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Debt Buyers Are Subject to Debt Collection Law

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By William Vogeler, Esq. on March 04, 2019 5:57 AM

"Caveat emptor" comes before "respondeat superior" in any legal dictionary.

Everybody knows "let the buyer beware," but "let the master answer" takes a little more explaining. In Barbato v. Greystone Alliance, LLC, the U.S. Third Circuit Court of Appeals sort of put it this way:

If you buy debts and have debt collectors do the dirty work, you are responsible for their collection practices. That would be caveat emptor, respondeat superior.

FDCPA

The Fair Debt Collection Practices Act is a consumer protection law, defining debt collectors and prohibiting them from certain practices. For example, it is illegal to harass or abuse people to collect consumer debts.

In Barbato, a Georgia-based company bought overdue debts and outsourced collections. The Third Circuit pondered whether the company, which did no collections itself, was subject to the FDCPA.

Writing for a unanimous panel, Judge Cheryl Krause said Crown Asset Management was covered by the law because debt collection was "the principle purpose of its business." There is no distinction between direct and indirect collection, she said.

"'Collection' by its very definition may be indirect, and that is the type of collection in which Crown engages: it buys consumer debt and hires debt collectors to collect on it," Krause wrote.

Vicarious Liability?

Katie Grzechnik Neill, general counsel and regulatory editor at insideARM, said the decision raises a question about the "passive" debt buyer. Is the buyer on the hook for FDCPA violations of its third party collection agency?

In the Third Circuit, apparently so. With the current state of litigation against debt collectors, she suggested, it will also have an impact on the operational relationship between passive debt buyers and their agents.

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