Massachusetts Supreme Court Rules Passive Debt Buyers Don’t Need Licenses

The top state court in Massachusetts – the state’s Supreme Judicial Court – has ruled that a passive debt buyer does not need a debt collector license to operate in that state.

The ruling overturns a summary judgment ruling from a lower court in the state which had held that the defendant, LVNV Funding, did need a license under state law to operate as a debt buyer in Massachusetts.  The lower court had certified a class action against the defendant.

The ruling in the case of Dorrian v. LVNV Funding can be accessed here.

At issue is whether LVNV meets the definition of “debt collector” under the state statute, which defines a debt collector as:

  • any person who uses an instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of a debt, or who regularly collects or attempts to collect, directly or indirectly, a debt owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (f), debt collector shall include a creditor who, in the process of collecting his own debt, uses any name other than his own which would indicate that a third person is collecting or attempting to collect the debt. Debt collector shall also include a person who uses an instrumentality of interstate commerce or the mails in a business the principal purpose of which is the enforcement of security interests.

The state Supreme Judicial Court ruled that LVNV’s principal purpose is not collecting debts and does not apply to the company. As for the second part of the definition – collecting on debts that are “owed or due another,” that also does not apply, the court ruled, because LVNV only deals with its own debts that it purchases from other entities.

In its ruling, the court deferred to the state’s Division of Banks, which is responsible for licensing debt collectors under the state law. For more than decade, the state has ruled that “passive debt buyers” are not subject to the licensing requirements.

The division’s position is that a debt buyer that purchases debt in default but is not directly engaged in the collection of these purchased debts is not required to obtain a debt collector license provided that all collection activity performed on behalf of such debt buyer is done by a properly licensed debt collector in the Commonwealth or a licensed attorney collecting a debt on behalf of a client.

The defendant, back in 2012, asked the state if it needed a license and was told it did not.

From yesterday’s ruling:

The division’s interpretation helps resolve the ambiguity in the plain language of the statute, drawing a line between debt buyers and collectors based on whether they are involved in any collection activities with consumers. The division’s interpretation also reflects and respects the core concern of the statute, which is to prevent abusive debt collection practices. We therefore conclude that the first definition of “debt collector” in G. L. c. 93, § 24, does not apply to passive debt buyers like LVNV that have no contact with consumers and rely entirely on licensed third parties to collect their debts.

The case could resonate outside of the Bay State in other areas where passive debt buyers have been sued for not obtaining licenses as debt collectors.

“This is a great analysis,” said David Schultz, a partner at Hinshaw and Culbertson, who represented LVNV. “The Court could have simply deferred to the Massachusetts Department of Banking (D.O.B.) holding that since the D.O.B. has a reasonable interpretation it should not overturn it. In doing so, it could have avoided actually deciding the ultimate issue of the proper interpretation.”


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