A District Court judge in Pennsylvania has granted a defendant’s motion to dismiss a Fair Debt Collection Practices class-action lawsuit that alleged the defendant violated the statute when it filed a proof of claim in the plaintiffs’ bankruptcy case on a loan it was allegedly not lawfully allowed to collect on.
The background: The plaintiffs took out a personal loan from a licensed lender. After accounting for insurance and a precomputed interest charge, they received just over $8,400 in cash. When the account defaulted, the lender charged it off and sold it to the defendant, which does not hold a license under Pennsylvania’s Consumer Discount Company Act (CDCA).
- The plaintiffs argued that the CDCA prohibits the sale of such contracts to unlicensed buyers without approval from the Department of Banking, and therefore the defendant’s purchase was void.
- By filing a proof of claim in bankruptcy, the plaintiffs alleged, the defendant used “false, deceptive, or misleading” representations in violation of the FDCPA.
The ruling: Judge David Stewart Cercone of the District Court for the Western District of Pensylvania sided with the defendant, finding that the CDCA did not apply to the purchase of charged-off accounts. Relying on the Third Circuit’s decision in Petro v. Lundquist Consulting and the earlier Lutz v. Portfolio Recovery Associates, the judge concluded that the CDCA regulates the initiation and negotiation of loans, not the collection of charged-off debt.
- “The CDCA is a loan statute, not a debt collection statute,” the court noted, quoting Petro. Once the plaintiffs’ loan was charged off, what was sold to the defendant was unsecured debt, which the CDCA does not regulate.
- The court emphasized that the plaintiffs had not alleged the defendant was in the business of negotiating or bargaining for loans, only that it purchased charged-off debt. Without an underlying CDCA violation, the FDCPA claim collapsed. “Therefore, it cannot be inferred that by its actions defendant has violated the CDCA or in turn the FDCPA,” Judge Cercone wrote.
