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"Passive" Debt-Buyers: An Urban Legend

Mar 12
Written by: Civil Justice
Wednesday, March 12, 2014

Maryland law requires debt-buyers who file debt collection lawsuits against consumers to be licensed as collection agencies with the Department of Labor, Licensing, and Regulation.  Earlier this year, two elected officials introduced separate legislation in the Maryland General Assembly that proposed to create a definition within the licensing laws for certain debt-buyers known as “passive debt buyers.”  In response to this potentially negative legislation, Civil Justice joined the team of CJ Network Attorneys and consumer advocates that submitted written and oral testimony in opposition to these bills.  The consumer advocates prevailed in having both bills withdrawn.  Here are a few reasons why Civil Justice opposed these bills:
Active and Passive Debt-Buying is a False Distinction

According to the proposed legislation, a “passive debt buyer means a person who, for investment purposes, acquires a consumer claim in default at the time of acquisition.”  The distinction between “active” and “passive” debt buyers is essentially an industry term, coined to draw a vague line between debt purchasers who directly collect on debts, and those who hire third-party collection agencies to collect the debt for them.  The “passive” debt buyers argue that the greater onus to follow consumer protection statutes is on the law firm or collection agency that they hire, rather than the debt-purchaser, while making the unsupported allegation that they have generously rid financial institutions of charged-off debt, bettering the flow of credit and capitalism for all Americans, who now stand to be sued by “Debt Collector, LLC.”   
Labeling certain debt-buyers as “passive” does not acknowledge the active role they may have in abusive debt collection practices.  Passive debt-buyers still perform many of the abusive practices, such as: use of obscene language, threats of violence, telephone calls at unreasonable hours, misrepresentation of a consumer’s legal rights, disclosing a consumer’s personal affairs to friends, neighbors, or employers, obtaining information about a consumer through false pretenses, impersonating public officials and attorneys, and simulating legal processes.  Thus, legislation that delineates between active and passive roles would have weakened Maryland’s toolkit for challenging abusive debt collection practices. 

Courts Have Already Decided This Issue
Federal courts in Maryland have not recognized a distinction between active and passive debt buyers, underlining the key intent in the Maryland licensing law.  For example, in Bradshaw v. Hilco Receivables, LLC, the court explained that “on May 5, 2010, the Maryland State Collection Agency Licensing Board issued an advisory notice that further clarified…[T]hat it has been its consistent position that a Consumer Debt Purchaser that collects consumer claims through civil litigation is a “collection agency” under Maryland law and required to be licensed as such regardless of whether an attorney representing the Consumer Debt Purchaser in the litigation is a licensed collection agency. Maryland State Collection Agency Licensing Bd. Advisory Notice 05–10, May 5, 2010, Pls.' Mot. Summ. J. ex. 2, ECF No. 16–3 (emphasis added).”  This is one of many similar cases in which the courts have refused to draw a line between active and passive debt buyers.

Proponents Had Ulterior Motives
Although the bill sponsors argued that their bills were  intended to benefit consumers, the collection attorneys showed up in full force to testify in support of passive debt-buyers.  The bill hearings further revealed that drawing a line between active and passive debt collectors may negatively impact pending litigation by implying that there is confusion in an area of consumer law that is abundantly clear.  So, when Civil Justice and other consumer advocates opposed the legislation, there was no question as to which side was consumer-friendly, and the bills were withdrawn. 

For more information on this and related legislative efforts, contact Kat Hyland at khyland@civiljusticenetwork.org. 

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