Justices weigh in on debt pressers

Collectors need licenses in state

Out-of-state debt collection agencies must be licensed in Arkansas in order to collect debts here, the state Supreme Court has ruled.

Asked by the judge in an ongoing federal lawsuit between Patty Simpson of Newport and Delaware-based debt collector Cavalry SPV LLC, the Supreme Court found that firms like Cavalry are "collection agencies" by state law and thus are required to obtain licenses to collect Arkansans' debts.

In Thursday's ruling, the court rejected arguments by Cavalry's attorneys that the company didn't run afoul of the state's Fair Debt Collection Practices Act because it had merely "assigned" the debt to an Arkansas attorney who filed suit against Simpson on the company's behalf.

Attorneys representing the firm argued that a 2012 interpretation of state law by the state Board of Collection Agencies gave Cavalry a way around being licensed by the board.

The board voted in a 2012 meeting to exempt from licensing requirements "any entity that purchases or receives an assignment of ownership of a debt ... that the debt buyer: 1) does not attempt to collect debts directly... 2) undertakes collection efforts solely through third party collection agencies."

The minutes stated that the new rule was not a change of state law but a "clarification of existing state law," court records show.

The Supreme Court disagreed.

"This court has held that while a statutory interpretation by the agency responsible for its execution is not conclusive, it is highly persuasive and should not be reversed unless it is clearly wrong," Associate Justice Cliff Hoofman wrote. "When the statute is not ambiguous, as is the case here, this court will not interpret a statute to mean anything other than what it says."

Calls to the board's Executive Director Peggy Matson were not returned Friday. Calls to the McHughes Law Firm in Little Rock, which was hired to collect the debt, as well as to the Jonesboro attorneys representing Cavalry -- Kevin Cole and Justin Parkey -- were also not returned.

The Supreme Court's ruling, according to University of Arkansas at Little Rock law professor Kenneth Gallant, could have far-reaching effects beyond Simpson's case.

"What [the court's findings] is really going to do, it really should make a difference as to how these collection agencies run their businesses. That, I think, is not only the most immediate thing, but the most important thing," Gallant said. "They have to register in Arkansas and be responsible if they want to collect debts in Arkansas."

Simpson obtained a credit card from HSBC Bank Nevada in 2005, according to court records, and when the credit company shut down the account in late 2010, it sold the debt to Cavalry that November.

Although Cavalry wasn't licensed through the state Board of Collection Agencies, it hired the McHughes Law Firm in Little Rock to file suit in Jackson County District Court on the company's behalf to recoup the $1,078 debt that the company said Simpson owed.

That court entered a March 2013 default judgment against Simpson, and in August 2013, it began to garnish funds from Simpson's bank account.

Simpson appealed the ruling in Jackson County Circuit Court, and the case was eventually moved to the U.S. District Court for the Eastern District of Arkansas.

Judge Leon Holmes eventually sent a query to the state Supreme Court to determine whether Cavalry was acting as a "collection agent" and whether Cavalry's attorneys were required to be licensed in their efforts to collect from Simpson.

On both questions, the Supreme Court sided with Simpson.

"Cavalry clearly purchased and attempted to collect delinquent accounts or bills, and therefore, Cavalry was required to obtain a license from the [state Board of Collection Agents]," Hoofman wrote. "The mere fact that Cavalry retained an attorney to act on its behalf to litigate the matter is irrelevant."

Cavalry isn't the first, or only, unlicensed, out-of-state company to try to collect debts from Arkansas residents, according to Simpson's attorney Harold Cook.

Cook said he knows of at least four others who, like Cavalry, were able to evade state laws requiring them to register by leaning on the state board's "interpretation" of state law.

Gallant said one of the most unusual aspects of this case is the state Supreme Court's finding that the Board of Collection Agents erred in setting its own policy.

"Sometimes agencies are given, as the court says, a fair amount of leeway to interpret their statutes so long as they're within what the court believes is a reasonable reading [of the law]," Gallant said. "I think that [this finding will] tell other Arkansas administrative agencies that they need to exercise real care in voting on their rules."

Cook described the practices of out-of-state debt collectors, and the lax oversight of the board entrusted to regulate them, as "cavalier" and an injustice to an untold number of Arkansans.

"It's the damnedest thing. [The state board is] allowing judges to rubber stamp these suits against elderly people, people who are disabled ... with no license," Cook said. "No one is trying to protect Arkansans on these issues."

Cook said the board acted unilaterally when it interpreted the law without consulting the attorney general's office to check on whether its reading was consistent state law.

The Supreme Court's findings will be relayed back to Holmes in federal court. From there, Cook said, Holmes will have to set a scheduling order for trial.

Gallant said the court's ruling Thursday could bolster other cases and even result in some form of class-action suit.

Cook said he has about 20 clients with suits similar to Simpson's and that Thursday's ruling could affect more Arkansans who encounter such practices.

"We're talking about [potentially] thousands, maybe tens of thousands [affected]. It's a very large Fair Debt Collection Practices [Act] case," Cook said. "The state really kind of dropped the ball. ... We don't know how many millions of dollars Arkansas consumers have been cheated out of by people who aren't licensed. That's just not right."

Metro on 09/14/2014

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