Application of the Hearsay Evidence Rule in Debt Collection

‘Hearsay’ as we know is just what it means; what we hear someone else say or what is heard by someone from another third-party. These terms are mostly used in legal parlance in court hearings of evidence and testimonies provided by witnesses other than the actual declarant, which statements are cross-examined by lawyers and prosecutors. In such situations, ‘hearsay evidence’ is used to denote an out-of-court statement made by a person or persons which is introduced into the court proceedings to prove the factual truth of a matter under argument.

The Hearsay Evidence rule dictates that not all hearsay evidence is admissible as evidence in a court case or legal proceedings, unless a specific exception applies. This is simply because hearsay applies to facts or statements made by people who are actually present in court or under oath to verify the veracity of the statements.

In matters of debt recovery or collection, as we know, there are several instances where recovery proceedings are handled or settled through legal proceedings in a court of law. However this is an area where the Hearsay Evidence Rule applies in the sense that collection agencies sometimes use whatever resources they have at their disposal to recover amounts owed.

Sometimes it happens that collection agencies or ‘debt buyers’ are not in possession of documents proving that the debtor owes money to the creditor, such as the original loan or contract document. In such cases, agencies take advantage of the debtor’s ignorance of collection laws to get default judgments passed so that they can legally access personal information of the debtor such as bank accounts, salary statements other personal details. If they manage to do this, a debtor’s assets may be frozen and become inaccessible unless the amounts owed are returned.

However, in instances where such legal injunctions are not possible, creditors and collection agencies try to use statements of friends and associates to make statements under oath. The Hearsay Evidence Rule implies that no oral or written statements can be given by any witness out of court to provide evidence in a matter of dues recovery.

We may well ask why then do collection agencies and creditors resort to such activities. The truth is that collection agencies deal with thousands of delinquent accounts and have practically no real idea of monies owed unless the creditor provides them the details. In the absence of original documents or statements, it is up to the collection agency to prove that the debtor owes the money to the creditor.

Each claim followed up by the debt collection agency is an essential factor in the debt buyer’s damages; for every dollar recovered their commissions are paid in pennies. To boost their claims, they usually present old credit card statements or loan documents to indicate how much money the debtor owes.

The Hearsay Evidence Rules apply here. Billing statements are not admissible in court because they are considered material provided by an out-of-court witness to prove the truth in a disputable matter. Hence, monthly credit card or loan statements are inadmissible evidence as they are ‘nothing more than hearsay’.

Of course, it is ethical to pay off dues on time; if however financial constraints happen it is better to re-examine and work out a deal to pay a reduced debt on terms that makes repayment easier. However, many collection agencies are known to arm-twist and use practices of intimidation to recover debts which is strictly illegal and not in keeping with the Fair Debt Collection Practices Act.