Appeals Court Upholds Dismissal of FDCPA Suit Over Alleged Lack of License

The Court of Appeals for the Third Circuit yesterday upheld a lower court’s dismissal of a Fair Debt Collection Practices Act case, ruling that a debt buyer was not required to be licensed under a state law in Pennsylvania when it attempted to collect interest that had accrued at a rate of 23% under the original creditor.

A copy of the ruling in the case of Lutz v. Portfolio Recovery Associates can be accessed by clicking here.

Background: The plaintiff obtained a credit card from Capital One Bank. The card carried an interest rate of 22.9%. The plaintiff defaulted on the debt, which was sold to the defendant. In an amended complaint, the plaintiff accused the defendant of violating provisions of the FDCPA because it was not licensed under the Pennsylvania Consumer Discount Company Act (CDCA), and unlicensed entities are prohibited from charging interest at a rate higher than 6%.

A District Court judge granted a motion to dismiss filed by the defendant, ruling the defendant was entitled to collect interest above 6% because it held a license under a different state law.

The Appeal: The CDCA essentially applies to companies that arrange for or negotiate loans with certain parameters. And there is nothing in the plaintiff’s amended complaint to suggest that the defendant is in the business of negotiating loans, the Appeals Court noted.

The Last Word: “Lutz’s allegations indicate that PRA purchases debt, such as Lutz’s credit card account that Capital One charged off. But even with that allegation as a starting point, it is not reasonable to infer that an entity that purchases charged-off debt would also be in the business of negotiating or bargaining for the initial terms of loans or advances,” the Appeals Court wrote. “If anything, the amended complaint cuts against such an inference: it alleges that Capital One, not PRA, set the annual interest rate for Lutz’s use of the credit card for loans and advances at 22.90%. Thus, with the understanding that negotiate means ‘to bargain’ and not ‘to transfer,’ Lutz’s allegations do not support an inference that PRA is in the business of negotiating loans or advances. “

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