COURT FINDS DEBT PURCHASER DID NOT ENGAGE IN COLLECTION ACTIVITIES AND NEED NOT BE LICENSED IN NYC
The United States District Court for the Southern District of New York granted summary judgment to the defendants in a case alleging violations of the federal Fair Debt Collection Practices Act (“FDCPA”) and New York law based on a failure to hold a New York City debt collection agency license. Kuhne v. Cohen & Slamowitz, L.L.P., No. 07 Civ. 1364 (HB) (S.D.N.Y. Mar. 5, 2008).
In Kuhne, the entity allegedly required to obtain a debt collection license was a corporation (“NCC-2”) that had no employees or operations, but that held portfolios of purchased charged-off consumer debt. NCC-2 had no direct contact with debtors; instead, its debts were collected by another company (“MCM”) pursuant to a servicing agreement. MCM, in attempting to collect the plaintiff’s debt on behalf of NCC-2, retained a law firm (“C&S”) to file suit against the plaintiff in the name of NCC-2. Both MCM and C&S hold debt collection licenses issued by the New York City Department of Consumer Affairs (“DCA”).
Underlying the plaintiff’s claim was the issue of whether NCC-2 was required to be licensed under the New York City Administrative Code in order to sue to collect the plaintiff’s debt. Under the NYC Administrative Code, it is unlawful for any person to act as a debt collection agency without a license. See New York City, N.Y., Admin Code § 20-490. “Debt collection agency” means a person engaged in business the principal purpose of which is to regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another. Id. § 20-489(a). Based on the facts, existing authority and the purpose of both the NYC licensing statute and the FDCPA, the court found that NCC-2 was not required to be licensed.
In reaching its conclusion, the court rejected cases presented by the plaintiff either because (i) they did not examine the issue under consideration as the court saw it – that is, whether filing a lawsuit alone requires a debt collection license, or (ii) they could be distinguished on their facts. Also, while another district court in New York had found that a debt purchaser that dealt directly with the public was required to be licensed, in the instant case, the court noted that NCC-2 had no contact with the plaintiff. Also, a DCA interpretive letter from March 2007, to which the court would give at least some deference, explained that a debt buyer that does not engage in collection activities itself does not need a license. Finally, the court found that requiring NCC-2, which had no direct contact with the public, to be licensed would not serve the purposes of either the NYC licensing statute or the FDCPA, both of which are aimed at preventing debt collectors from abusing the public.
Interestingly, in 2007, the New York City Council introduced legislation that would, among other things, revise the definition of “debt collection agency” to include a buyer of debt who refers such debt to another for collection or to an attorney-at-law for litigation in order to collect such debt. See DLT Alert of Dec. 17, 2007.
- Margaret Stolar and Charles Gall