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Many retailers have issued lines of credit to customers in the form of credit cards. Often, this is done in partnership with existing banks and lenders. For example, Kohl's, the discount clothing chain, has partnered with both Chase Bank and Capital One to issue cards to consumers. While the debtor signs up for the card through Kohl's, it is the bank that owns the debt – and initiates collections actions for defaulted debt.
So, does failing to list the bank that owns the debt during collection actions violate the Fair Debt Collection Practices Act? The Second Circuit Court of Appeals, in a recent decision, held that it does.
Under the Fair Debt Collection Practices Act, a collection agency must list “the creditor to whom the debt is owed." When pursuing collections against the debtor who defaulted on his Kohl's credit card, Credit Control, a debt collector under the FDCPA, sent a letter to the debtor that only listed Kohl's as the “client" of Credit Control.
A consumer who defaulted sued under the FDCPA. The District Court, however, dismissed the class action, finding that having Kohl's as the client satisfied the requirements. In a unanimous decision, the 2nd Circuit panel disagreed, writing that while the store “played an active role in the servicing of accounts that does not necessarily convert Kohl's into a creditor, and certainly not into the creditor to whom the debt is owed."
The 2nd Circuit vacated and remanded.
As the economic fallout from COVID-19 continues to increase, so too will collections actions against consumers who have defaulted. Retailers who have participated in issuing lines of credit to consumers should be listed in collections actions to avoid potential legal risk. But so, too, must the bank or lender that actually owns the debt.
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