- District Court Holds Collection Agency Violates FDCPA for Failing to Comply With State Law Requiring It to Register as a Debt Collector
- March 11, 2011 | Authors: David N. Anthony; John C. Lynch; Ethan G. Ostroff
- Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Virginia Beach Office
On February 23, 2011, the District Court of Maryland granted summary judgment in favor of a putative class of debtors on issues of first impression within the Fourth Circuit. The court first held that a federal cause of action exists under 15 U.S.C. § 1692e for failing to register as a collection agency as required by Maryland law. It then determined that a collection agency’s filing of lawsuits without obtaining the license required by state law violates section 1692e(5) of the FDCPA because it is a “threat to take any action that cannot be legally taken.” However, the court declined to hold that any violation of state law, no matter how trivial, constitutes a per se violation of the FDCPA.
The defendant purchases defaulted debts, on which it subsequently seeks to collect on its own behalf. It filed suit against the named plaintiff in Maryland state court to collect a debt that it purchased from plaintiff’s creditors after the debt went into default. The named plaintiff did not argue that he did not owe the amount of money sought by the collection agency in the underlying lawsuit. Rather, plaintiff argued the agency violated the FDCPA in prosecuting the underlying lawsuit.
The court first determined that the defendant is not a passive debt buyer exempt from registration under Maryland law. In an issue of first impression in the Fourth Circuit, the court also held that Section 1692e(5) protects consumers against debt collectors that "threaten" to take action that could not legally be taken, as well as the performance of the illegal actions themselves (i.e. the actual filing of the lawsuit). After acknowledging the Maryland Collection Agency Licensing Act does not give rise to a private right of action, the court nonetheless concluded a violation of the Maryland state licensing law gives rise to a claim for “false, deceptive, or misleading representation or means in connection with the collection of any debt," under section 1692e.
As a result, regardless of whether they are bulk purchasers of post-default debt or collect debts owned by another, businesses should consider revisiting the requirements of state laws regulating the activity of collection agencies and to make certain they comply with all state licensing requirements wherever they initiate lawsuits. In particular, collection agencies that are active in Maryland should obtain the license required under the Maryland Collection Agency Licensing Act.