SharpThinking

No. 65    Perspectives on Developments in the Law from The Sharp Law Firm, P.C.     June 2012

Collection Agency Non-Registration Voids Judgment

First of three issues focusing on the Collection Agency Act.

By John T. Hundley, Jhundley@lotsharp.com, 618-242-0246

            A judgment obtained by a collection agency that sues in its own name without registering under the Collection Agency Act (225 ILCS 425) is void, an Illinois Appellate Court panel has ruled.  However, when registered and holding a written assignment separate from the contract listing the debt with the agency, a collection agency may sue to collect in its own name, even though it is only an assignee for collection, another panel has ruled.

            The voidness ruling came in LVNV Funding, LLC v. Trice, 2011 IL App (1st) 092773, and its significance is that it permits belated challenges to unregistered collection agencies’ judgments without the requirement of diligence that ordinarily applies to a debtor’s challenge to a judgment under 735 ILCS 5/2-1401.  The agency argued that its failure to register merely made its judgment voidable, not void; if the judgment was merely voidable, the debtor would have had to show diligence both in discovering his defense and in presenting the § 2-1401 petition.  Noting the act’s criminal penalties and likening the suit to one commenced through unauthorized practice of law, the court rejected the plaintiff’s arguments and held the suit void.

            The ruling permitting collection-agency suits came in Unifund CCR Partners v. Shah, 407 Ill.App.3d 737 (2011), rebuffing a debtor’s argument that an assignee “for collection only” lacked the personal interest in the claim necessary to confer standing.  Relying on other jurisdictions’ recognition of the separability of legal and beneficial interests in a claim, the panel said such an assignee can have standing and sue if it pleads and proves an assignment in writing, separate from and in addition to the contract listing the debt with the collection agency.  The assignment can take the form of multiple documents, if they collectively meet the requirements of the act, the panel said.  However, the attachments must be operational documents, not affidavits, it ruled.  See also Grant-Hall v. Cavalry Portfolio Serv., LLC, __ F.Supp.2d __, 2012 WL 61951 (N.D. Ill. 2012).  Where the agency is remote from the original creditor, the documents must prove every link in the chain of title.  Moreover, the assignment must specifically state the consideration for the assignment (see Grant-Hall; Mutual Mgmt. Serv., Inc. v. Swalve, 2011 IL App (2d) 100778;), and it must expressly state its effective date (Swalve; see also Business Serv. Bur., Inc. v. Webster, 298 Ill.App.3d 257 (1998)).               

            The recent cases have brought increased attention to a statute that long has rested largely unnoticed on the books.  Its scope is broad, but not unlimited. 

            Terms Defined Broadly:  Under the act, “debt collector” or “collection agency” is any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt collection, and “debt collection” means any act or practice in connection with the collection of consumer debts.  “Debt” means money, property, or their equivalent which is due or owing (or alleged to be due or owing) from a natural person to another person, and “consumer debt” means money, property, or their equivalent, due or owing (or alleged to be due or owing) from a natural person by reason of a consumer credit transaction.  “Consumer credit transaction” means a transaction between a natural person and another person in which property, service or money is acquired on credit by the natural person primarily for personal, family or household purposes.[1]                                                            

            A person acts as a collection agency when he or it: (a) engages in the business of collection for others of any account, bill or other indebtedness; (b) receives, by assignment or otherwise, accounts, bills or other indebtedness from any person owning or controlling 20% or more of the business receiving the assignment, with the purpose of collecting monies due on such account, bill or indebtedness; (c) sells or attempts to sell, or gives away or attempts to give away to a person (other than one registered under the act) any system of collection, letters, demand forms, or other printed matter where the name of a person, other than that of the creditor, appears in such a manner as to indicate that a request or demand is being made by a person other than the creditor for payment of the sums due or asserted to be due; (d) buys accounts, bills or other indebtedness and engages in collecting same; or (e) uses a fictitious name in collecting its own accounts, bills or debts with the intent of conveying to the debtor that a third party has been employed to make such collection.

            Exemptions Listed:  However, the act does not apply to persons whose collection activities are confined to and are directly related to operation of a business other than that of a collection agency, and specifically does not include banks, including trust departments, affiliates, and subsidiaries thereof, fiduciaries, and financing and lending institutions (except those who own or operate collection agencies); abstract companies doing an escrow business; real estate brokers; public officers and judicial officers acting under order of court; licensed attorneys; insurance companies; credit unions, their affiliates and subsidiaries; loan and finance companies; retail stores collecting their own accounts; condominium unit owners associations and their agents, when collecting assessments from unit owners; and any person under contract with a creditor to notify debtors using only the creditor’s name.

            Registration Required:  Under the act, collection agencies may not operate in Illinois, or engage in the business of collecting, or solicit claims for others, have a sales office, a client, or solicit a client in Illinois, exercise the right to collect, or receive payment for another of any account, bill or other indebtedness, without registering with the Department of Financial & Professional Regulation, except they are not required to be licensed if their activities in Illinois are limited to collecting debts by means of interstate communication from a location in another state, provided the agency is licensed in that state and these same privileges are permitted in that state to agencies licensed in Illinois.  To be duly registered, the agency’s officers must “be of good moral character; have no unsatisfied judgments, and not have been officers with an agency whose registration is suspended or revoked.

            In addition to requiring registration, the act prohibits a wide variety of misconduct by collection agencies.  We’ll discuss those prohibitions – and who may sue to enforce them – in the next issue of Sharp Thinking.               

[1] Notwithstanding these definitions, the act also has special provisions giving it certain applications in collection of child support. 

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