In a significant decision issued on November 13, the United
States Court of Appeals for the Second Circuit held that a creditor
may be found liable under the Fair Debt Collection Practices Act
(the FDCPA) even when that creditor hires a third party to collect
on its debts. Vincent v. The Money Store, ___ F.3d ___,
No. 11-4525-cv (2d Cir. 2013). Specifically, if the creditor hires
a third party for collections, but that third party "engages
in no bona fide efforts to collect [on the] debts,"
the creditor may be held liable under the FDCPA's "false
name exception."
Factual Background
In Vincent, defendant The Money Store hired a law firm
(the "Firm") to send collection letters to debtors who
breached their loan obligations. The Firm had advertised the
collection letters as a method for "client[s] to send breach
letters on attorney letterhead." Notably, the Firm allegedly
had no role in debt collection aside from printing and mailing the
letters on the Firm's letterhead. In other words, even though
letters were mailed using the Firm's name and stationery, The
Money Store controlled the means and methods of collecting the
debts.
Plaintiffs filed an action in the United States District Court for
the Southern District of New York alleging that The Money Store
violated the FDCPA. Although the Firm asserted that the only
"required legal analysis was the drafting of language for the
breach letter templates to ensure . . . compliance with applicable
state and federal laws," The Money Store maintained that the
Firm exercised independent judgment in handling the debt
collections. The district court granted summary judgment to The
Money Store, reasoning that The Money Store could not be held
liable under the FDCPA because a third party actually sent the
letters and The Money Store did not exercise sufficient control to
render the Firm "its alter ego."
Second Circuit Decision
In a divided opinion, the Second Circuit reversed the district
court's grant of summary judgment. In so doing, the court
interpreted the false name exception to the FDCPA, which is a
provision in the statute that imposes liability on a creditor
collecting its own debts, to find The Money Store liable. The court
held that, when a third party "is merely operating as a
'conduit' for a collection process that the creditor
controls," the FDCPA may impose liability on the creditor
under the false name exception. Alternatively, when a "third
party is making bona fide attempts to collect the debts of
the creditor," the creditor is insulated from liability under
the FDCPA.
Applying that standard to The Money Store, the court rejected the
argument "that by generating and mailing the breach letters
alone, [the Firm] was 'collecting or attempting to collect'
The Money Store's debts." Viewing the facts in the light
most favorable to the plaintiffs, as it must on a motion for
summary judgment, the court highlighted that the Firm played
"virtually no role in the actual debt collection
process." Instead, the Firm performed only "essentially
ministerial tasks of verifying the debt with The Money Store,
informing debtors of the identity of their creditor, and verifying
whether a debtor's debts had been discharged in
bankruptcy." As a result, the court concluded summary judgment
was inappropriate because a jury could find that the Firm
"acted as a mere 'conduit' for a collection process
that The Money Store controlled."
The dissenting opinion characterized the decision as
"vexing" and predicted that "future courts [will]
struggle with determining whether a creditor, supposedly exempt
from the FDCPA and despite always acting in its own name, is
nevertheless subject to [FDCPA liability] merely for hiring a debt
collector whose practices are deemed inadequate in some
respect." In its view, "[t]he parameters of the false
name exception . . . will become unpredictable."
Significant Ramifications After
Vincent
Prior to Vincent, in the Second Circuit, a creditor could
be held liable under the false name exception of the FDCPA only if
it actually used a false name, giving a debtor the impression that
the creditor was using a third party when it in fact was collecting
the debt on its own behalf. Now, after Vincent, a creditor
must be careful to ensure that it does not exercise too much
control over a third party tasked with debt collection and that the
third party actually takes steps to collect on the debts.
Importantly, a creditor is no longer shielded from liability under
the FDCPA merely by hiring a law firm -- or any other third party
-- to send collection letters to debtors. Vincent
significantly expands potential liability and requires third
parties hired by creditors to exercise sufficiently independent
judgment and control.
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