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4 August 2022 / Nathan R. Duvelius

The Present and Future of Fintech: A Debt Buyer's Guide


“Fintech,” a portmanteau of ‘financial’ and ‘technology,’ is a relatively new term for most people. At first, fintech was used to refer to the various systems used in the back end of established banks and other financial systems. Today, it is far more ubiquitous, describing virtually any use of technology in personal and commercial finance. These uses range from payment applications (e.g., PayPal and Venmo), to peer-to-peer lending, to the use of electronic signatures on loan applications. 
 
Fintech has opened the door for a number of startup companies to offer lending opportunities to consumers. By “unbundling” the various financial offerings, these smaller, more agile startups have been decentralizing lending opportunities away from the established giants in the financial space. This has created new markets for previously underserved consumers and those who prefer to avoid the “big banks.”
 
In turn, fintech has created opportunities for debt buyers to purchase defaulted and charged-off loans from new creditors. Debt buyers may expect to face a few familiar challenges, and some new ones, when attempting to collect on fintech debt.
 

Here are the top three challenges that debt buyers may face:

1. The chain of title
Virtually every debt buyer should be intimately familiar with this challenge. Just like with the more familiar debt types, such as credit cards and personal loans, those who purchase fintech debt should be careful to provide a full and complete chain of title to show how the debt moved from the original creditor to the current holder. So long as the documentation is provided, this challenge is easily overcome.
 
2. Hearsay and the business records exception
This challenge is also nothing new to most debt buyers. Because the debt has changed hands, debt buyers will need to be very careful to explain (typically by affidavit or testimony) that the current holder of the debt has the ability to make statements based on their personal knowledge and review of the account records. Debt buyers should work closely with attorneys in each state to make sure that the affidavits they provide satisfy that state’s business records exception to the rule against hearsay. 
 
3. Proving who signed the loan
Electronically signed promissory notes and loan agreements can be just as legally binding as the more traditional, paper versions bearing “wet ink” signatures. However, because of their relative newness, debt buyers may expect to be challenged on proving the legitimacy of the electronic signatures. A few courts across the country have upheld electronically signed documents. For example, in Bradford v. Team Pizza, Inc., 2020 WL 3496150 (S.D. Ohio June 29, 2020), the U.S. District Court for the Southern District of Ohio found that “electronic signatures [are] appropriate and reliable, without a special need.” Similarly, in Branson v. All. Coal, LLC, 2021 WL 1996392 (W.D. Ky. May 18, 2021), the U.S. District Court for the Western District of Kentucky noted that “the law typically draws no distinction between handwritten and electronic signatures.”

Nevertheless, it will be important to provide as much documentation as possible (preferably containing IP addresses and other unique, identifying data) to show who, exactly, signed those documents. 
 
Most debt buyers are used to facing challenges in court regarding the debts they purchase. When it comes to fintech, we should expect to see many of the same issues we have faced with other, more traditional debt types, as well as a few new ones. However, as long as debt buyers are careful to ensure that they receive the documentation they need, they will be able to obtain a return on their investments in this new debt category.
 
Our team is constantly monitoring these changes. If you have additional questions, please connect with attorney Nathan Duvelius at any time.
 
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.

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