Arkansas Creditors Bar Association and McHughes Law Firm helped pass new Arkansas legislation concerning debt buyers. They must now be licensed by Arkansas as debt collectors to legally buy or sell debt in the state.
The Arkansas Supreme Court has ruled that debt buyers are considered a collection agency in the eyes of Arkansas law, and must be licensed by the Arkansas State Board of Collection Agencies.
Simpson v. Cavalry SPV I, LLC Case
The ruling came as a result of the Simpson v. Cavalry SPV I, LLC case. The consumer asserted that the debt buyer, Cavalry SPV I, LLC, violated the Federal Fair Debt Collection Practices Act and the Arkansas Fair Debt Collection Practices Act by not being registered as a collection agency according to Arkansas law.
Cavalry SPV I, LLC hired the McHughes Law Firm to represent them in a collection action against the consumer, Patty Simpson. The debt was a credit card account from HSBC Bank Nevada, N.A., which was charged off in 2010. Cavalry purchased the debt in the hopes of recovering that debt. By December 2010, a default judgment was granted in an Arkansas state court in the amount of $1,079. The account was then set for garnishments.
In 2013, Simpson filed a lawsuit against Cavalry, for violating the FDCPA. Cavalry’s defense stated that they were not required to be licensed as a collection agency in Arkansas because they did not attempt to directly collect the money.
The consumer objected and asserted that Cavalry was indeed a collection agency as defined by Arkansas state law. Since Cavalry was not licensed in Arkansas, it could not collect the debt.
The Arkansas Supreme Court decided that a debt buyer did indeed satisfy the definition of a collection agency, even though they used another party for the actual collection.
As a result of the Simpson v. Cavalry case, under Arkansas law, all debt buyers must be licensed as debt collectors.
What This Means for debt buyers in Arkansas
According to the provision of the Arkansas State Board of Collection Agencies’ Arkansas Code, it is illegal to “purchase and attempt to collect delinquent accounts or bills” without being a licensed collection agency. This decision affects debt buyers by requiring them to be registered as debt collectors within the state of Arkansas. This means that buyers of Arkansas debt must:
- Apply for a license and pay the required fee
- Prove collection business experience
- Provide both character and business references
- Have a $10,000-$25,000 surety bond and be able to show proof of it
There was also an amendment made to the bill, which states:
“(3)(A) If a collection agency participates in collection activities without a license, the collection agency may pay a civil penalty to the State Board of Collection Agencies of ten thousand dollars ($10,000) in order to be considered retroactively licensed under this chapter by the board.”
This means that if debt buyers collect debt in AR without being licensed, with this amendment, they can pay a fee to be retroactively considered “licensed,” which protects them from past cases where they were not licensed.
If you have questions concerning debt collection for your business, or if you need a debt collection attorney, contact the McHughes Law Firm at (501) 376-9131 to schedule a free consultation.