Filing a collection lawsuit against an individual does not waive the arbitration clause in an underlying credit agreement, ruled a District Court judge in Texas, who has granted a defendant’s motion to compel arbitration in a Fair Debt Collection Practices Act case.
A copy of the ruling in the case of Dean v. Biggs & Greenslade can be accessed by clicking here.
The plaintiff defaulted on a personal loan, which was placed with the defendant for collection. The defendant sent the plaintiff a collection letter that warned the plaintiff if she did not make a payment within 30 days of the date of the letter, the defendant would recommend to the original creditor that a lawsuit be filed to collect on the debt. The letter also warned the plaintiff that the defendant was “authorized to pursue all legal actions necessary to collect this debt.” Six days later, the defendant filed a collection suit against the plaintiff to recover the debt.
The terms and conditions of the plaintiff’s agreement for the loan included an arbitration clause.
The plaintiff filed suit, alleging the defendant violated the FDCPA and the Texas Debt Collection Act, claiming the letter made false, deceptive, and misleading representations because the defendant did not wait 30 days prior to commencing legal action. The plaintiff also claimed the letter violated the FDCPA because it did not provide a 30-day window to dispute the debt before demanding payment be made, overshadowing the validation notice.
Among the claims made by the plaintiff was that the defendant waived the arbitration clause when it sued her to collect on the unpaid debt. But Judge Sim Lake of the District Court for the Southern District of Texas ruled that filing a lawsuit for breach of contract — which is what the plaintiff did when she stopped making payments on the loan — is distinct from any claims made by the plaintiff with respect to alleged violations of the FDCPA and the TDCA. Ultimately, the plaintiff “has not carried the ‘heavy burden’ that she needs to carry to prevent arbitration,” Judge Lake ruled.
