W.Va. Supreme Court to Decide if Collection Agencies can be Sued as Creditors

In a case that could have far-reaching implications for the ARM industry, the West Virginia Supreme Court of Appeals will determine whether consumers can sue third party debt collectors under the state’s Consumer Credit and Protection Act (WVCCPA) – a statute that carries greater punitive damages for violators than the federal Fair Debt Collection Practices Act (FDCPA).

If the Court grants consumers the right to sue on their own behalf via its ruling in Linda Barr vs. NCB Management Services Inc. and HSBC Bank of Nevada, any non-creditor debt collector doing business in the state could be vulnerable to more lawsuits. If the Court denies Barr’s challenge to the individual remedy provision, the state attorney general could still sue debt collection agencies on consumers’ behalf. But individuals seeking remedies would have to rely on the FDCPA, a statute many industry proponents say is already overused by consumers to avoid meeting their financial obligations.  The Supreme Court of Appeals heard arguments in the case last week.

In June 2010, Barr filed a lawsuit against NCB Management Services and HSBC in the U.S. District Court for the Northern District of West Virginia alleging intentional infliction of emotional distress. She claimed  that over a two month period collection representatives from the Trevose, Pa.- based NCB Management repeatedly telephoned her with an intent to “annoy, abuse, oppress, and threaten” her in an attempt to collect nearly $7,900 of unpaid debt on a repossessed motorcycle.

NCB responded, asking the district court to dismiss the case, arguing that the WVCCPA does not give consumers the right to sue non-creditor debt collectors, only creditors. After considering some amendments, District Court Judge John Preston Bailey certified the case to the Supreme Court in September 2010, citing conflicting language in the statute.

At issue isn’t whether the Act applies to non-creditor debt collectors because the Supreme Court affirmed that fact in Thomas v. Firestone Rubber Co., Judge Bailey wrote. He said that the only remaining issue is one of remedy. “Specifically, does a consumer have a private cause of action against a non-creditor debt collector?” he said. Bailey highlighted several remedy-related sections of the Act that interchangeably use the terms “creditor” and “the person” to define violators.

NCB’s attorney Bryan Shartle of Sessions, Fishman, Nathan & Israel, LLC of Metairie, La. argued before the Court that the sections have been misinterpreted and that the remedies portion of the Act applies solely to creditors.  Shartle denied that NCB violated the law, but if it had, it would fall on the state attorney general to file a lawsuit.  He also wrote that debt collectors are still bound by state and federal laws, according to a story in the West Virginia Record.

“The West Virginia Act does not provide a remedy against a non-creditor debt collector, even if the non-creditor debt collector violated the substantive restrictions in the Act,” Shartle said.

Plaintiff’s Attorney Anthony Majestro, who wrote the plaintiff’s brief and argued the case before the Supreme Court, said to rule otherwise “would permit some of the worst violators, third party debt collectors, to engage in prohibited conduct with no consequences.”

Majestro, of Powell Majestro, PLLC of Charleston, W.Va, told insideARM that the Act’s legislative history reveals third party debt collectors were considered the problem when the statute was written because legislators noted that creditors would want to maintain a working relationship with their customers.

“It would not make sense to pass a statute that only applies to creditors when no one thought creditors were the problem,” he said.

In an interview with insideARM.com, Andrew Blady, NCB’s general counsel, said if the plaintiff prevails and the definition of creditor is applied more broadly to include third party debt collectors, the cost of collections and risk to ARM companies in West Virginia would increase materially.  A decision in favor of the plaintiff could also have an impact on lending in the state.

The Supreme Court of Appeals’ decision is expected in June.

insideARM.com managing editor, Michael Klozotsky, contributed to this story.