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Financial Services Law Insights and Observations

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  • Washington state Attorney General says debt buyers are collection agencies, files lawsuit for operating without a license

    State Issues

    On September 21, the Washington state Attorney General announced that it filed a lawsuit against several collection agencies and their owner (defendants) for allegedly purchasing and suing on charged-off consumer debts in violation of the Washington Collection Agency Act (WCAA) and the Washington Consumer Protection Act (WCPA). The complaint alleges that defendants bought and then obtained judgements on at least 3,500 consumer debts without first obtaining a collection agency license under the WCAA. Under the WCAA, a debt buyer is a collection agency and must therefore “be licensed as a collection agency if it enters into contracts with sellers of debt accounts or takes other affirmative steps to acquire accounts for collection, either directly or through an agent.” Failure to obtain a license as required under the WCAA  amounts to a per se violation of the WCPA. Because defendants bought and sued on consumer debts before obtaining a license in 2013, the Attorney General claimed that they violated the WCAA and the WCPA. The complaint seeks civil money penalties of up to $2,000 per violation for each violation of the WCPA, restitution for affected consumers, and reimbursement of legal costs and fees.

    State Issues State Attorney General Debt Buyer Licensing Consumer Finance

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  • FTC and New York Attorney General announce action against phantom debt operation

    Consumer Finance

    On June 27, the FTC and the New York Attorney General’s Office announced charges against two New York-based phantom debt operations and their principals. The complaint alleges they ran a deceptive and abusive debt collection scheme involving the marketing and selling of fictitious loan debt portfolios and collecting on debts consumers did not owe. The charges brought against the operations allege violations of the FTC Act, the Fair Debt Collection Practices Act, and New York state law. According to the complaint, the debt broker knowingly purchased fabricated debt from a phantom debt collection operation previously charged by the FTC and the Illinois Attorney General in a separate action for selling fabricated debt. (As previously covered by InfoBytes, the Illinois-based operation was banned from the debt collection business and prohibited from selling debt portfolios.) The debt broker then engaged a debt collection agency and its owner to collect on the fabricated debt using illegal collection tactics, while continuing to purchase debts and place them for collection despite having knowledge that consumers disputed the debts. The complaint seeks, among other things, injunctive relief, restitution, and disgorgement.

    Consumer Finance FTC State Attorney General Debt Collection Debt Buyer FTC Act FDCPA State Issues

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  • District Court holds that a debt buyer qualifies as a debt collector under the FDCPA

    Courts

    On May 25, the U.S. District Court for the Eastern District of Pennsylvania held that a debt buyer of time-barred debt qualified as a “debt collector” under the Federal Debt Collection Practices Act (FDCPA). The consumer (plaintiff) sued a debt collector and a debt buyer after receiving collection letters from the collector requesting she contact it to discuss settlement. The plaintiff alleged both companies violated the FDCPA by implying the debts were legally enforceable when, in fact, the statute of limitations had run. In rejecting the defendants’ motion to dismiss, the court found that the debt buyer’s “principal purpose of business is debt collection, either directly or through another collector” and therefore it is a debt collector under the FDCPA. The court also rejected the defendants’ arguments that the consumer did not adequately plead a violation of the FDCPA, holding that the collection letter—even though it did not threaten litigation or include a payoff amount—could mislead “the least sophisticated debtor” into believing she had a legal obligation to pay a time-barred debt because it called on plaintiff to contact it to discuss “settlement options” and specifically noted that the collector was not obligated to accept any payment proposal. The court also found that the letter may leave the least sophisticated debtor “uncertain as to her dispute rights under the [FDCPA]” and should have contained a “reconciling statement.”

    Courts FDCPA Debt Buyer Debt Collection Unsophisticated Debtor

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  • Oregon Governor Enacts Law Regarding Compliance Requirements for Debt Collection Licensees

    State Issues

    On August 2, Oregon Governor Kate Brown signed into law House Bill 2356 (HB 2356), which establishes provisions relating to debt collection practices in the state. Among other things, the law (i) details the practices a debt buyer, or debt collector acting on behalf of a debt buyer, is required to follow to legally collect debt; (ii) specifies the type of notice and documents that a debt buyer must provide to a debtor; (iii) requires persons engaged in debt buying to obtain or renew their licenses through the Department of Consumer and Business Services; and (iv) specifies duties of licensees, outlines prohibited conduct, and identifies unlawful collection practices. The law takes effect January 1, 2018.

    State Issues State Legislation Debt Collection Debt Buyer Compliance

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  • Maine Amends Fair Debt Collection Practices Act to Enact Debt Collection Requirements for Debt Buyers

    State Issues

    On June 16, Maine Governor Paul LePage signed into law amendments (H.P. 836) to the state’s Fair Debt Collection Practices Act (Maine FDCPA) to promote the fiscally responsible collection of purchased debts. Changes affect the definitions of charge-off, debt buyer and resolved debt, as well as licensing and documentation requirements, transferring debt ownership, collection actions, and civil penalties.

    The law now considers a “debt buyer” to be a debt collector, and defines a debt buyer as a person “regularly engaged in the business of purchasing charged-off consumer debt for collection purposes, whether the person collects the debt or hires a [third] party, which many include an attorney-at-law, in order to collect the debt.” Notably, the definition excludes supervised financial organizations or a person that “acquires charged-off consumer debt incidental to the purchase of a portfolio predominantly consisting of consumer debt that has not been charged off.” Debt buyers must comply with existing licensing requirements and criminal background checks under the provisions of Maine FDCPA Section 11031.

    The law will apply to a debt buyer with respect to debt sold to the debt buyer on or after January 1, 2018. Furthermore, it will not “affect the validity of any collection actions taken, civil actions or arbitration actions commenced or judgments entered into prior to January 1, 2018.”

    State Issues State Legislation Debt Collection Debt Buyer FDCPA

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