Federal Fair Debt Collection Liability for Violation of State Licensing Laws

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On February 23, 2011, the United States District Court for the District of Maryland followed the United States Court of Appeals for the Eleventh Circuit in holding that a debt collection company could incur liability under the federal Fair Debt Collection Practices Act for failing to obtain a debt collection license required under state law.

In the Maryland case, defendant Hilco Receivables had failed to obtain a license for debt collection under the Maryland Collection Agency Licensing Act but nevertheless impermissibly filed actions in the Maryland state courts to collect consumer accounts purchased by Hilco after the accounts went into default.1 The Eleventh Circuit, in LeBlanc v. Unifund CCR Partners, had previously held that a debt collection firm’s similar violation of a Florida licensing statute could support a cause of action under the FDCPA.2

One of the defendants Hilco sued in Maryland was Wayne Bradshaw, who responded by filing the subject class action on behalf of all Maryland consumer debtors who had been contacted by Hilco in the three years prior to the Bradshaw complaint.3 Bradshaw contended on behalf of the class that, by filing suit against Maryland debtors, Hilco acted as a “collection agency” without obtaining the required license in Maryland, thereby violating both Maryland and federal law.4

The Maryland District Court agreed, granting summary judgment to the plaintiffs and awarding statutory damages. Even though the Maryland licensing statute does not give rise to a private right of action, the Bradshaw court reasoned, its violation could serve as the basis for a federal cause of action under the FDCPA, which does allow for the recovery of damages by private parties.5

The interplay between the FDCPA and the Maryland licensing law was critical to the Bradshaw decision. The federal Act prohibits the use of any “false, deceptive, or misleading representation or means in connection with the collection of any debt.”6 The statutory language includes a non-exhaustive list of conduct that violates the FDCPA, including “[t]he threat to take any action that cannot legally be taken.”7

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