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The Division of Banks ("Division") has issued this industry letter to clarify its position on whether a person collecting subsequently acquired or assigned debt is required to be licensed as a debt collector. Such a person is often referred to as a 'debt buyer'. The question is raised due to substantial revisions to General Laws chapter 93 sections 24 to 28, inclusive (the "Debt Collection Law"). After the statutory changes the Division completely rewrote the Debt Collection Law's implementing regulations, 209 CMR 18.00 et seq. (the "Regulations"). The amendments to the Debt Collection Law were based upon a Legislative recommendation filed by the Division.
The amended Debt Collection Law was modeled after the federal Fair Debt Collection Practices Act ("FDCPA"). The Federal Trade Commission is the federal agency charged with enforcement of the FDCPA. The definitions of "debt" and "debt collector" are in all significant respects the same in each of the respective cited laws and are key to the question presented. The Regulations provide no additional guidance as they track the statutory definitions. The Division also reviewed the treatment of this issue under the FDCPA to determine if any additional clarification could be obtained.
Specifically, the question at issue pertains to a person purchasing debt from another which is in default at the time of purchase or acquisition. Under the prior law, the Division's well established position reflected in enforcement as well as opinions was that licensing was not required for a person who collected its own debt whether or not such debt was in default at the time of purchase or acquisition. Accordingly, such a person did not need to obtain a debt collection license from the Division. However, the owner of debt collecting in its own name was required to comply with the appropriate regulations of the Commonwealth's Attorney General.
As noted above, certain definitions in statute are significant to the determination of the issue. Section 24 of the Debt Collection Law defines "debt" as:
"any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not the obligation has been reduced to judgment."
Additionally, section 24 of the Debt Collection Law provides, in pertinent part, that a "debt collector" means
"any person who uses an instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of a debt, or who regularly collects or attempts to collect, directly or indirectly, a debt owed or due or asserted to be owed or due another…"
A number of exemptions to the definition of "debt collector" exist. The exemption set out in clause (f) sub-clause (iii) provides that the term "debt collector" does not include a person collecting or attempting to collect a debt owed or due or asserted to be owed or due another to the extent the activity "concerns a debt which was not in default at the time it was obtained by the person." The corollary to the quoted language would mean that a person would be deemed a "debt collector" and licensing would be required if the person was collecting a debt which was purchased while in default.
Federal courts have concluded that a person purchasing a debt after default and whose principal activity was the collection of debt was a debt collector within the purview of the FDCPA. See, for example, Kimber v. Federal Financial Corp., 668 F. Supp. 1480 which concluded that the defendant corporation, even though it was collecting debts for itself, was a debt collector within the meaning of the FDCPA "because the corporation regularly collects debts and debt collection is its principal purpose, and because the debts the corporation collects were already in default when they were assigned to the corporation and thus the corporation falls within the assignee exception to the definition of creditor." See also In Little v. World Financial Network, Inc. Civil Action No. N-89-346 (D. Conn. July 15, 1990).
Similarly, federal courts analyzing the FDCPA have also dismissed arguments that collections must be for "another" or that a debt buyer is included within the definition of a "creditor" and therefore as a "creditor" would not be covered by the FDCPA. As noted in the Kimber case discussed above, a creditor does not include a person who received an assignment or transfer of a debt in default. The Division for the reasons stated above will follow these federal case precedents.
In summary, the Commonwealth's Debt Collection Law models the FDCPA. Federal courts have ruled that a 'debt buyer' is subject to the FDCPA. The Federal Trade Commission has successfully taken action against 'debt buyers' through its enforcement authority under the FDCPA. Based upon the use of the same language in the Commonwealth's Debt Collection Law and the FDCPA, it is the position of the Division that the Division should follow the interpretations of the FDCPA decided by federal courts and implemented as well as enforced by the Federal Trade Commission. Accordingly, a 'debt buyer' who otherwise meets the definition of a "debt collector", would be subject to the Commonwealth's Debt Collection Law and would now be required to obtain a license from the Division in order to collect debt from a consumer in Massachusetts arising out of a transaction primarily involving personal, family or household purposes.
The Division's application for a debt collector license and all related documents can be found on the Division's website at www.mass.gov/dob/ under Industry Services.
Joseph A. Leonard, Jr.
Deputy Commissioner of Banks
and General Counsel