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Supreme Court Ruling Regarding Debt Buyers


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Today, the U.S. Supreme Court ruled that junk debt buyers are not necessarily debt collectors as defined by the FDCPA.  Based upon the court's affirmation of the 4th Circuit Court of Appeals' ruling, it may depend upon the "principal purpose" of the debt buyer.

The opinion of the SCOTUS in Henson v. Santander Consumer USA, Inc. also focused on the FDCPA's definition of "debt collector".

1692a(6)

(6) The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.

https://www.supremecourt.gov/opinions/16pdf/16-349_c07d.pdf

Note that this does not change the fact that JDBs will still be required to provide proof of ownership and the validity of debts when filing lawsuits to collect.

 

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15 hours ago, Harry Seaward said:

2.) the number of lower courts that have gotten it wrong all these years. 

To me, that more indicates that the SCOTUS is the wrong one here, seeing as how every single lower court in all 50 states said otherwise for around 40 years.  However, even if SCOTUS is wrong, they get the final say, so now it is law of the land.

Just a reminder to everyone, the larger JDBs use 3rd party collectors which have similar names.  Such as Midland Credit Management (a CA for the JDB Midland Funding) and Calvary has multiple collection arms that seem to change roman numerals yearly as part of their attempted shell game with the law.  So, keep a sharp eye on WHO is attempting to collect a debt from you and assert your FDCPA rights as applicable.

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7 hours ago, fisthardcheese said:

To me, that more indicates that the SCOTUS is the wrong one here, seeing as how every single lower court in all 50 states said otherwise for around 40 years.  However, even if SCOTUS is wrong, they get the final say, so now it is law of the land.

Having read the blog post that @usctrojanalum posted and then reading the SCOTUS opinion again, I have come to the conclusion that the court didn't actually find that "Debt Buyers Not Subject to FDCPA".  I do agree that the SCOTUS finding of "due another" doesn't apply to debt buyers, but the door remains open on the "any debt" part of the definition.

 

37 minutes ago, usctrojanalum said:

Honestly, I don't even think this decision applies to JDB's like Midland, PRA, Calvarly, Cach etc. etc.

It does as far as the "due another" language is concerned.  The attorneys dropped the ball in not raising the "principal purpose of which is the collection of any debts" part of the definition.  That SCOTUS did acknowledge that this question remains unaddressed by them is very useful to future FDCPA litigation against debt buyers.

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1 hour ago, usctrojanalum said:

Honestly, I don't even think this decision applies to JDB's like Midland, PRA, Calvarly, Cach etc. etc. This decision was actually very limited in scope.  

http://arpinolaw.com/lawyer/2017/06/13/Consumer-Law/Supreme-Court-says-debt-buyers-are-not-bound-by-the-FDCPA,-or-are-they_bl30300.htm

I found this blog post on the topic.

I agree to a point.  The SCOTUS affirmed the 4th Circuit's ruling.  The 4th Circuit ruled that for a business to be considered a debt collector, it must fit the definition.  So, in regard to JDBs, it's going to depend upon "principal purpose".    Now, it remains to be seen whether JDBs such as Midland Funding engage mostly in collecting debts for others as opposed to collecting for themselves.

For instance, if Midland Funding can show that it's principal purpose is collecting for itself, it would be considered a creditor.

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Guest usctrojanalum

Yes, BV, I do agree with that.  The blog post even said that it is not really possible to know what the principal business purpose of a JDB is without engaging in discovery.  Does the decision make it more difficult for consumers? Yes.  But I do not believe this decision made every single JDB the equivalent of a Original Creditor over night. 

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Guest usctrojanalum
1 hour ago, Harry Seaward said:

 The attorneys dropped the ball in not raising the "principal purpose of which is the collection of any debts" part of the definition.  That SCOTUS did acknowledge that this question remains unaddressed by them is very useful to future FDCPA litigation against debt buyers.

I don't think they necessarily dropped the ball.  The trial courts are like battle grounds.  Decisions are made quickly at the inception of a lawsuit and unless it is a  hot civil rights topic or government legislation type of topic, most trial lawyers never expect their proceedings to make it all the way to the Supreme Court. So when litigating in a trial court, a trial attorney will narrow the issues to what they believe has the best chance at winning.

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22 minutes ago, usctrojanalum said:

Yes, BV, I do agree with that.  The blog post even said that it is not really possible to know what the principal business purpose of a JDB is without engaging in discovery.  Does the decision make it more difficult for consumers? Yes.  But I do not believe this decision made every single JDB the equivalent of a Original Creditor over night. 

I think we're going to get conflicting decisions across the country. 

Contrary to an opinion that the "SCOTUS is the wrong one here", the court got it right.   Congress recognized that more than one business can own a debt and, therefore, a subsequent business can be a creditor.   That's obvious in  the definition of creditor and in1692g(a)(2) and (5).  

As has been stated in the past, the law says what it means and means what it says.   Courts across the country have ruled as much.

I'm going to edit the title of this thread.  :)

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How much leverage do most debtors see, these days, in terms of FDCPA violations, anyway? The major players have so many safeguards in place that I don't see people being victimized much anymore.

There is a faction that believes filing suit after a consumer elects arbitration is a violation, but @BV80 has yet to get one person to provide a single example of where this concept has played out. I've tried to find violations in collection letters that clearly misrepresent the concept of "benefit," to no avail.

The one time we had a bonafide FDCPA violation, it was due to confusion on the part of Midland's lawyer. We tried to settle a debt, then were sued again and tried to settle both at once. Midland's lawyer sent a letter to us, instead of our lawyer - not out of an y malicious intent - simply because a clerk didn't make the connection that both cases were being handled by our attorney. Even then, at the end, they just took the cost of the violation off the total.

Unless major debt buyers find a huge benefit in returning to old boiler-room deception tactics, this really shouldn't be a big deal for the vast majority of debtors.

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19 minutes ago, Goody_Ouchless said:

How much leverage do most debtors see, these days, in terms of FDCPA violations, anyway? The major players have so many safeguards in place that I don't see people being victimized much anymore.

There is a faction that believes filing suit after a consumer elects arbitration is a violation, but @BV80 has yet to get one person to provide a single example of where this concept has played out. I've tried to find violations in collection letters that clearly misrepresent the concept of "benefit," to no avail.

The one time we had a bonafide FDCPA violation, it was due to confusion on the part of Midland's lawyer. We tried to settle a debt, then were sued again and tried to settle both at once. Midland's lawyer sent a letter to us, instead of our lawyer - not out of an y malicious intent - simply because a clerk didn't make the connection that both cases were being handled by our attorney. Even then, at the end, they just took the cost of the violation off the total.

Unless major debt buyers find a huge benefit in returning to old boiler-room deception tactics, this really shouldn't be a big deal for the vast majority of debtors.

It might make a difference when with regard to FDCPA counterclaims.   A consumer can allege that a JDB's principal purpose is the collection of debts for another, but the burden to prove that allegation will be on the consumer.   In the event the JDB denies that allegation, the consumer will have to be willing to engage in discovery, possibly intensive, in order to prove it.

It's often been suggested that one file an FDCPA counterclaim in a debt collection lawsuit in the hope that a JDB will agree to dismiss the lawsuit.  While some JDBs might fold at the mere allegation that its principal purpose is to collect debts for others, other JDBs may not fold so easily.   

 

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One potential area for abuse would be suing on time-barred debts. If the owner of the debt faces no FDCPA liability, then why not sue? Which begs the question - why does the FDCPA cover the issue of being "sued" if the Act does not apply to the owner of the debt? Clearly a third-party collector has no standing to sue...

 

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14 minutes ago, Goody_Ouchless said:

If the owner of the debt faces no FDCPA liability, then why not sue? Which begs the question - why does the FDCPA cover the issue of being "sued" if the Act does not apply to the owner of the debt?

To which section of the statute are you referring regarding the owner?

Debt collection lawyers are subject to the FDCPA, so that can apply to lawsuits.

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15 hours ago, BV80 said:

I think we're going to get conflicting decisions across the country. 

Contrary to an opinion that the "SCOTUS is the wrong one here", the court got it right.   Congress recognized that more than one business can own a debt and, therefore, a subsequent business can be a creditor.   That's obvious in  the definition of creditor and in1692g(a)(2) and (5).  

As has been stated in the past, the law says what it means and means what it says.   Courts across the country have ruled as much.

I'm going to edit the title of this thread.  :)

SCOTUS "is the wrong one here", like I said, simply because the definition - which you posted above - states multiple ways that one can be a "debt collector".  You, and most people talking on this, are only focused on the "due another" portion.  But the very first part of the definition is the important part:

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Note that the word OR follows the part I bolded.  That means they are separate and distinct ways one can be a debt collector.  The first way is simply being the main purpose of your business if to collect debts.  That's it. Period.  Now, should that not fit, you also could be an entity that regularly collects debts owed or due another.  Most major JDBs fit the definition using the first part of the definition in 1692a(6).

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16 hours ago, fisthardcheese said:

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Did you read the ruling?  If you had, you would have found this:

Second,  the  parties briefly  allude  to  another  statutory  definition  of  the  term “debt  collector”—one  that  encompasses  those  engaged  “in any  business  the principal  purpose  of  which  is  the  collection  of  any  debts.”    §1692a(6).   But  the  parties  haven’t much  litigated  that  alternative  definition  and  in  granting  certiorari we didn’t agree to address it either.

Here is the "question presented" on page 2  in the Petition For A Writ of Certiorari.

Whether  a  company  that  regularly  attempts to collect  debts  it  purchased  after  the  debts had  fallen into  default  is  a  “debt  collector”  subject  to the Fair Debt Collection Practices Act?

http://www.scotusblog.com/wp-content/uploads/2016/09/16-349-cert-petition.pdf

The court was not asked to address "principal purpose".  The SCOTUS addressed the question that was presented.  That question was based upon the collection of debts purchased after they were already in default.    Based upon the question presented, the SCOTUS did not get it wrong.

It is due to the fact that "principal purpose" was not requested and addressed that I stated we will get differing rulings across the country.

 

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Guest usctrojanalum

@BV80 It was what I was trying to convey earlier in this thread.

1692(a)(6) defines a debt collector in three different ways.  It's easier to break the statute down so you can see it.

The term "debt collector" means any person who: 1. "who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts"

OR

2. "who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another"

The statute then has two other definitions of a debt collector not relevant to us for the topic of this discussion. 

The Supreme Court only made a ruling as to" the debts owed or due . . . another" definition.  The Supreme Court made no ruling regarding the first definition. Now, taking the plain meaning of the first prong of the "debt collector" definition, it appears that JDB's might still be covered under the act. BUT, there is no way for us to know this for certain, since we do not know the inner workings of a JDB business operations.  The information would need to be obtained by discovery.

Santander alleged that neither definition applies to them because their principal business is loan origination. But the Supreme Court said that definition was not litigated much, so they did not review that question.

Also, notice the first prong says in the collection of any debts. So conceivably, even if the JDB's are collecting their own debts; if their principal business operation is the collection of their own debt, they may still face liability under the FDCPA.  Since the Supreme Court did not review that question, that is a question for the trial courts and the circuit courts of appeals to answer. 

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I haven't read the whole decision, thus, unable to give an opinion on the whole, yet.

For those who have not checked their state's statutes, do so.  I say this, as the FDCPA gives the consumer the right to use whichever statute affords them greater protection, state or federal.  California, for one, holds the original creditor liable  under the Rosenthal, CCC 1788.1.  IF they attempt to collect their own debt.  

If I recall, weren't there a couple of other cases some time back about this very question?  Different phrasing, of course.  I believe two of them involved A$$ET, one in Michigan, the other in Florida.

A couple comments I'll make is that the question asked  appears to be a  "Play on words", not about Congress' intent in writing the statute.  Remember, the FDCPA was written to protect the consumer, more so than the collector, while also protecting the collector.  Nor, does it appear to explain how the least sophisticated consumer will be able to protect themselves from the collector, in some situations.  Does this decision mean the wording in all written communications must be changed to protect all parties?

Must admit I'm quite surprised the SCOTUS actually even considered hearing this case.  Have to do some homework now.

 

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@usctrojanalum is spot on according to Inside Arm:

Argument analysis by Ronald Mann of Scotusblog after SC oral argument on 4/19/17:

http://www.scotusblog.com/2017/04/argument-analysis-court-dubious-reading-fair-debt-collection-practices-act-reach-debt-buyers/

'"Chief Justice John Roberts pointed out one explanation for that situation near the end of Russell’s presentation, observing that “this particular context, with this particular type of entity, is not what Congress had before it when it passed the law. … The industry has evolved in a way that has raised these sorts of questions. This is not something that Congress was addressing.”

My preview suggested that the borrowers in this case would have to persuade the justices that it is so important to bring debt buyers under the aegis of FDCPA debt-collector rules that the court should overlook the challenge posed by the statutory text. The argument suggests that the borrowers may not be successful in overcoming that obstacle."'

 

(RMA)/Inside Arm's take on the SC ruling:

https://www.insidearm.com/news/00043001-industry-association-urges-caution-when-i/

Yesterday, Receivables Management Association International (RMA) issued a statement urging its membership and the broader receivables management industry to proceed with caution when interpreting the United States Supreme Court ruling in the case of Henson v. Santander.

In this unanimous decision, the Court determined that Santander Consumer USA, Inc. did not fall under the plain meaning of the term “debt collector” in the federal Fair Debt Collection Practices Act (FDCPA) when it purchased defaulted loans originated by another lender and proceeded to collect on these loans because it was not seeking to collect the debts “owed another”. The act of purchasing the loans meant that the debt was owed to Santander—not another entity.

However, the Court left open the question of the applicability of the alternative FDCPA definition of “debt collector” which states that it also applies to “any business the principal purpose of which is the collection of any debts” (emphasis added). This unanswered question by the Supreme Court raises questions for debt buying companies who purchase and actively collect on their own debt. While these companies would not be collecting debt owed another, they are still engaged in collecting debt.

While all judicial decisions are based on the facts contained in the case, it is conceivable that the Santander decision may be used by debt buying companies that operate solely as an investment vehicle and do not engage in any debt collection activity themselves (aside from acquisition) to argue they are not subject to FDCPA regulation. However, RMA would urge all companies that operate under either the active or passive business model to consult with legal counsel before making any operational changes.

In the end, RMA does not see the Santander decision as lessening the consumer protections required of its membership due to the rigorous requirements of RMA’s Receivables Management Certification Program (RMCP). RMA estimates that over 80 percent of consumer receivables in the United States that have been sold on the secondary market are owned by companies who are RMCP certified and thereby bound by standards that already go above and beyond the requirements of the FDCPA.

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@usctrojanalum

I've been doing some researching and thinking (no comments please).  :)

I do believe that certain JDBs, such as Midland Funding, will be exempt from the FDCPA.   The reason is because Midland Funding doesn't appear to collect debts.  It merely purchases them.

Back in the day when I defaulted, the letters I received from Midland Funding informed me that it had purchased my account.   It was Midland Credit Management (MCM) that sent collection letters demanding payment.

If Midland Funding is the purchaser, not the collector, it will not be bound by the FDCPA, nor will it be vicariously liable for any FDCPA violations committed by MCM or an attorney who represents it in a lawsuit.

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On 6/23/2017 at 2:05 PM, BV80 said:

@usctrojanalum

I've been doing some researching and thinking (no comments please).  :)

I do believe that certain JDBs, such as Midland Funding, will be exempt from the FDCPA.   The reason is because Midland Funding doesn't appear to collect debts.  It merely purchases them.

Back in the day when I defaulted, the letters I received from Midland Funding informed me that it had purchased my account.   It was Midland Credit Management (MCM) that sent collection letters demanding payment.

If Midland Funding is the purchaser, not the collector, it will not be bound by the FDCPA, nor will it be vicariously liable for any FDCPA violations committed by MCM or an attorney who represents it in a lawsuit.

BV,

I think 80% of the OPs who come here have been sued by Midland Funding.  Are you saying it can't be sued for FDCPA violations?

Here's an analysis of the decision by a corporate defense law firm:

http://www.lexology.com/library/detail.aspx?g=1eb6cc73-67d9-4d3b-8e7c-cc27930f83cd

The United States Supreme Court issued a significant decision in Henson v. Santander Consumer USA, Inc. drastically restricting the universe of companies subject to potential liability under the Fair Debt Collection Practices Act (FDCPA). In a unanimous decision authored by new Justice Neil Gorsuch, the Court held that companies that buy defaulted debts are not “debt collectors” under the FDCPA because they are not, by definition, “collect[ing] or attempt[ing] to collect . . . debts owed or due . . . another,” under 15 U.S.C. §1692a(6). The upshot of the decision is that companies that actually buy bad debts—as opposed to just the servicing or collection rights for loans in default—have a solid defense to FDCPA claims.

In Henson, the plaintiffs brought a class action lawsuit against Santander, claiming that Santander had acquired the plaintiffs’ automobile loans from the original lender after the loans were in default and then subsequently violated the FDCPA through its debt collection practices. The plaintiffs did not dispute that Santander had acquired the entire loans from the originator, as opposed to merely acquiring the servicing rights; nonetheless, the plaintiffs claimed that Santander qualified as a “debt collector” under 15 U.S.C. § 1692a. The district court dismissed the claims after concluding that Santander was not a “debt collector,” and the United States Court of Appeals for the 4th Circuit affirmed, following the precedents of the 9th and 11th Circuits and splitting with decisions by the 3rd, 6th, and 7th Circuits.

After granting the plaintiffs’ petition for a writ of certiorari, the unanimous Supreme Court affirmed the 4th Circuit’s decision. In his first opinion on the court, Justice Gorsuch rejected the plaintiffs’ position, pointing out the inherent problem of claiming that Santander was a “debt collector,” when the statutory definition of “debt collector” requires the debt to be owed to “another.” The opinion further rejected the plaintiffs’ arguments that an entity becomes a “debt collector” when it obtains a debt that was originally “owed”—in the past tense—to the originator, or by regularly purchasing debts that are already in default.

Henson is great news for companies that buy debts in default, as it provides a very strong basis for defending FDCPA claims that might have otherwise resulted in liability under the FDCPA. Despite the vigor of Justice Gorsuch’s opinion, however, at least two cautions are in order. First, Henson does not help companies that have merely acquired servicing rights to debts in default, as they may very well still qualify as debt collectors because they seek to collect debts owed to another. Second, the Court pointedly refused to consider the plaintiffs’ alternative arguments that Santander was a debt collector because it allegedly regularly attempts to collect debts for other companies as a servicer—though not the specific debts at issue in Henson—and because it is allegedly engaged in a business “the principal purpose of which is the collection of any debts.” The Court punted those issues for another day, which foreshadows arguments to be litigated in the federal courts for years to come.

 

 

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@debtzapper

Well, all Midland Funding has to do is show that it only purchases the debts.  Midland Credit Management is the collection arm of the company.  When a consumer gets a collection letter for a debt that Midland Funding has purchased, it's going to be from Midland Credit Management.

Look at 1692a(6)(b):

(6) The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests. The term does not include—

(B) any person while acting as a debt collector for another person, both of whom are related by common ownership or affiliated by corporate control, if the person acting as a debt collector does so only for persons to whom it is so related or affiliated and if the principal business of such person is not the collection of debts;

A servicer for an OC can argue that it services an account and that debt collection is merely an incidental part of the business if an account goes into default.  However, MCM couldn't make that argument because the account is already in default and there's nothing to service.  Therefore, its principal purpose is collection.

 

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11 minutes ago, BV80 said:

However, MCM couldn't make that argument because the account is already in default and there's nothing to service.

MCM doesn't file the lawsuit against the consumer, and because Midland Funding isn't the "debt collector", FDCPA leverage against Midland Funding for dismissal of their lawsuit against the consumer appears to be off the table.

The interesting scenario will be debt buyers like Cortez or Jefferson that seem to collect their debts in their own name.  I can see a colorable claim being that buying debts is the "principal purpose" of their business and collecting them is secondary.  E.g. they buy a portfolio of 10,000 debts but only try to collect 80% of those debts.  Of course the long term solution for these companies will be to simply create a separate business entity to perform the collection functions, the same way MCM does for MF.

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11 hours ago, Harry Seaward said:

MCM doesn't file the lawsuit against the consumer, and because Midland Funding isn't the "debt collector", FDCPA leverage against Midland Funding for dismissal of their lawsuit against the consumer appears to be off the table.

I wasn't thinking in terms of lawsuits, but I should have.  Thanks for catching my omission.  :)

In addition, before Santander, JDBs could be held vicariously liable for FDCPA violations committed by collection agencies, including law firms, collecting for them.   However, that might no longer be possible depending upon the identity of the JDB.

For instance, if Midland Credit Management or a law firm representing Midland Funding violates the FDCPA, Midland Funding may no longer be held vicariously liable for the actions of those entities.

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31 minutes ago, BV80 said:

I wasn't thinking in terms of lawsuits, but I should have.  Thanks for catching my omission.  :)

In addition, before Santander, JDBs could be held vicariously liable for FDCPA violations committed by collection agencies, including law firms, collecting for them.   However, that might no longer be possible depending upon the identity of the JDB.

For instance, if Midland Credit Management or a law firm representing Midland Funding violates the FDCPA, Midland Funding may no longer be held vicariously liable for the actions of those entities.

In order to hold them liable now a consumer is going to have to "pierce the corporate veil" and show that MCM and MF are the same entity even if different arms.  

The bigger issue is I believe what SCOTUS just said is that when the debt is purchased outright the buyer is not a collector.  They ARE the OC now since under contract law they are stepping into the shoes of the OC.   That means no counter claims for FDCPA violations against JDBs in lawsuits to shut it down.

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