Utah Court Rules Debt Buyer Must Register Under State Collection Agency Law

A District Court judge in Utah has ruled that entities which purchase debts and then assign those debts to collection agencies for recovery must register under the Utah Collection Agency Act, denying motions to certify a question of state law and a motion for summary judgment.

A copy of the ruling in the case of Lawrence v. First Financial Investment Fund V, LLC, can be accessed by clicking here.

The defendant is an entity that has the sole purposed of purchasing debt portfolios. It has no employees and does not interact with the individuals who owe the underlying debts. The plaintiff defaulted on a debt that was purchased by the defendant. A law firm, representing the defendant, filed a collection lawsuit in Utah state court, and the defendant was awarded a default judgment. The plaintiff filed suit in federal court, alleging the defendant violated the Fair Debt Collection Practices Act by pursuing debt collection in Utah without a proper license.

A number of courts at the District and Appellate levels have issued rulings that require debt buyers be registered or licensed as collectors. Last week, the Ninth Circuit overturned a lower court’s ruling on this very issue.

In this case, the relevant language from the Utah Collection Agency Act reads:

No person shall conduct a collection agency, collection bureau, or collection office in this state, or engage in this state in the business of soliciting the right to collect or receive payment for another of any account, bill, or other indebtedness, or advertise for or solicit in print the right to collect or receive payment for another of any account, bill, or other indebtedness, unless at the time of conducting the collection agency, collection bureau, collection office, or collection business, or of advertising or soliciting, that person or the person for whom he may be acting as agent, is registered with the Division of Corporations and Commercial Code and has on file a good and sufficient bond as hereinafter specified.

Looking at all three types of entities that are to be regulated — collection agency, collection bureau, and collection office — and scouring for definitions from multiple sources and dictionaries, the court ruled that the defendant’s activities fall under the definition of “collection office.” Looking at the definition of “doctor’s office” and “law office,” the judge ruled that a “collection office” is defined as “businesses that collect on debts for others or for themselves (or both).”

The judge delves further into the statutory construction of the Utah Collection Agency Act to find further proof that the defendant must be registered to do what it does.

“But while there is room for disagreement about the contours of the Statute’s meaning, both a close reading of the Statute and the canons of statutory construction support the court’s interpretation of ‘collection office,’ ” wrote Judge Robert Shelby, the Chief District Judge for the District Court of Utah. “And under this interpretation, the Registration Statute encompasses First Financial. This is not a surprising result under a statute enacted to regulate debt collectors. First Financial buys debt and seeks to collect on that debt for profit.”

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