Under a recent Eastern District Court ruling, Pennsylvania debt collectors must be licensed by the Department of Banking and Securities in order to collect on deficiency judgments from retail installment sales contracts or face violations of the Fair Debt Collection Practices Act.
In the decision from Judge Kearney in the Eastern District of Pennsylvania, Wyche v. Tsarouhis, 385 F. Supp. 3d 392 (E.D. Pa. May 14, 2019), a debt collector who purchases a deficiency judgment on motor vehicle installment sales contracts must be licensed under the Pennsylvania Consumer Credit Code at the time they acquire the debt in order to avoid a violation of the Fair Debt Collection Practices Act (“FDCPA”) for misleading conduct.
The plaintiff consumer in this case admitted to owing the deficiency balance for the repossessed vehicle. However, the consumer asserted that the collection agency was not authorized to collect on the debt as an entity not properly licensed under the Pennsylvania Consumer Credit Code.
The debt collector argued that, because the consumer defaulted on the retail installment sales contract and the original holder obtained a deficiency judgment before the collection agency acquired the debt, the agency did not acquire an installment sales contract under the Credit Code. The Court rejected this argument, reasoning that the consumer should be entitled to the same protection now than it would be under the original holder of the obligation, especially since the collection agency relies on the terms of the original installment sales contract to collect portions of the deficiency judgment such as attorneys’ fees. The Court, therefore, found the collection agency acquired an installment sales contract and was required to be licensed at the time it was acquired.
The Court’s analysis did not end there. If the debt collector was not licensed, the obligation was unenforceable under the Pennsylvania Consumer Credit Code. When the debt collector attempted to collect the unenforceable obligation, it violated the Fair Debt Collections Practices Act by misleading the borrower as to the collector’s authority to collect the obligation.
The Wyche decision could lead to a whole slew of uncollectable debts or FDCPA violations by unlicensed agencies who have already acquired deficiency judgments. If the entity was not licensed at the time that the obligation was acquired, the collector does not have the right to collect the debt. Dealers and financial institutions can also expect to have difficult conversations with collection agencies about the enforceability of debts they acquired.