DBA Urges Caution When Reviewing State Licensure Requirements

Based on a series of state court decisions over the last several years, DBA International urges its members to carefully examine whether their companies should be licensed (and/or bonded) in states that license third party collection agencies.

Increasingly, state courts are taking an expansive interpretation of the term “collection agency” to include debt buying companies within its scope. Since most state and local collection agency licensing laws do not expressly reference debt buyers within the definition of collection agency, debt buying companies have generally had to rely on the presence or absence of statutory phrases such as “directly or indirectly,” “owed or due another,” “soliciting claims,” and “purchasing” to determine whether licensure is required.

Debt buying companies have also sought written guidance from the state licensing agencies charged with administering the state licenses for additional clarity. Unfortunately, it is the industry’s reliance on the guidance provided from these state administrative agencies which has caused the industry significant problems as courts appear to have no hesitation in reversing the guidance and coming to the exact opposite conclusion to the company’s detriment (recent examples include Illinois, Maryland, Washington, and Arkansas).

On September 11, 2014, the Arkansas Supreme Court in Simpson v. Cavalry SPV I, LLC overturned the Arkansas State Board of Collection Agencies’ 2012 guidance that an out-of-state debt buyer was exempt from licensure if it “does not attempt to collect debts directly . . . [and] undertakes collection efforts solely through third party collection agencies or law firms” stating that the Board erred in its interpretation of state law.

The courts also do not shy away from reinterpreting legislative intent, as was the case when the Supreme Court of the State of Washington ruled on August 28, 2014 in Gray v. Suttell & Associates that the debt buying company should have been licensed in Washington before October 1, 2013 despite the following overwhelming evidence to the contrary:

  • The law prior to October 1, 2013 defined a collection agency as “any person directly or indirectly engaged in soliciting claims for collection, or collecting or attempting to collect claims owed or due or asserted to be owed or due another person.”
  • The Washington State Collection Agency Board’s 2004 official ruling that “debt buyers that collect solely on their own claims and in their own names are not covered by [the Washington Collection Agency Act].”
  • The adoption of a 2013 law that expressly required companies “purchasing delinquent or charged off claims for collection purposes” to become licensed as of October 1, 2013.
  • The Washington Senate Legislative Committee’s analysis of the 2013 bill that stated the law “does not specifically address people or entities purchasing delinquent claims and taking action to collect on those claims.
  • ”The Washington State Department of Licensing posting on their website in September 2013 that they were “experiencing a high volume of applications because of the new October 1, 2013 requirements” and because of such volume they were “taking a “no-action” enforcement position, regarding unlicensed activity” for debt buyers that had “filed their collection agency application before close of business September 30, 2013” until they were able to process the application.

Given these recent court decisions, DBA International is urging its members to exercise extreme caution in relying upon state administrative rulings and statutory language that is silent as to its applicability to debt buying companies when determining whether it needs to be licensed in a jurisdiction.

September 30, 2014