Business

PA Court Case Emphasizes the Necessity of Licensing for Debt Buyers

By Matt PridemoreJune 17, 2019
 

Ruling Upholds the Necessity of Licensing Prior to Collection on Purchased Debt

An interesting case has developed in Pennsylvania between a debt buyer and a borrower owing a deficiency balance on a repossessed automobile.  The case, Wyche v. Tsarouhis, is one where the borrower doesn’t challenge owing the debt or the accuracy of the debt.  He instead claims the debt buyer does not have the legal right to collect this debt because they are not licensed under the Pennsylvania Consumer Credit Code.

District Judge, Mark A. Kearney of the US District Court for the Eastern District of Pennsylvania agreed with the borrower in a May 14 memorandum stating that, “Keystone’s purchase of the debt is an acquisition of an installment sale contract.  Keystone is a sales finance company under section 6202 of the Credit Code.  Under the Law, Keystone must be licensed at the time of acquiring this obligation or Mr. Wyche’s obligation is unenforceable as a matter of law under section 6236(a)(2).”

Cornerstone gets asked all the time whether debt buyers need to be licensed as collection agencies.  The answer, in most instances, is YES.  We are rarely asked whether debt buyers need to be licensed in the same manner as the originating creditor from whom the debt was purchased.  Unfortunately, the answer in many instances is also YES, and the consequences of not being licensed in that manner can be even more significant.

If you are a debt buyer, it is imperative that you understand what licensing or registration requirements are necessary for each consumer debt portfolio that you are evaluating prior to purchasing it.  Remember that different asset classes require different licenses, so as your portfolio changes the necessary state licenses and registration may change also.

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