Utah Court Weighs in on Debt Buyer Licensing Requirements

The question of whether a debt buyer is required to be licensed as a debt collector has been settled in the state of Utah

A court case in Utah has brought centerstage the issues surrounding whether a debt buyer must be licensed the same as a collection agency to conduct business. A passive debt buyer who regularly purchased debts and then hired collection agencies or law firms to collect on those debts through default judgments issued through the Utah state courts. The passive debt buyer conducted its business without registering as a debt collector and without posting a bond in Utah.

When the passive debt buyer successfully sought a default judgement on delinquent debt from Crystal Lawrence, she in turn sued the passive debt buyer contending that their status of being unlicensed as a debt collector violated both Utah and federal law.

At issue was the question of whether section 12-1-1 of the Utah Collection Agency Act required debt buyers to be registered as a debt collector even though the debt did not originate with them and they used other collection agencies and law firms to collect the debt. The statute laid out four terms that it did not internally define.

No person shall [1] conduct a collection agency, collection bureau, or collection office in this state, or [2] engage in this state in the business of soliciting the right to collect or receive payment for another of any account, bill, or other indebtedness, or [3] advertise for or solicit in print the right to collect or receive payment for another of any account, bill or other indebtedness unless at the time of conducting the collection agency, collection bureau, collection office, or collection business or of advertising or soliciting, that person or the person for whom he may be acting as agent, is registered with the Division of Corporations and Commercial Code and has on file a good and sufficient bond as hereinafter specified.

Robert Shelby, United States District Judge, listened to both the plaintiff and defendants bring definitions to the terms using common definitions from dictionaries, statutory interpretation, and relevant state Supreme Court decisions from other states on these terms.

Collection Agency
While the plaintiff presented a broader definition of "collection agency" the judge agreed with the defendant's definition that narrowed collection agencies to collect on behalf of others who may own the debt. This introduced the idea of a principal (owner of debt) - agent (collector of debt) relationship. The court thus defined 'collection agency' as a "person engaged in the business of collecting or receiving for payment claims of all kinds on behalf of others."

Collection Bureau and Collection Office
The defendant did not propose any definitions for "collection bureau" or "collection office" sighting that dictionaries do not generally offer definitions for these terms and the term "collection agency" represents the best summary definition for all three terms. The judge agreed that "collection bureau" may continue in the principal-agent relationship. But the judge found that the term "collection office" referred to a place from which collections are made.

With this broader definition, the fate of the defendant became clear that they would require registration and a bond as a collection agency.

Collection Business
Furthermore, Judge Shelby found that the inclusion of the term "collection business" in the second half of the statute reinforced the broader definition. The Judge wrote, "the legislature added 'collection business' in the second half of the Registration Statute in a further attempt to clarify the Statute broadly reached debt collection activities of various kinds."

Conclusion
Judge Shelby's decision made it advisable to obtain a debt collection license for debt buyer activities in Utah. There are several jurisdictions across the United States where the statutes already require debt collection licenses for debt buyers. Our Cornerstone Support licensing team can help you understand current legislation that may be required as a debt buyer.