The United States District Court for the District of Utah recently ruled that a debt buyer, First Financial Investment Fund V, LLC, must register as a collection office and post a bond with the Utah Division of Corporations and Commercial Code pursuant to Section 12-1-1 of the Utah Collection Agency Act.
First Financial, as a debt buyer, is in the business of purchasing and collecting on defaulted third-party debts. To grow its portfolio, First Financial advertises that it both buys debts and actively solicits the purchase of such debts. First Financial does not itself collect on debts, instead it enlists the aid of collection agencies and law firms to collect on the debt it owns. Plaintiff Crystal Lawrence defaulted on debt that subsequently was purchased by First Financial, who filed a collection lawsuit against Lawrence in Utah state court. In response, Lawrence brought suit against First Financial in federal court, arguing that First Financial violated the Fair Debt Collection Practices Act by pursuing debt collection in Utah state courts without registering as a debt collector, and that First Financial violated the Utah Consumer Sales Practices Act by failing to register prior to suing on debts in Utah. Essentially, Lawrence’s claims turned on whether, under Utah law, a debt buyer like First Financial must register as a debt collector before collecting on debts in Utah.
The Court focused its analysis on the text of Section 12-1-1 of the Utah Collection Agency Act, which 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.
In deciding a matter of first impression under Utah law, the Court decided that First Financial, a debt buyer who outsources the collection of its debts to others, is required to register as a collection office and post a bond with the Utah Division of Corporations and Commercial Code. While the Court determined that the definitions of “collection agency” and “collection bureau” under the law entailed collecting on the debts of another, the Court found the definition of “collection office” to carry no such limitation. Indeed, the Court determined that “collection office” simply means “a business, the principal purpose of which is the collection of any account, bill, or other indebtedness.” In support of its decision, the Court asserted that “[t]his 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.”
One takeaway from this decision is that, for debt buyers who seek to collect on debt in Utah, registering as a debt collection office and posting a bond is a must prior to engaging in collection activity, in particular before authorizing the filing of collection suits filed in Utah state court. In the wider context, this decision signifies that debt buyers are continuing to face similar risks at the state and federal level as the collection agencies and law firms they employ. While this decision did not address whether First Financial would qualify as a debt collector under the FDCPA (though, the Court said that it likely would), it is in line with other recent decisions, such as the Ninth Circuit’s decision in McAdory v. M.N.S. Associates and DNF Associates, which held that debt buyers qualified as debt collectors under the FDCPA. In sum, this decision is another step in the trend of courts reaching further up the ladder to impose restraints on debt buyers by treating them as indistinguishable from debt collectors.