Appeals Court Tightens Rules for Debt Buyers

After years of suing consumers without holding a license to operate as a debt collector, Midland Funding has lost a landmark case

Under Massachusetts law, a debt collector must be licensed and bonded with the Division of Banks before it can legally engage in any debt collection efforts. Despite this law, Midland Funding has operated for years without a license. Instead, Midland has relied on a series of advisory opinions issued by the Division of Banks stating that “passive debt buyers” do not need to obtain a license. A passive debt buyer is one that doesn’t engage in any debt collection efforts but instead hires someone else to do all the work. It is merely an investor.

Midland claims that it is a passive debt buyer and doesn’t need a license because all of its debt collections are handled by a related company, Midland Credit Management (which is licensed).

The Massachusetts Appellate Division thinks differently.

First, the court clarified that advisory opinions are not law. Plus, it suggested that the advisory opinions might not support Midland’s argument anyway—as they only seem to discuss direct collect efforts that take place out of court. They don’t take into account lawsuits filed in the name of passive debt buyers, or other types of indirect collection efforts such as credit reporting.

Second, the court suggested that Midland is not a passive debt buyer because it engages in indirect collection efforts. Although direct collection efforts are handled by a related company, Midland oversees and approves all of those actions. Midland was also named as the plaintiff in this lawsuit, and actively reports its debt on credit reports.

Massachusetts law is clear that a debt collector license is required for either direct or indirect collection efforts.

As a result, the court held that Midland Funding is a debt collector and that it was required to obtain a license. Its failure to do so violated the Massachusetts Consumer Protection Act as well as the Fair Debt Collection Practices Act.

While this is a great result for consumers in Massachusetts, it is likely to be appealed further so stay tuned.

A copy of the full decision is available here: Midland Funding v. Juba
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