In a case that was defended by Brit Suttell and the team at Barron & Newburger, the Court of Appeals for the Third Circuit has upheld a lower court’s ruling in favor of a defendant that was sued for violating the Fair Debt Collection Practices Act because it attempted to collect on a debt — a small-dollar loan — that was originated by a lender licensed under Pennsylvania’s Consumer Discount Company Act (CDCA) but then sold to an entity that was not licensed under the CDCA.
The Background: Back in 2016, the plaintiff took out a small dollar loan from a lender that was licensed under the CDCA. At some point thereafter, the plaintiff stopped making payments on the loan and it was charged off and sold, twice. The final buyer hired the defendant to collect on the unpaid balance.
- The plaintiff filed for bankruptcy protection and the defendant filed a proof of claim. The plaintiff filed suit, alleging the filing was unlawful under the FDCPA because the owner of the debt was not licensed under the CDCA.
- A District Court judge granted the defendant’s motion for judgment on the pleadings, on the grounds that the CDCA did not apply in this situation.
The Ruling: Not satisfied with just a brief from the Pennsylvania Department of Banking that stated the CDCA does not apply in situations where an unlicensed entity purchases a charged-off loan of a debtor in bankruptcy that has a loan that was originated a CDCA-licensed entity, the Appeals Court also looked at prior rulings to affirm the lower court’s decision.
- Ultimately, the CDCA is not a collection statute, it is a loan statute, the Appeals Court ruled.
