacea for
abusive litigation practices-there are undoubtedly other reforms that would
offer additiona l protection to Missourians who are unfairly targeted by debt
buyers. I believe the ru le changes outlined in th is letter will , however ,
advance the mi ssion of this Commission and further the objectives outlined
by the Ferguson Commission's Ca ll s to Action toward greater fairness and
justice for all Missourians.
I e ncourage the Commission to review my recommendations carefully
a nd to evaluate whether these, and perhaps other , reforms may be
implemented to stem the t ide of abusive debt collection lawsuits a nd provide

8

 relief to communities suffering unde r the weight of frivolous and burdensome
litigation.
Thank you for your consideration.
Sincerely,

CHRIS KOSTER
Attorney General

Enclosure

9

 PROPOSED COURT RULES

Rule 55.22. Pleading Written Instrument
Ca) When a claim or defense is founded upon a writte n instrument. the same
may be pleaded accordi ng to legal effect, or may be recited at length in the
pleading, or a copy may be attached to the pleading as an exhibit.
Cb) When a claim is for an obligation arising out of any debt that is
primarily for personal, family or household purposes, and the debt has
been assigned to the plaintiff by a third party, the plaintiff shall attach to
the petition a copy of all assignments demonstrating that the plaintiff has
been assigned the right to proceed against the defendant on the claim. In
signing the petition , counsel for plaintiff represents that a valid assignment
exists and has been attached.

 Rule 74.05. E ntry of Default Judgment
(a) Entry of Default Judgment. When a party against whom a judgment for
affirmative relief is sought has fai led to plead or otherwise defend as provided
by these rules, upon proof of damages or entitlement to other relief, a judgment
may be entered against the defau lting party only after that pa rty has been
timely served with summons and does not appear in court on the return
date, if applicable, or the date on which the case has been set for trial . The
entry of an interlocutory order of default is not a condition precedent to the
entry of a default j udgment.
(b) Entry of Interlocutory Order of Default. When a party against whom a
judgment for affirmative relief is sought has failed to plead or otherwise defend
as provided by these rul es, an interlocutory order of defau lt may be entered
against that party. After entry of an interlocutory order of default, a default
judgment may be entered. Any party may demand a jury to assess damages. Ifa
jury is not demanded, the court shall assess any damages.
(c) Default Judgment May Include. A default judgment may include an
award of damages, other relief, or both.
(d) When Set Aside. Upon motion stating facts constituting a mer itorious
defense and for good cause shown, an interlocutory order of defau lt or a default
judgmen t may be set aside.
The motion shall be made within a reasonable time not to exceed one year
after the entry of the default judgment.

"Good cause" includes a mistake or conduct that is not intentionally or
reck lessly designed to impede the j udicial process.
An ord er setting aside an interlocutory order of defau lt or a default
judgment may be conditioned on such terms as are just, including a
requirement that the party in default pay reasonab le attorney's fees and
expenses incurred as a result of the default by the party who requested the
default.

2

 A motion fil ed under this Rule 74.05(d), even if fil ed within 30 days after
j udgment, is an independent action and not an authorized after-trial motion
subject to Rul e 78.04 or Rul e 78.06.

(e) Proof of Default Judgment in Consumer Credit Matters. In
addition to the preceding requirements in this rule, default judgment shall
not be entered in a consumer debt action unless the requirements set forth
in this paragraph (e) are satisfied. "Consumer debt" means debt incurred
from a transaction in which credit is extended and debt is incurred for
personal, family or household purposes.
(1) Effective January 1, 2016, default judgment shall not be
entered in a consumer debt action unless the plaintiff provides the
affidavits set forth in paragraph (2) and, if seeking costs or attorneys
fees, paragraph (3).
(2) In all motions for default judgment in consumer debt actions,
the plaintiff must submit the AFFIRMATION OF NON-EXPIRA TION
OF STATUTE OF LIMITATIONS {Form 18(a)}, executed by counsel.
(3) If the motion for default judgment in a consumer debt action
seeks costs or attorney fees, counsel for the party seeking such fees shall
execute the AFFIRMA nON AND AUTHORIZA nON OF COSTS
AND ATTORNEY FEES {Form 18(b)}, attaching the contractual
provision allowing costs and attorneys fees and an itemized explanation
of costs and fees claimed.
(4)Thc affidavits required by this paragraph (e) may not be
combined; however, affidavits may be augmented to provide
explanatory details, and supplemental affidavits may be filed for the
same purpose.
(5) The failure of a plaintiff to adhere to the requirements of
paragraphs (a) or (e) shall constitute good cause to set aside an entry of
default judgment, and such judgment shall be set aside on timely
motion by the defendant.

3

 MlSSOURI CIVIL FORM 18(a)
AFFIRMATION OF NON-EXPIRATION OF STATUTE OF LIMlTATIONS
I,
, (Mo. Bar No.
) pursuant to
Rul e 74.05(e)(2) and under the penalties of perjury, affinn as follows:

Tam counsel fo r _ __ _ _ _ _ _ _ _ _ _ _ [Plaintiff] in the
instant action, Case No. _ _ _ _ _ _ _ __ __ __
I.

2.
The cause(s) of action asserted herein accrued on
_ __ _ _ _ _ _ [date of defaul t] in the State of _ _ _ _ _ _ _ _ . The
statute(s) of limitations fo r the cause(s) of action asserted herein is/are _ _ _ __
years. Based upon my reasonab le inquiry, I believe the applicable statute(s) of
limitations fo r the cause(s) of action asserted herein has/have not expired.
The foregoing statements are true and correct to the best of my personal knowledge.

Date: _ _ _ _ __
Signature

Name

4

 MISSOURI CIVIL FORM 18(b)
AFFIRMATION AND AUTHORIZATION OF COSTS
AND A TTORNEY FEES
I,
, (Mo. Bar No.
) pursuant to
Rule 74.05(e)(3) and under the penalties of perjury, affinn as follows:
I.

I am counsel for _ _ _ _ _ _ _ _ _ _ _ _ _ [plaintiff] in th e

instant action, Case No. _ _ _ _ _ _ _ _ _ _ _ __
2.
Plaintiff is entitled to costs and/or [select one) reasonable attorney fees
pursuant to page/paragraph
of
(title of
document) . A copy of this document, executed by the Defend ant, is attached to this
Affumation as an exhibit.
3.
Attached to this Affumation as an exhibit is an itemization of costs
incurred as well as specific tasks completed, hours expend ed to complete each task,
and the hourly rate for everyone listed who ass isted in completing those tasks to
represent Plaintiff in this matter. All of these costs and tasks were reasonable and

necessary to prosecute this action.
4.
Thi s request for fees complies with § 408.092 RSMo in that the
award ing of fees is not otherwise prohibited by law, and the fees sough t do not exceed
15 percent of the outstanding credit balance in default.

The foregoing statements are true and correct to the best afmy personal knowledge.

Date: _ _ _ _ __
Signature

Name

5