Arrow Financial Services Held Liable for Potential Illegal Debt Collection

Illinois District Judge Ruben Castillo denied Arrow Financial Services, LLC’s motion for summary judgment in a recent Memorandum Opinion and Order. Schutz v. Arrow Financial Services LLC, 2006 WL 3704715 (N.D.Ill. 12/15/06).

The class action suit involves allegations that Arrow Financial Services LLC and TrueLogic, a second party collection agency, violated the Fair Debt Collection Practices Act (FDCPA) for material misrepresentations by way of debt collection letters mailed by TrueLogic. According to the written decision, Arrow Financial Services LLC (hereafter "Arrow") purchased the plaintiff’s delinquent debt and then assigned the responsibility of collecting the debt to TrueLogic, a second-party non-attorney bill collector. TrueLogic then mailed the plaintiff several debt settlement offers which allegedly were in violation of the FDCPA.

Arrow Financial attempted to escape liability by arguing that it had no responsibility for TrueLogic’s actions. Under current case law a first party collection agency is liable for any FDCPA violations by second party attorneys working on its behalf. However, this case fell into an area without much guidance from the appellate courts. Few courts have addressed whether a collection agency, like Arrow, could be held vicariously liable for a second party non-attorney collection agency. Since TrueLogic was simply a collection agency as opposed to an attorney, the Court sought direction from the Third Circuit case of Pollice v. National Tax Funding, L.P., which decided the issue against the first party collection agency.

Here, Judge Castillo ruled that it would simply be "incongruous" to hold collection agencies that employ attorney debt collectors liable for violations to a greater extent than collection agencies that employ non-attorney debt collectors. The court supported its ruling by stating the purpose of vicarious liability is to provide equal relief to those victimized by attorney debt collectors as well as those victimized by non-attorney debt collectors.

In addition to finding vicarious liability, the Court ruled that there were enough facts to find a principal-agent relationship between Arrow and TrueLogic. Arrow exercised a fair amount of control over TrueLogic’s debt collection activities. Specifically, Arrow had the right to control the content of the debt collection letters and the right to monitor TrueLogic’s compliance with the law through audits, summaries of test results, and other evaluations.

In sum, the Court ruled that a principal-agent relationship exists between Arrow and TrueLogic under which Arrow may be held vicariously liable for FDCPA violations of TrueLogic. Following the decision the Court urged the parties to reevaluate their settlement positions.

This decision further reinforces the idea that collection agencies cannot simply hire non-attorney bill collectors and then turn a blind eye towards their collection activity. Collection agencies may now be forced to exercise more caution when shopping for second-party bill collectors.