The Sixth Circuit, in Bradford v. LVNV Funding, LLC, 2015 U.S. App. LEXIS 6281 (6th Cir. Tenn. April 13, 2015), recently held that the Tennessee Collection Service Act (“TCSA”) does not apply to any person that holds debt and engages a licensed collection agency or attorney to collect the debt. Essentially, hiring a licensed debt collector or attorney to collect a debt on your behalf is not itself “collection activity” requiring a license. So, investors can purchase debt, hire a debt collector or attorney to collect it, without themselves having to be licensed. Because this does not violate the TCSA, it also does not violate the Fair Debt Collection Practices Act (“FDCPA”) prohibition on taking any action that cannot legally be taken.
The Sixth Circuit’s holding stated that the TCSA does not apply to “[a]ny person that holds or acquires accounts, bills or other forms of indebtedness . . . and only engages in collection activity through the use of a licensed collection agency or an attorney authorized to practice law in this state.”
The plaintiffs’ alleged that the defendants were buying questionable debts and filing suit against the debtors. If the debtors appeared in court to contest the debt, the plaintiffs would dismiss the action. However, if the debtors failed to appear, plaintiffs would obtain a default judgment.
The plaintiffs’ initial theory was the defendants pursuit of “default-only judgments” violated the FDCPA’s prohibition on using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. The deceptive practice here was filing a lawsuit with no intent to pursue anything except a default judgment.
Plaintiffs abandoned this theory on appeal and pursued their alternative theory under 15 U.S.C. § 1692e(5) which prohibits threatening “to take any action that cannot legally be taken.” The TCSA requires any “collection service” to obtain a license from the Tennessee Collection Service Board before it can engage in collection activity. The District Court and a prior state board decision both found that the licensing requirement only applied to persons who were actually involved in collecting and not to investors who relied on others to collect debts. The Sixth Circuit stated the question on appeal as “whether the Tennessee statute required these defendants to be licensed as “collection services” before they purchased debts and used attorneys or licensed collection services to collect on those debts.”
The Sixth Circuit found that the defendants were allowed to buy debts, without being a licensed “collection service” and this activity did not violate the Tennessee statute. Thus, the defendants did not take an action that could not legally be taken and their action did not violate the FDCPA.