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Appeals case could impact debt collection across America

Jan 09, 2019 Philip Burgess

A contentious case involving debt collection made its way to the U.S. Second Circuit Court of Appeals in New York on November 13, when judges made what could turn out to be a landmark decision for national debt collection agencies.

According to insideARM, the case of Vincent v. The Money Store involved the false representation of a party collecting debts. Essentially, plaintiffs in the case argued that The Money Store used third-party law firm Moss, Codilis, Starwaiarski, Morris, Schneider & Prior LLP (Moss Codilis) to inform mortgage borrowers that they defaulted on their loans.

Although this is not necessarily a violation of the Fair Debt Collection Practices Act (FDCPA), the appellate court remanded the the case for further proceedings, as it stated Moss Codilis only sent out letters and did not actually pursue the debts. This ruling went against the decision made by the district court.

Ambiguity in the FDCPA
Under FDCPA regulations, collectors can not use false names or organizational fronts to mislead consumers about which party is actually collecting debts. That's why using some legal services to simply inform debtors of defaults can be a dangerous prospect for creditors.

"According to plaintiffs and Moss Codilis, other than printing and mailing the letters and dealing with some follow-up limited to directing substantive phone calls from debtors to The Money Store, all meaningful collection efforts or attempts to "gather" the money owed were handled by The Money Store," the court wrote in its decision.

When conducting debt collection efforts, it's important for businesses to make sure they are following all applicable laws, which can be a challenge. Even in its decision, the second court noted that ambiguous definitions of collection make it difficult to apply the FDCPA to any specific case. As a result, practices similar to those employed by The Money Store are open to various legal interpretations, which could mean litigation for some companies.

Instead of adopting such strategies, corporations and lenders would be wise to use the services of a professional collection firm. When partnering with such outlets, it's clear that the collection agency is indeed to primary collector of debt, reducing the chances for ambiguous regulations negatively impacting a company.

The FDCPA has a number of complex laws and policies, and reputable debt collection agents employ practices that navigate potential legal troubles that result from certain activities that could give rise to false representation claims from borrowers.