By Richard Roth, J.D.
The Fair Debt Collection Practices Act preempted debt collectors’ use of state execution procedures to eliminate their potential liability for FDCPA violations by levying on and selling the consumer’s cause of action, the U.S. Court of Appeals for the Ninth Circuit has determined. Using state execution laws in that way would frustrate the purposes of the FDCPA, the court said (Arellano v. Clark County Collection Service, LLC).
Clark County Collection Service and its law firm, Borg Law Group, secured a $793.39 state court default judgment against a consumer for an unpaid medical treatment bill. The consumer counterattacked by filing a federal court FDCPA suit, claiming that they had misled her by deadlines included in the complaint and summons. The complaint included the required FDCPA notice that the debt would be assumed to be valid if it was not disputed within 30 days, but the summons allowed only 20 days to file an answer to the suit, she said.
Clark County Collection and the Borg Law Group responded with what the court termed “a bold gambit.” They obtained a writ of execution from the state court that gave them the authority to levy on the consumer’s personal property to satisfy the default judgment. Using that authority, they levied on the FDCPA claim and, at a sheriff’s sale, bought the suit for $250. Then, claiming they now owned the suit, they convinced the federal judge to dismiss it.
Preemption. Federal law preempts state law if the state law erects an obstacle to the federal law’s ability to accomplish its purpose, the court pointed out. This is referred to as “conflict preemption.”
The purpose of the FDCPA is to protect consumers from abuse, harassment, and deceptive debt collection practices. The Act includes an express preemption section that says state debt collection practices that are inconsistent with the FDCPA are preempted to the extent of the inconsistency (15 U.S.C. §1692n).
It was irrelevant that the FDCPA includes no explicit provisions that address state execution laws, the court then said. Conflict preemption relies on the existence of an actual conflict, not an express claim of preemption. Using the state law execution procedure in this manner not only would eliminate the liability of the law firm and the debt collector, it actually would allow them to use the FDCPA to collect the debt. That clearly would thwart the purposes of the Act.
“[F]ederal law preempts a private party’s use of state execution procedures to acquire and destroy a debtor’s FDCPA claims against it,” the court explicitly said. As a result, Clark County Collection Service and Borg Law Group cannot assimilate the consumer’s FDCPA claim.
For more information about fair debt collection, subscribe to the Banking and Finance Law Daily.
