Passive Debt Buyers are not "Debt Collectors" Under Massachusetts Fair Debt Collection Practices Act

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In an important decision for debt investors, the Supreme Judicial Court has ruled that passive debt buyers are not "debt collectors" under the Massachusetts Fair Debt Collection Practices Act ("MDCPA"). The decision, Dorrian v. LVNV Funding, LLC, can be found here.

"Debt collectors" in Massachusetts are required to obtain a license from the Massachusetts Division of Banks (the "Division"). An entity is a debt collector under the MDCPA if: (1) its "principal purpose" is the "collection of a debt"; or (2) it "regularly collects or attempts to collect, directly or indirectly, debts owed or due" to another. G.L. c. 93 § 24. The plaintiffs in Dorrian, certified as a class, argued that LVNV Funding, LLC ("LVNV") was required to register as a debt collector.

In analyzing whether LVNV was a debt collector that needed to register with the Division, the SJC found the first definition of "debt collector" in the MDCPA was not "plain and unambiguous" and therefore that it must look to the legislative history to determine the intent of the statute. Because, however, the legislative history of the MDCPA was scant, the SJC turned instead to the legislative history of the Federal Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. §§ 1692-1692p, after which the MDCPA was modeled. The SJC found that "Congress's focus was on the regulation of improper, high pressure, deceptive debt collection practices." The Court noted that "[a]s LVNV has no employees and no contact whatsoever with debtors, it seems to be outside of the core concerns of Congress and, by implication, our Legislature when it adopted this Federal model." Also of import to the SJC was the fact that the collection of LVNV's debt "is entirely undertaken by third parties. Indeed, all aspects of the debt collection processed are contracted out to and conducted by [] a licensed debt collector."

The SJC also considered the interpretation of the first definition of "debt collector" by the Division, because "substantial deference" is to be given "to a reasonable interpretation of a statute by the administrative agency charged with its administration enforcement." In 2006, the Division issued an advisory opinion setting forth its position that a debt buyer is not required to obtain a debt collector license so long as all collection activity that is performed is performed by a licensed debt collector (or an attorney licensed in Massachusetts), a position it re-affirmed in an advisory opinion in 2012. See Advisory Opinion No. 06-060 (Oct. 2, 2006); Advisory Opinion No. 12-012 (Nov. 1, 2012). The Division further clarified in an advisory opinion in 2014 that even a passive debt buyer that is a named plaintiff in a debt collection lawsuit is not required to be registered so long as the actual debt collection activities are conducted by a licensed entity. Advisory Opinion No. 14-013020 (March 4, 2014).

As a result, the Court found 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 Court further found that the second definition of "debt collector" did not apply to LVNV because LVNV "does not deal with debts that are owed to another."

Accordingly, the MDCPA does not require passive debt buyers, like LVNV, to register as debt collectors in Massachusetts. Take care, however. The ruling in Dorrian does not mean that passive debt buyers are not subject to regulation in Massachusetts. The Court explicitly noted that passive debt buyers "are nonetheless regulated by the Attorney General as creditors and subject to many of the same restrictions as debt collectors regulated under the MDCPA."

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