News

February 27, 2014

Collecting on Behalf of Unlicensed Debt Buyer Does Not Violate FDCPA: Appeals Court

A state appeals court in Illinois earlier this month ruled that a debt collection law firm that filed a collection suit on behalf of a debt buyer not licensed in the state did not violate the Fair Debt Collection Practices Act (FDCPA) as alleged in a consumer action.

The Illinois Court of Appeals – Second Division upheld the dismissal of a complaint against a collection law firm for an alleged violation of the FDCPA, finding that the suit filed by the law firm on behalf of its unlicensed debt buyer client did not violate the Illinois Collection Agency Act. As such, it could not serve as a viable basis for the FDCPA violation claim.

In Gibbs v. Blitt and Gaines, the consumer plaintiff sought class action status for other similarly situated plaintiffs against the law firm for actions it took on behalf of this specific client and any other collection agency not licensed in Illinois.

Blitt and Gaines initially filed suit on behalf of a debt buyer client for recovery of an outstanding credit card debt of $17,663. The debt buyer was not licensed in Illinois at the time the lawsuit was filed. The plaintiff then filed a putative class action complaint asserting violations of the FDCPA and Illinois Collection Agency Act.

The defendant moved to dismiss the complaint on the grounds that attorneys are expressly exempted from liability under the Illinois Collection Agency Act, thus precluding the Act from serving as a basis for the FDCPA claim. The claim was dismissed, and this appeal ensued.

In its decision, issued Feb. 11, the court discussed LVNV Funding, LLC v. Trice. Plaintiff claimed that Trice stated that a judgment obtained by an unlicensed debt collector was void. The plaintiff argued that the defendant was aware of this law and should have known that filing suit on behalf of its unlicensed client would result in a void judgment, thus constituting a violation of section 1692e of the FDCPA.

But the three-judge appellate panel wrote that the Trice case was remanded and, on remand, the trial court upheld the judgment obtained by the unlicensed collector, a ruling that is currently on appeal to the Illinois Supreme Court. The Gibbs Court held that the Trice decision does not support the plaintiff’s claim that the law firm pursued a frivolous lawsuit. Furthermore, the law firm’s filing of the complaint on behalf of its client did not violate the Illinois Collection Agency Act, which specifically exempts licensed attorneys. The court concluded that filing the lawsuit could not constitute an FDCPA violation.

The Trice decision is one of several recent cases in Illinois that cast doubt on the licensing requirements of debt buyers in the state. We recently updated our State Licensing page to reflect some of those decisions and a new licensing law in Illinois which took effect last year.


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