Latest State Action: Washington AG Sues Debt Collectors

Financial Services Law

Demonstrating heightened enforcement efforts by some state regulators, Washington Attorney General Bob Ferguson filed suit against a pair of debt collection companies and their owner, asserting the defendants were operating without a license in violation of state law.

The lawsuit is only the latest example of state attorneys general (AGs) stepping in to fill the void as the Bureau of Consumer Financial Protection (CFPB) has slowed down its enforcement efforts.

What happened

AG Ferguson targeted a pair of companies based in Wenatchee, Washington, along with their owner, accusing the defendants of violating state law over a four-year period from 2009 until 2013.

Pursuant to the Collection Agency Act, operating as a collection agency in Washington without being licensed is prohibited; aiding and abetting the operation of an unlicensed collection agency is also prohibited. Operating as a collection agency without a license, or aiding or abetting such an operation, is also a per se unfair act or practice in the conduct of trade or commerce under the state’s Consumer Protection Act (CPA).

Until 2013, the defendants operated as a collection agency without a license, the AG alleged. “Each company bought large portfolios of charged-off debt accounts for pennies on the dollar, then sued Washington consumers to collect the full face amount of the accounts, plus pre-judgment interest, attorneys’ fees, court filing fees and other collection costs,” according to the complaint. “Prior to licensure, they obtained thousands of debt collection judgments against Washington consumers unlawfully.”

The defendants took affirmative steps as debt buyers, including identifying debt sellers, bidding on debt portfolios and/or negotiating and entering into contracts to buy debt accounts, and suing Washington consumers to collect on the purchased debt, the AG said.

Between December 15, 2009, and August 20, 2013, one of the companies sued to collect on over 1,200 debt accounts of Washington consumers in state superior courts; the second company sued to collect on over 1,600 Washington resident debt accounts. In addition to the more than 2,800 lawsuits, both companies filed “numerous additional lawsuits” in state district courts, Ferguson alleged.

In the ensuing years, the defendants have continued to collect on the unlawful judgments, the AG added, garnishing consumers’ wages, seizing funds from consumers’ bank accounts, and foreclosing or threatening to foreclose on consumers’ homes. In King County alone, the two companies currently have more than 230 and 160 recorded judgment liens, respectively, based on collection judgments they unlawfully obtained, the suit claimed.

The complaint requested the court enter a permanent injunction against the defendants to halt future unlawful conduct, assess civil penalties of up to $2,000 for each violation of the CPA, award restitution to consumers of the money acquired through the pre-2013 debt collection activity and order reimbursement to the state for the costs of the action.

To read the Washington AG’s complaint, click here.

Why it matters

With the change of leadership at the CFPB, enforcement actions in the financial services industry have slowed down at the national level. But certain state AGs have made an effort to pick up the slack on a wide variety of topics, from data breach to student loan servicers to mortgage companies to installment lenders and, as in the case of the Washington AG, debt collection companies.