So the day of reckoning has finally arrived for TSI, too – sort of. The litigation-support outfit that runs the collection-attorney network for the National Collegiate Student Loan Trusts settled with the CFPB this week and agreed to pay a $2.5 million fine for robosigning and associated malfeasance without expressly admitting liability to the Bureau's charges as detailed in the findings section of the consent order.
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| TRANSWORLD SYSTEMS, INC - CFPB CONSENT ORDER Transworld Systems must pay $2.5 million to the Bureau’s Civil Penalty Fund under the consent order |
The consent order entered against Transworld Systems, Inc. ("TSI") can be found at http://files.consumerfinance.gov/f/documents/201709_cfpb_transworld-systems_consent-order.pdfUnlike the consent judgment with the Trusts, this settlement did not involve the filing of an enforcement case in a federal court, and is effective without a judge's signatures on it.
Consumer debt defense attorneys in Texas, which has been blessed with a large share of the NCSLT lawsuit flood, have been challenging these robo-signed affidavits for years (previously mass-produced by NCO, TSI's predecessor), often successfully, but not always.
Most student borrowers who become targets of the Trust’s lawsuit machine, however, cannot afford legal representation, and if they don’t answer the lawsuit at all, liability is deemed established even without proof of a signed loan agreement, so long as the pleadings make proper allegations. But even the pleading standards are more relaxed in state courts, as opposed to federal.
In the default judgment context, the NCO/TSI robo-affidavit mostly served to establish the amount claimed as owing on the loans as "liquidated damages". No live witness is necessary, and – in many courts – no attorney court appearance is even required to obtain a no-answer default judgment. When defendants answer pro-se, they can either expect a motion for summary judgment (which is difficult for a lay person to defeat) or a five-minute “trial” that may give them an opportunity to tell their story or tale of woe, but little chance of success in defeating the action. For trial, the Trusts’ lawyers would file a business records affidavit, often containing factual averments that would be inadmissible if the defendants knew how to properly object on hearsay grounds. And the Trust's appearance attorney would likely elicit admissions from the rare defendant brave enough to venture into the courtroom, or would object to anything such a pro se litigant might want to say or argue in his or her defense.
But even for seasoned Texas attorneys thoroughly familiar with the rules of evidence (and summary judgment), an attack on robo-affidavits churned out by TSI (and previously, by NCO, apparently the same operation by a different name, or at least the same business model) was not necessarily guaranteed to be successful. Attorneys defending such collection cases had to attack the qualifications of the affiant as a witness and sponsor of buiseness records and/or object to defects in form that were apparent on the face of the affidavit (such as verification that the facts were only based on the affiant’s “best knowledge and belief”).
Some judges would accept such boilerplate affidavits simply because they were sworn to and contained magic-formula verbiage that more or less parroted the model language in the business records rule.
To show how NCO/TSI operated, and how these affidavits were produced, the attorney would have to take the affiant’s deposition and get them to admit under oath that they don’t have personal knowledge, and reveal which records they had access to and which not. As now revealed in the CFPB settlement papers, TSI would print chain-of-title documents such as “Pool Supplements” and “Deposit and Sale Agreement” from the web. Why? Because there were no assignments in the loan file (consisting of computer records and imaged records). The recent audit of the primary servicer – PHEAA d/b/a AES – based on a sample of student loan files revealed that 100% of them had no assignment proof in them.
But in the context of defending collection suits filed on behalf of the Trusts in Texas, it was a logistical challenge to produce evidence of TSI’s shoddy practices and the cutting of corners in the name of speed and efficiency, -- what with the affidavit-signers being located in an operations center in Georgia. Having to take deposition out of state is certainly not a cost-effective way to defend a run-of-the-litigation-mill collection case, esp. when debtors become defendants and clients because they are already in dire financial straights and don't have much money to pay legal fees and litigation-related expenses.
EXEMPLAR OF AN AFFIDAVIT FROM NCO SIGNED IN GEORGIA
BY CHANDRA ALPHABET
BY CHANDRA ALPHABET
DUMMY AFFIDAVIT OBJECTIONS TO CHANDRA ALPHABET
AFFIDAVIT FILED IN TEXAS COLLECTION SUIT
AFFIDAVIT FILED IN TEXAS COLLECTION SUIT
No. _______________
NATIONAL COLLEGIATE STUDENT § COUNTY
COURT
LOAN TRUST 2007-4
§
§
V. § AT
LAW NUMBER _____
§
§
Adam
Schuldenberger § _______ COUNTY, TEXAS
Defendant's
Objections to
Plaintiff's Affidavit
of Chandra Alphabet
Comes now the Defendant, ADAM
SCHULDENBERGER (“Schuldenberger”), and through undersigned counsel requests
that the Court strike the affidavit of Chandra Alphabet, offered by Plaintiff
NATIONAL COLLEGIATE STUDENT LOAN TRUST 2005-4 (“NCSLT”) for the purpose of
authenticating business records and to adduce fact testimony purportedly based
on personal knowledge. See "AFFIDAVIT
AND VERIFICATION OF ACCOUNT" of Chandra Alphabet, Legal Support Case
Manager, NCO Financial Systems, Inc.
Defendant Schuldenberger would
show the following:
A. Testimony by affidavit
at trial is hearsay
As indicated by its title, the
"Affidavit and Verification of Account" purports to do more than lay
a predicate for admission of business records. Such an affidavit may or may not
be suitable for submission with a motion for summary judgment, but the summary
judgment rule does not govern trial on the merit. The law is clear that
affidavits are not admissible at trial.[1] Defendant accordingly objects to all
portions of Alphabet's affidavit that purport to adduce facts about the case.
Specifically, Defendant objects to Alphabet's damages testimony in paragraph 6.
B. Source
of personal knowledge
Alphabet claims to have acquired
knowledge of business records "sent to NCO that detail the education loan
records." (para 2). Alphabet thereby admits that her employer, NCO
Financial Systems, Inc., did not create these records. Merely looking at
hearsay records may confer awareness of what is stated on them, but it does not
put the reader in a position to determine whether the contents are accurate, as
long as the reader has no other source of information available to ascertain
the truth of the information printed on those records. If reading a document
were to confer personal knowledge within the meaning of the “personal
knowledge” requirement for affidavits and court testimony, the concept of
hearsay as it pertains to documents, and the need for a predicate to make it
admissible, would be obliterated.
Alphabet does not even specifically
testify which entity created the records. This lack of information includes the
origination of the account/loan origination. Specifically, Alphabet does not
evince any awareness of how the application was submitted and processed and the
loan made. She testifies in the disjunctive about alternative scenarios, i.e.
whether or not the first page was faxed: "In the event the Defendant(s)
faxed the executed Credit Agreement/Promissory Note...." (para 6). This formulation
appears to be part of the stock affidavit language and indicates that the
affiant does not know which scenario applies in a particular case, and that the
affiant was not even expected to check the attached loan documentation to
ascertain which scenario applied in a particular instance. Alphabet apparently
did not look at the attached "Credit Agreement/Promissory Note" to
see whether it has any indicia of having been faxed. She nevertheless purports
to authenticate it as a true and correct copy, and a business record of an
entity she does not even identify by name. Alphabet fails to qualify as a
sponsoring witness and Defendant accordingly objects on that basis also.
But there is another fatal defect in this affidavit.
C. Testimony
based on the "best of my knowledge and belief"
In order for an affidavit to qualify as proof of the facts
asserted therein, the affiant must "positively and unqualifiedly represent
the 'facts' . . . disclosed in the affidavit to be true and within his personal
knowledge." Brownlee v. Brownlee,
665 S.W.2d 111, 112 (Tex. 1984). It must be direct and unequivocal so that the
affiant can be held criminally liable should he or she lie. The threat of
criminal sanctions for lying is the reason affidavits are required to be sworn.
Therefore, an affidavit is insufficient unless the allegations contained
therein are direct and unequivocal and perjury can be assigned upon it. Id.; Burke v. Satterfield, 525 S.W.2d
950, 955 (Tex. 1975).
In paragraph 8, Alphabet avers as follows: "I
declare under penalty of perjury under the laws of the forum state that the
foregoing is true and correct to the best of my knowledge, information, and
belief." Alphabet's belief about
what is true is irrelevant; but the qualification does serve a purpose: It
allows Alphabet to eschew any risk of being held criminally
liable for making false statements under oath (or its equivalent, for perjury
purposes). For the same reason, such testimony is unacceptable.
The best-of-my-knowledge disclaimer would render the
affidavit unacceptable even for summary judgment purposes. See Lightfoot v. Weissgarber, 763 S.W.2d 624, 628 (Tex. App.-San
Antonio 1989, writ denied) (concluding that statements in a sworn affidavit
that are made only "based upon my best recollection and belief" are
not effectively sworn to on personal knowledge because they "do not
positively and unqualifiedly represent the ‘facts' disclosed in the affidavits
to be true and within the personal knowledge of the affiants"). The
qualification as to best knowledge and
belief appears at the end of the affidavit and refers to "the
foregoing." As such, the disclaimer taints the entire affidavit and
renders the averments therein inoperative, including Alphabet's attempt to lay
the foundation for admission of documentary records under the business records
exception to the hearsay rule. TEX.R. EVID. 803(6).[2]
D. Predicate
for admission of third-party records
In
paragraph 7, Alphabet refers to "records maintained by Plaintiff",
but elsewhere she indicates that the Plaintiff uses servicers, though these
servicers apparently do not include NCO since NCO received records created by
some other unspecified entity.
Affiant
Alphabet testifies as an employee of NCO Financial Systems, Inc. rather than as
an employee of the Trust. She claims personal knowledge of records "sent
to NCO" (para 2), which implies that NCO does not create any records, and
does not itself administer accounts. Her functional job title -- Legal Support
Case Manager -- reinforces this supposition because it indicates that Alphabet is
involved with accounts that are in litigation, rather than having any role in
the creation of records prior to default, i.e. in the regular course of loan
origination and account administration. She avers, in para 2. that she has
"personal knowledge of the record management practices and procedures of
Plaintiff and the practices and procedures Plaintiff requires of its loan
servicers and other agents." But she does not identify those entities. The
first line on the purported ledger printout includes the letters AES rather
than NCO.[3] This may be the acronym for American Education Services, but
Alphabet sheds no light on the matter. Nowhere does Alphabet state that NCO, her employer, acts as
servicer while accounts are in good standing, or at any time thereafter.
Because Alphabet does not even
identify the entity or entities that created contemporaneous records pertaining
to the loan at issue, she cannot lay a proper predicate for their admission as
exceptions to the hearsay rule. Nor is the ledger document even a contemporaneous
record. The print-out is time-stamped “_________________________”, but the
affiant was not signed until _________________.[4]
This suggests that it was not the affiant who operated the unknown computer
system to create the print-out. Nor does she lay a proper predicate for admission
of a data compilation extracted from a database of some sort. Additionally, given
the date appearing on it, the exhibit was obviously created for litigation. As
such, it is not merely a copy of a record that was created in the course of
routine business operations close in time to the transactions it purports to
record. It is impossible to divine who created it, or whose data was used to
create it. The print-out should be struck because it is not an original record
as contemplated by the business records exception and constitutes nothing more
than unauthenticated hearsay of undetermined provenance.
E. Testimony
on questions of law
In
paragraph 6, Alphabet purports to instruct the court about "applicable
federal and state law". Affidavit testimony on questions of law, rather
than facts, is improper in the first instance. Additionally, Alphabet does not
indicate that she is a licensed attorney or otherwise qualified to offer
opinions on legal matters, whether concerning federal law, her own state’s, the
choice-law-state’s law, or Texas law. Nor does she cite legal authority, be it
from the “forum” state or from any other jurisdiction, to support her
conclusory averments as to what the law is, and how it applies to facts and
issues in this case. This is also objectionable. Conclusory averments about the
law is would be objectionable even if made by a properly licensed attorney, if
not supported with citations to legal authority.
CONCLUSION
The "Affidavit and Verification
of Account" of Chandra Alphabet is defective in numerous respects and
should be struck in its entirety. In the absence of a proper predicate to take
them out of hearsay, the documentary exhibits should likewise be excluded.
Should the Court nevertheless overrule
Defendant's objections, the Court is requested to memorialize its evidentiary
rulings in a written order or to set them forth in findings of facts and
conclusions of law, so as to facilitate appellate review, if any.
PRAYER
Wherefore, Defendant, Adam Schuldenberger, through
undersigned counsel, requests that the Court sustain the evidentiary objections
set forth above, and enter a take-nothing judgment against Plaintiff.
Respectfully submitted,
_________________________________
Attorney for Defendant
ADAM SCHULDENBERGER
[1] Stephens v.City of Reno, 342 S.W.3d 249, 253 (Tex. App.-Texarkana 2011, no pet.)
("[A]bsent authority to the contrary, affidavits are not, as a general
rule, admissible in a trial as independent evidence to establish facts material
to the issues being tried.").
[2] The foundation for the business records exception has
four requirements: (1) the records were made and kept in the course of a
regularly conducted business activity, (2) it was the regular practice of the
business activity to make the records, (3) the records were made at or near the
time of the event that they record, and (4) the records were made by a person
with knowledge who was acting in the regular course of business. Powell v. Vavro, McDonald, & Assocs.,
136 S.W.3d 762, 765 (Tex.App.-Dallas 2004, no pet.).
[3] It also predates the affidavit by a
few weeks, suggesting that Alphabet did not generate this exhibit, and that she
was not even present at the time the exhibit was created.
[4] Nor does the ledger document provide complete information. It indicates that
"accrued" interest was added to the principal balance, but does not
show how the accrued interest amounts were calculated (i.e., what rate was used
at what times, and to what balance those rates were applied each time interest accrual
amounts were calculated). Additionally, the intervals are irregular, creating
great variations in the amounts shown as "accrued" from one line on
the ledger exhibit to the next. Nor is there any substantiation for the
additional interest testified as "accrued" by the affiant in the
amount of $_______________. The affidavit does not contain a date or accrual
period for this interest item.
ONE MORE ALPHABET AFFIDAVIT
Affidavit of "Legal Support Case Manager" in Georgia
dated July 7, 2014
RECENT VERSION OF AFFIDAVIT BY TSI FOR NCSLT COLLECTION SUIT
(DUDLEY TURNER with ALICIA L. HOLIDAY NOTARIZATION)
AFFIDAVIT OF DUDLEY TURNER, LEGAL CASE MANAGER
NOTARIZED BY ALICIA L. HOLIDAY JUNE 27, 2017
(DUDLEY TURNER with ALICIA L. HOLIDAY NOTARIZATION)
AFFIDAVIT OF DUDLEY TURNER, LEGAL CASE MANAGER
NOTARIZED BY ALICIA L. HOLIDAY JUNE 27, 2017
These student loan people are worse than the idiotic ARM lenders who were handing out outrages mortgage to people who couldn't afford the houses they were moving in back before the housing crash in 2008. Student loans are given out like free loaded guns to children. It's bad bad bad and most of them should not have them!
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