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JDB's in MN have no authority to employ lawyers to collect a debt?


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In looking over the Minnesota statutes regarding collector prohibitions (332.37 Prohibited Practices), I found that any collector in Minnesota may not:

(6) exercise authority on behalf of a creditor to employ the services of lawyers unless the creditor has specifically authorized the agency in writing to do so and the agency's course of conduct is at all times consistent with a true relationship of attorney and client between the lawyer and the creditor;

This legislation was written in an earlier era when creditors simply employed CAs to collect debt instead of selling the rights to the debt itself, but applies to any "collection agency or collector". I'm wondering how this law applies to JDBs today.

There are two issues here, as I see them:

  1. Does a generic bill of sale agreement assigning "all rights and remedies" to the JDB meet the standard of "specifically authorizing" the agency in writing to employ the services of lawyers?
  2. Does the act of the JDB employing a lawyer create a situation where the JDB's course of conduct is no longer "consistent with a true relationship of attorney and client between the lawyer and the creditor"?
    In other words, even though the JDB may be an assignee of the right to collect the debt, the legal obligation of the debt is to the original creditor, and under 332.7(6), only the creditor is allowed to direct legal actions to collect the debt. If the creditor is no longer aware of and directing actions the JDB's lawyer is taking to collect the debt, then JDB has violated 332.7(6).

The JDB might argue that it is not acting on "behalf of a creditor", but if they are not standing in the shoes of the creditor, then where do they get their standing to sue? The alleged debt is to the creditor, not the JDB.

If this line of argument was found to be valid, then once an OC sold off its debt, the JDB would be legally unable to file for a judgment under Minnesota law, or indeed, employ lawyers at all in the service of collecting the debt without the step-by-step initmate cooperation of the OC at every stage. The JDB would be prohibited from making any decisions about legal action in the case by itself, including hiring a lawyer to send a dunning letter.

I haven't read about anyone using this line of defense before, and since I'm just an amateur, I'm throwing it out for better, more experienced minds to pick apart. It seems to me someone would've used this argument long before now if it were worthwhile. But sometimes audacity pays dividends.

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The term "creditor" is not defined. But "collection agency" is:

332.31, Subd. 3. Collection agency. "Collection agency" means and includes any person engaged in the business of collection for others any account, bill or other indebtedness except as hereinafter provided. It includes persons who furnish collection systems carrying a name which simulates the name of a collection agency and who supply forms or form letters to be used by the creditor, even though such forms direct the debtor to make payments directly to the creditor rather than to such fictitious agency.

So far, so good, it seems to me. A JDB can be said to be "engaged in the business of collection for others any account, bill or other indebtedness".

Now for the exceptions...

332.32 EXCLUSIONS.

The term "collection agency" shall not include persons whose collection activities are confined to and are directly related to the operation of a business other than that of a collection agency such as, but not limited to banks when collecting accounts owed to the banks and when the bank will sustain any loss arising from uncollectible accounts, abstract companies doing an escrow business, real estate brokers, public officers, persons acting under order of a court, lawyers, trust companies, insurance companies, credit unions, savings associations, loan or finance companies unless they are engaged in asserting, enforcing or prosecuting unsecured claims which have been purchased from any person, firm, or association when there is recourse to the seller for all or part of the claim if the claim is not collected.

This is a long, twisty sentence, but the final clause might be interpreted to specifically exclude JDBs from claiming exclusion:

"loan or finance companies unless they are engaged in asserting, enforcing or prosecuting unsecured claims which have been purchased from any person, firm, or association when there is recourse to the seller for all or part of the claim if the claim is not collected."

Isn't that an accurate description of what a JDB is?

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you will never know until you have discovery to reveal the real status of the parties. Since you cannot be too sure at the pleading stage, you enter a defense(s) of "lack of standing" and "Lack of legal capacity"

While we are only dealing with a fragment here, my guess is the section is designed to cover a situation where an out of state creditor does not want to go through the hassle of getting authorized to do business in the state so it would "assign" debts to instate collection agencies, something not so common today where national companies swap paper like love-struck teens swap spit.

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Looks like JDBs do not meet the definition of collection agency by the definition. They aren't collecting for others, they are collecting for themselves.

Correct. Since legal title is transferred to the JDB, the OC has no further right to the claim. Therefore, the JDB is not collecting for "others". Title transfer also confers standing to sue.

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Looks like JDBs do not meet the definition of collection agency by the definition. They aren't collecting for others, they are collecting for themselves.

I'm sure they will try to argue that.

But while the JDB may have been assigned the right to collect and other rights and remedies related to the account, the alleged indebtedness itself remains to the original creditor. The JDB is not a true "successor in interest" under the law. It has not merged with the OC, or assumed its entire line of business.The JDB is still an agent of the original creditor for purposes of collection.

You're right that success in this defense depends on making this point clear and unequivocal, and I have work to do there.

On Edit: Norm, thanks for your input, I was waiting to see what you'd think. But can't it be argued that since the statute requires the creditor to be involved with legal action, any third party purchaser of title to the debt loses the standing to sue? Because mere purchase of the title to the debt does not make the JDB a creditor?

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As assignee, the JDB assumes all interest and right to the debt; not just the right to collect. Even though the OC suffered injury, under assignment law, the JDB has standing to assert the injury suffered by the OC since they have assumed all interest in the claim.

Here is a typical chain of title for a single account. Each assignee becomes a successor in interest to the account.

BTW, this is an absolute must to demand during discovery if you're ever sued by a JDB. Without a clear chain of title, they would, in fact, not have standing to sue.

What is not evident on the face of this particular chain, however, is that somewhere along the line, a JDB sold the same account to "2" other JDB's at the same time. With an indepth discovery, you could....well.....discover that :)

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Optimus_SubPrime, since you are up to doing research:

How about researching "Contract of Adhesion" or "Adhesion Contract."

It appears that there are certain clauses in a Contract of Adhesion (such as forum selection, account assignment) are unenforceable, unless the (weaker) party to whom the contract is extended had opportunity to reject such clause without impunity.

Best Regards,

June

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  • 3 months later...
As assignee, the JDB assumes all interest and right to the debt; not just the right to collect. Even though the OC suffered injury, under assignment law, the JDB has standing to assert the injury suffered by the OC since they have assumed all interest in the claim.

Here is a typical chain of title for a single account. Each assignee becomes a successor in interest to the account.

BTW, this is an absolute must to demand during discovery if you're ever sued by a JDB. Without a clear chain of title, they would, in fact, not have standing to sue.

What is not evident on the face of this particular chain, however, is that somewhere along the line, a JDB sold the same account to "2" other JDB's at the same time. With an indepth discovery, you could....well.....discover that :)

Is this really a valid and through chain of custody if the Bill of Sale(s) refers to an "agreement" and various "exhibits" which the JDB refuses to hand over?? Can C of C really be proven if these vital parts to the B of S are missing?? No where in these documents do I see evidence that the JDB bought or sold a particular debtor's account.

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Generally, in court, a page of account numbers purchased will be provided. If one is not, I would demand one, as well.

One other thing bothers me about this sample chain, though. Specifically, both Bill of Sale documents state that they are subject to "the terms and conditions" of documents not included in this chain. I would definitely argue that if the terms and conditions of each Bill of Sale are not provided, then the chain of title is incomplete. The terms and conditions could be anything, and without them, there is no way to know definitively who the owner is.

Such is my thinking, anyway. Judges, especially in small claims court, may think differently.

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Is this really a valid and through chain of custody if the Bill of Sale(s) refers to an "agreement" and various "exhibits" which the JDB refuses to hand over?? Can C of C really be proven if these vital parts to the B of S are missing?? No where in these documents do I see evidence that the JDB bought or sold a particular debtor's account.

First time passing through, I don't think I fully appreciated your point, which is a good one. I'd really love to know if accounts are generally sold only with these "Bill of Sale" docs, and not the accompanying exhibits, because, if that's so, there is no way that chain of title is clear.

I'd love to get an answer from E.Normis, but he seems to have stopped posting here in late January, according to his profile. Anyone else know from their own discovery or experience whether the exhibits containing the account numbers sold are passed on at every step, or is this often overlooked?

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