Federal District Judge Ruben Castillo denied Arrow Financial Services’ motion for summary judgment by way of a Memorandum Opinion and Order dated December 15, 2006.
Schutz versus Arrow Financial Services is a class action lawsuit which involves allegations that Arrow Financial Services LLC and True Logic, a second party collection agency, violated the Fair Debt Collection Practices Act (FDCPA). The basis of the action is allegations that True Logic made material misrepresentations by way of debt collection letters mailed by TrueLogic. According to the written decision, Arrow Financial Services LLC (hereafter “Arrow”) purchased the plaintiff’s delinquent debt and then assigned the debt to True Logic, a second party non attorney bill collector. True Logic then mailed the plaintiff several debt settlement offers which allegedly were in violation of the FDCPA.
Arrow Financial attempted to escape liability by arguing that it had no responsibility for True Logic’s actions. Under current case law a first party collection agency is liable for any FDCPA violations committed by second party attorneys. However, this case fell into an area without much guidance from the appellate courts. Few courts have addressed whether a collection agency, like Arrow, could be held vicariously liable for a second party non-attorney collection agency. Since True Logic was simply a collection agency as opposed to an attorney, the Court sought direction from the Third Circuit case of
- Pollice versus National Tax Funding, L.P.
, which decided the issue against the first party collection agency.
Here, Judge Castillo ruled that it would simply be “incongruous” to hold collection agencies that employ attorney debt collectors liable for violations to a greater extent than collection agencies that employ non-attorney debt collectors. The court supported its ruling by stating the purpose of vicarious liability is to provide equal relief to those victimized by attorney debt collectors as well as those victimized by non-attorney debt collectors.
In addition to finding vicarious liability, the Court ruled that there were enough facts to find a principal-agent relationship between Arrow and True Logic. Arrow exercised a fair amount of control over TrueLogic’s debt collection activities. Specifically, Arrow had the right to control the content of the debt collection letters and the right to monitor True Logic’s compliance with the law through audits, summaries of test results, and other evaluations.
In sum, the Court ruled that a principal-agent relationship exists between Arrow and True Logic and that Arrow may be held vicariously liable for potential violations of the Fair Debt Collection Practices Act. Upon issuing this decision the Court urged the parties to reevaluate their settlement positions.
This decision further reinforces the idea that collection agencies cannot simply hire non attorney bill collectors and then turn a blind eye towards their collection activity. Collection agencies may now be forced to exercise more caution when shopping for second party bill collectors.
Ben Moskel, Esq.
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Chargeoff.net provides consumer information relating to debt collection, credit reporting, and other consumer oriented subjects.
