In an important ruling for mortgage loan, retail installment contract, credit card, and other debt buyers, the Massachusetts Supreme Judicial Court (SJC) held that passive debt buyers are not "debt collectors" under the Massachusetts Fair Debt Collection Practices Act (MDCPA).
A copy of the opinion is available at: Link to Opinion
An amicus brief filed by Receivables Management Association International and written by Maurice Wutscher attorneys in support of the appellant is available at: Link to Amicus Brief
As you may recall, in Massachusetts, "debt collectors" must obtain a license from the Division of Banks, the state agency tasked with regulating debt collection in the Commonwealth. Under the MDCPA, an entity is a debt collector if (1) it is engaged in a "business the principal purpose of which is the collection of debt," or (2) it "regularly collects or attempts to collect, directly or indirectly, a debt owed or due…another." G.L. c. 93, § 24.
In 2012, a debt buyer inquired with the Division whether a license was necessary for a company that "does not have employees or interact with consumers directly" but instead "contracts with licensed third party debt collectors and law firms to service accounts on its behalf."
The Division responded that it was not necessary, referencing its long-standing position held since 2006 that passive debt buyers that purchase debt, but do not directly engage in the collection of the purchased debt, are not required to obtain a debt collector license provided that all collection activity performed on behalf of such debt buyers is done by a properly licensed debt collector or a licensed attorney.
Subsequently, a licensed debt collector filed lawsuits and obtained judgments against the plaintiffs on the debt buyer's behalf. Thereafter, the plaintiffs each sued the debt buyer on behalf of themselves and all others similarly situated, seeking declaratory and injunctive relief, and alleging that the debt buyer was operating as a debt collector without a license in violation of the MDCPA, was unjustly enriched and violated the Massachusetts consumer protection statute, G.L. c. 93A.
As the trial judge noted:
These lawsuits are notable in that the only conduct alleged to be unlawful here is [the debt buyer's] failure to obtain a license from the [Division]. That is, these two cases do not claim that [the debt buyer] – or any entity acting on its behalf – has harassed any debtor or made any misrepresentations in an attempt to collect on a debt. [The debt buyer] is not accused of seeking to collect amounts it has no basis to believe that it is owed or using information about a debtor in an improper manner. Instead, the lawsuits focus exclusively on the fact that [the debt buyer] is unlicensed.
On cross motions for summary judgment, the trial judge granted summary judgment to the plaintiffs on their claims that the debt buyer violated the MDCPA by operating as a debt collector without a license. The debt buyer appealed, and the SJC granted applications for direct appellate review.
On appeal, the SJC concluded that passive debt buyers do not fall within either of the two separate definitions of "debt collector" contained in the MDCPA. Specifically, passive debt buyers do not fit within the first definition because their "principal purpose" is not the "collection of debt."
In reaching this conclusion, the SJC noted that, because this first prong of the definition is not "plain and unambiguous" as it applies to passive debt buyers, the Court must look to the legislative history on the development of the MDCPA.
However, because the legislative history of the MDCPA is essentially silent on the Legislature's intent, the Court analyzed the history of the FDCPA, in which the MDCPA was modeled and largely follows, concluding that "there is no evidence that Congress ever intended to include within this definition debt buyers that own the debts but use a third party to collect the debts and therefore have no contact with the debtors."
The SJC also considered the Division's long-standing interpretation of the MDCPA, noting that "an administrative agency's interpretation of a statute within its charge is accorded weight and deference." Massachusetts Med. Soc'y v. Commisioner of Ins., 450 Mass. 311, 319 (2008). The Court determined the Division's interpretation was reasonable and, because passive debt buyers have no contact with consumers, reflected the core concern of the MDCPA, which is to prevent abusive debt collection practices.
Further, the Court concluded that passive debt buyers do not "regularly collect or attempt to collect, directly or indirectly, debts owed or due" to another. Adopting the interpretation of the United States Supreme Court in Henson v. Santander Consumer USA, Inc., 137 S. Ct. 1718, 1721-1722 (2017), the SJC concluded that passive debt buyers are not "debt collectors" under the second prong of the definition because they deal with debts that they own instead of debts owed to another.
Accordingly, the SJC vacated the judgment of the lower court.
The ruling should not be construed to mean that passive debt buyers are not regulated under Massachusetts debt collection regulations, which treats passive debt buyers as creditors and continues to regulate their conduct as such.
Ralph T. Wutscher
Maurice Wutscher LLP
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