By Adam Pulver
In 2017, Oregon resident Jillian McAdory was contacted by a company called M.N.S. & Associates concerning a debt she owed to Kay Jewelers. M.N.S. was working with DNF Associates, a debt buyer, to collect on the loan McAdory had taken out with Kay Jewelers in 2016.
In its first call, M.N.S. did not tell her that it was attempting to collect a debt, but left a message saying she needed to call back within 48 hours and suggesting that a lawsuit would be filed against her if she did not. When she called back, McAdory was told that if she did not pay, she would be sued.
Following a series of calls and emails about the debt, McAdory relented and arranged to borrow money from her mother to meet the nearly $900 demand.
In its attempts to collect the debt, however, M.N.S. ran afoul of certain provisions of the Fair Debt Collection Practices Act (FDCPA) by failing, for instance, to disclose they were attempting to collect a debt and by withdrawing money from McAdory’s checking account the day before she had agreed. Congress passed the act in 1977 to protect consumers from abusive practices by debt collectors, including harassing phone calls, misleading letters and outright lies.
In May 2017, McAdory filed suit against M.N.S. and DNF, based on a long line of cases holding that a debt collector can be held liable under the FDCPA for the unlawful acts of its agents.
M.N.S., a small upstate New York-based business, never responded to the lawsuit. DNF, also based in upstate New York, filed a moton to dismiss the case, claiming that it could not be held responsible as a “debt collector” because it is a “passive” debt purchaser that does not contact customers to collect debt, but instead hires other people to makes the contacts and to obtain payment.
In November 2017, a federal court in Oregon agreed with DNF that it did not meet the definition of a “debt collector” under the FDCPA. McAdory appealed, and Public Citizen lawyers then joined as co-counsel to take the lead in the U.S. Court of Appeals for the Ninth Circuit.
“Because the debt buyers make money only if they collect on a debt, they are motivated to use aggressive tactics,” said Adam Pulver, the Public Citizen lawyer acting as lead counsel on appeal. “The FDCPA was enacted to protect consumers against such tactics.”
The statute states that any business that has a “principal purpose” of debt collection is a “debt collector.” On appeal, McAdory argues that the fact that DNF’s business model is predicated on buying defaulted debts with an eye toward collecting them through its network of companies shows that debt collection is its “principal purpose.”
“I hope my case helps make clear that debt buyers cannot rely on harassment and abusive tactics in trying to collect on debts,” McAdory said. “I’m grateful that Public Citizen is fighting on behalf of me and other consumers in this case.”
The past two decades have seen a massive growth in the debt buying industry. As recently as 2017, this practice accounted for one-third of consumer debt collection revenue, or about $3.5 billion, according to the U.S. Consumer Financial Protection Bureau.
Typically, a company that has originated a loan – for example, a store or a bank that issues a credit card – will first try to collect any unpaid money. If it is unsuccessful, it may hire a third-party debt collector to take further actions.
If those actions fail, the company may sell the delinquent account to a debt buyer for pennies on the dollar. The debt buyer then becomes the owner of the account, and the company that initially made the loan no longer has anything to do with it.
Public Citizen will argue the case before the Ninth Circuit in the fall.
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