Discover Bank Fails to Establish its Right to Collect Charged-off Debt

By decision dated July 17, 2012, Judge Ciaffa of Nassau District Court, New York rejected Discover Bank's attempt to collect on a charged-off debt.

Judge Ciaffa denied Discover's motion for Summary Judgment pointing to Discover's own records, which admitted a "New Balance of $0.00" and an "internal charge-off" of the previous balance of $4,676.98. Discover was represented by Zwicker & Associates, P.C.

The court previously rejected Discover Bank's previous attempt[1] to do the same thing, noting that a "charge-off," which provides the tax benefit of a tax deduction for a "bad debt" (www.irs.gov/publications/p535/ch10.html) may trigger a mandatory duty under IRS regulations to issue the defendant a 1099-C. Creditors who benefit from this tax practice may render it "inequitable" to allow them to belatedly enforce the alleged debt after it received the benefit of a charge-off. (See CACH, LLC v. Fatima, 2011, N.Y. Slip Op 51510 (Dist. Ct. Nassau Co.).

Judge Ciaffa had trouble deciphering Discover's admitted balance of $0.00, which conflicted with Discover's attempt to collect $4,676.98 through its lawsuit.

Also absent from Discover's papers were proof of its Cardmember Agreement, and proof that it was mailed to the defendant in the ordinary course of its business. Such proof is required to establish contractual terms and the proper amount of damages.

Judge Ciaffa rejected Discover's witness' affidavit for its conclusory assertion that the witness was "fully familiar with the Plaintiff's record keeping practices" without demonstrating 1) the basis of her personal knowledge (especially since she worked at a separate servicing affiliate); or 2) how the credit card statements were made and kept.

Judge Ciaffa likened these credit card cases to no-fault cases, where appellate courts hold that "third party billers" who use information furnished by medical providers cannot lay a proper "business record foundation" for submission of the medical providers' bills as proof of given claims. Basically, if a business seeks to admit business records (which would otherwise be inadmissible hearsay), a witness with personal knowledge of the record keeping practices is required to "lay a foundation" to assure the court that the records are what they claim.



[1] Discover Bank v. Kivita, index no. 15445/10, decision dated March 29, 2011 (Dist Ct Nassau Co.)

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