Debt-Buying Firm Runs Afoul of State Consumer Law

By Tom Bacon

One of the fastest growing industries in Washington - collecting bad debts - hit a speed bump Thursday thrown up by the state's high court. The high court justices ruled unanimously that a debt buying company is. In fact, a collection agency, and may not file collection lawsuits without a state license.

The complicated case started with a Spokane woman back in 2009 who was sued by a law firm hired by Encore Capital Group, which in turn owns several debt buying or collection firms. The woman who owed the credit card debt fought back, claiming the collection lawsuit violated federal and Washington consumer protection laws, that the attorney fees were unreasonable, and that the company which bought up her debt was acting as a collection agency without a license.

The case bounced from Spokane Superior Court to federal court, and the federal judge punted the question to the Washington State Supreme Court, asking if debt buyers are collection agencies under state law. 

The justices pointed out that since 2007, the debt collection industry has grown rapidly, now employing more than 200,000 people and generating more than 58-billion dollars a year in revenue. And a Washington state legislative report found that many of the worst abuses in the debt collection industry are committed by debt buyers. The companies buy mass portfolios of charged off debt for pennies on the dollar, and get big default judgments because consumers have had no notice of the lawsuits.

Midland Funding company, which bought the debt in question, filed more than 7-thousand collection lawsuits in Washington in a five year period ending in 2010. Company officials claimed they merely accepted debt claims, never solicited them. But the justices said it would strain credulity to believe the company filed so many suits without soliciting the claims.
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