CFPB Files Lawsuit Against Debt Buyer Companies For Unlawful Debt Collection Practices Based On Third-Party Conduct

A New York federal district court recently denied a motion to dismiss a lawsuit filed in January 2022 by the Consumer Financial Protection Bureau (CFPB) against three companies whose major business model is to purchase portfolios of defaulted debts (corporate defendants) and three individuals who are owners/officers of the corporate defendants (individual defendants).

The lawsuit filed by the CFPB alleges that the corporate defendants contracted with debt collection agencies to collect consumer debts on their behalf (either directly or through other debt collectors or sold consumer debts to debt collectors, some of which were contractually obligated to make ongoing payments to the corporate defendants. The CFPB alleges that both debt collectors who collected debts on behalf of the corporate defendants and the debt collectors to whom the corporate defendants sold debts used deceptive collection tactics, including false threats of lawsuits, arresting debtors, and sending them to jail. They also made false statements about credit reporting. The CFPB also alleges that the corporate defendants received complaints from consumers concerning the debt collectors’ unlawful practices but did nothing to assuage the conduct. The CFPB contends that the collection agencies violated the Fair Debt Collection Practices Act (FDCPA) and are vicariously liable for the conduct of third-party collection agencies.

Federal court refuses to dismiss lawsuit 

By denying the motion to dismiss the lawsuit, the federal court made rulings on the following:

• The defendants can be “covered persons” or “related persons” under CFPA even if only the third-party debt collectors actually collected the debts. Under the CFPA, a “covered person” includes “any person that engages in offering or providing a consumer financial product or service. A “consumer financial product or service” refers to “collecting debt related to any consumer financial product or service.” A “related person” includes “any director, officer, or employee charged with managerial responsibility” for a covered person.
• CFPA liability can be based on vicarious liability and is not precluded by the existence of “substantial assistance” liability in CFPA. The CFPB can thus proceed under both vicarious liability and a substantial assistance liability theory. The corporate defendants can thus be held vicariously liable for unlawful acts taken on their behalf.
• The individual defendants can be held liable for the debt collectors’ unfair or deceptive acts or practices if they had actual knowledge of the unlawful conduct and the authority to control it.

Most of this suit deals with whether or not a company can be held vicariously liable for the conduct of a subcontractor. In this case, by allowing the lawsuit to move forward, the courts are claiming that the corporate defendants can be held liable for third-party conduct that they knew about.

Talk to a Columbus, OH Unfair Debt Collection Practices Attorney 

Companies that violate the FDCPA can be sued for money damages by plaintiffs who have been unlawfully threatened or otherwise had their rights violated. Call the Columbus FDCPA attorneys at Kohl & Cook Law Firm, LLC today to schedule an appointment, and we can begin the process of filing your lawsuit right away.

Sources:

consumerfinancemonitor.com/2023/10/04/ny-federal-court-denies-motion-to-dismiss-cfpb-lawsuit-against-debt-buyer-companies-and-their-owners-officers-for-unlawful-debt-collection-practices-based-on-third-party-conduct/