Insights

Collection agencies are required to be licensed under the laws of many states. Depending on how a particular collection agency licensing statute is worded, the licensing requirements could extend to the companies you hire to repossess cars when the owners default on their obligations to you. But could the licensing statute apply to the forwarding company you hire to find you a repossession agent, and could you be liable if the forwarding company you hire is required to be licensed but is not, in fact, licensed? See how this scenario played out under one state’s collection agency licensing statute.

George Badeen, a licensed collection agency manager that owns Midwest Recovery and Adjustment, Inc., a licensed collection agency, brought a class action lawsuit against several lending institutions and forwarding companies, companies that contract with lending institutions to handle the collection services on delinquent accounts. After contracting with the lending institutions, forwarding companies retain licensed repossession agents to carry out repossessions. The plaintiffs alleged that the forwarding companies violated the Michigan Occupational Code by acting as collection agencies without being licensed and that the lending institutions violated the Michigan Consumer Protection Act by hiring the forwarding companies to collect claims without the forwarding companies being licensed. The trial court struck the plaintiffs’ motion for class certification as untimely, denied their motion to reinstate the class action allegations, and granted summary judgment in favor of the defendants. The plaintiffs appealed.

The Court of Appeals of Michigan found that the trial court erred when it struck the plaintiffs’ motion for class certification as untimely, but ultimately concluded that the plaintiffs were not entitled to relief on appeal. The appellate court concluded that the forwarding companies and lending institutions did not violate the Occupational Code or the MCPA because the forwarding companies were not “collection agencies” under Article 9 of the Occupational Code, MCL 339.901(b).

Section 339.901(b) defines “collection agency” as “a person directly or indirectly engaged in soliciting a claim for collection or collecting or attempting to collect a claim owed or due or asserted to be owed or due another, or repossessing or attempting to repossess a thing of value owed or due or asserted to be owed or due another arising out of an expressed or implied agreement.” The appellate court noted that “soliciting a claim for collection” means requesting the debtor to fulfill his obligation on the debt and, therefore, concluded that forwarding companies do not “solicit a claim for collection.”

In addition, the appellate court found that the use of the word “indirectly” in the statute does not indicate that it applies to forwarding companies. The phrase “directly or indirectly engaged in” applies to both the phrase preceding the comma and the phrase after the comma in the statute. Therefore, the court considered whether or not the forwarding companies “directly or indirectly engaged in … repossessing or attempting to repossess” collateral. The appellate court concluded that they did not. The appellate court found that the fact that the forwarding companies hired and contracted with local, licensed debt collection agencies to repossess the collateral showed that the forwarding companies were not “occupied” or “involved” with the act of repossession itself. There were no allegations that the forwarding companies had any involvement or input with the actual repossession process, and the court declined to find that a forwarding company that contracts out the actual repossession process is “indirectly engaged in repossessing or attempting to repossess.”

State collection agency licensing statutes are by no means uniform. The same holds true for how a particular court might apply a statute to a particular situation. Make sure you know if companies you hire to repossess collateral or to find you someone to repossess collateral are required to be licensed and, if so, make sure you confirm that they are properly licensed.

Badeen v. Par, Inc., 2013 Mich. App. LEXIS 628 (Mich. App. April 11, 2013).

Shelley B. Fowler is a Managing Editor of Hudson Cook, LLP’s CARLAW and HouseLaw publications. Shelley can be reached at 410-865-5406 or by e-mail at rfowler@hudco.com.