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From Banking and Finance Law Daily, September 15, 2014

Debt purchaser subject to requirements of Arkansas collection agency law

By Thomas G. Wolfe, J.D.

A debt purchasing company that obtained delinquent credit card accounts from a bank and then retained a law firm to collect on those debts was deemed a “collection agency” under Arkansas law, the Supreme Court of Arkansas has ruled. The court further held that since the debt purchasing company was attempting to collect the delinquent accounts as a collection agency, the company was required to be licensed by the Arkansas State Board of Collection Agencies (Simpson v. Calvary SPV I, LLC, Sept. 11, 2014, Hoofman, Associate Justice).

In interpreting Arkansas law on the issues, the Arkansas high court answered two certified questions posed to it by the U.S. District Court for the Eastern District of Arkansas. In the federal trial court litigation, a debtor alleged that the company violated both the Arkansas Fair Debt Collection Practices Act (Ark. FDCPA) and the federal Fair Debt Collection Practices Act (FDCPA).

Background. In 2005, Patty Simpson obtained a credit card from HSBC Bank Nevada, N.A. Later, Simpson’s credit card account became delinquent and was charged off by the bank in October 2010. About a month after charging off Simpson’s account, HSBC Bank assigned the account to a debt purchaser, Cavalry SPV I, LLC. While Cavalry was not licensed in the State of Arkansas as a debt collector, the company retained the services of an attorney from the McHughes Law Firm in Arkansas to represent it.

Accordingly, in December 2010, the McHughes Law Firm filed a collection action on behalf of Cavalry against Simpson in Arkansas state court to collect approximately $1,079. In March 2013, a default judgment was entered against Simpson, and Simpson’s bank account was targeted for garnishment.

In September 2013, Simpson filed her own lawsuit against Cavalry and the McHughes Law Firm in Arkansas state court. While the law firm was eventually dismissed as a defendant in that action, Simpson claimed that Cavalry had violated the Ark. FDCPA and the FDCPA. As the linchpin to those state and federal claims, Simpson maintained that Cavalry was required to be licensed by the Arkansas State Board of Collection Agencies.

Procedural context. In October 2013, Cavalry successfully removed Simpson’s action in state court to the U.S. District Court for the Eastern District of Arkansas, and then asked the federal trial court to grant summary judgment in its favor. To assist it with ruling on the motion for summary judgment, the federal trial court certified two questions about Arkansas law governing collection agencies to the Arkansas Supreme Court, and the state’s high court accepted.

Company’s argument. Cavalry contended that Arkansas law did not require it to be licensed as a collection agency because the company was not directly attempting to collect delinquent accounts in the state; moreover, the company hired an attorney from the McHughes law firm to collect the delinquent accounts and file collection suits on its behalf, the company argued.

Debtor’s argument. In contrast, Simpson contended that Cavalry satisfied the definition of a “collection agency” under Arkansas law (Ark. Code Ann. §17-24-101). Simpson maintained that, as a collection agency, the company was required to be licensed under Arkansas law (Ark. Code Ann. §17-24-301) because it purchased and collected delinquent accounts. Consequently, Calvary not only violated Arkansas law as an unlicensed collection agency, Simpson argued, but the company also violated the FDCPA because it threatened to take an action that could not legally be taken.

“Collection agency” issue. The Arkansas Supreme Court was asked to resolve the first certified question: “Whether an entity that purchases delinquent accounts and then retains a licensed Arkansas lawyer to collect on the delinquent accounts and file lawsuits on its behalf in Arkansas is ‘attempting to collect,’ thus meeting the definition of ‘collection agency,’ pursuant to Arkansas Code Annotated section 17-24-101?”

Answering the question in the affirmative, the court determined that: (i) the statutory provision (§17-24-101) was amended in 2009 to include an entity that “purchases and attempts to collect delinquent accounts or bills”; (ii) the plain language of the statutory provision does not include any modifying language distinguishing between direct or indirect attempts to collect; (iii) the company’s hiring of an attorney to execute and litigate collection efforts did not relieve the company of being discerned as “attempting to collect” as well; and (iv) despite Calvary’s argument that the court should give deference to an August 2012 issuance by the Arkansas State Board of Collections Agencies on the matter, the court asserted that such deference was not applicable because the statutory language is not ambiguous and its plain meaning is paramount.

Licensing issue. Next, the Arkansas Supreme Court was asked to resolve the second certified question: “Whether an entity that purchases delinquent accounts and files lawsuits on its behalf in Arkansas is ‘attempting to collect’ and, thus, is required to be licensed by the Arkansas State Board of Collection Agencies pursuant to Arkansas Code Annotated section 17-24-301(4)?”

Answering the posed question in the affirmative, the court likewise determined that section 17-24-301(4) was not ambiguous. As amended in 2009, the provision states that, unless licensed by the Arkansas State Board of Collection Agencies, it is unlawful to “purchase and attempt to collect delinquent accounts or bills.” Employing much of the same reasoning as that used in addressing the first certified question, the court asserted that “section 17-24-301 is clear and unambiguous.”

Finding that Calvary “clearly purchased and attempted to collect delinquent accounts or bills,” the court concluded that the company was required to obtain a license under Arkansas law. Again, in the court’s view, the “mere fact that Cavalry retained an attorney to act on its behalf to litigate the matter is irrelevant.”

The case is No. CV-14-45 (2014 Ark. 363).

Attorneys: Todd Martin Turner, Daniel Odell Turner, and J.R. Andrews (Arnold, Batson, Turner & Turner, PA) and Kathy Cruz (The Cruz Law Firm, PLC) for Patty Simpson. Kevin W. Cole and Justin E. Parkey (Waddell, Cole & Jones, PLLC) and R. Frank Springfield, Zachary D. Miller, and Megan P. Stephens (Burr & Forman LLP) for Cavalry SPV I, LLC. David M. Donovan (Watts, Donovan & Tilley, P.A.) for amici curiae Arkansas Creditors Bar Association.

Companies: Calvary SPV I, LLC; HSBC Bank Nevada, N.A.; McHughes Law Firm

MainStory: TopStory ArkansasNews ConsumerCredit DebtCollection

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