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.
|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
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. 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).
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. 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 _________________. 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.
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.
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.
Attorney for Defendant
 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.).
 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.
 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