A three-judge panel of the Missouri Court of Appeals has dismissed two lawsuits filed by Attorney General Chris Koster that argued debt collection companies were violating the state's Merchandising Practices Act.
The rulings appear to be the first time a state court has considered whether the MPA applies to third-party actors like debt collectors.
The lawsuits, filed in August of 2009 against Portfolio Recovery Associates, based in Norfolk, Va., and Kansas City-based Professional Debt Management, alleged that both companies used strong-arm tactics to get state residents to pay debts they don't owe.
As the St. Louis Post-Dispatch reported at the time:
The suit against Portfolio accuses the firm of trying to collect on debts that have already been paid or were discharged as a result of bankruptcy. The suit says that the company has threatened to garnish consumers' social security checks, which the company can't do, and that it has refused to provide any proof to consumers that debts were, in fact, valid. Portfolio also allegedly filed false credit reports, lawsuits without appropriate documentation and misleading affidavits in Missouri courts.
The suit against Professional says the company used scare tactics, including leaving voice-mail and answering-machine messages claiming there is an emergency. The company also allegedly called the employers of those consumers it had targeted for debt collection.
In opinions issued today, judges Kurt Odenwald, Robert Dowd and Gael Wood upheld lower court rulings that the Merchandising Practices Act applies only to deceptive actions that occur at the time of the sale or advertising of a product, not to actions done by a third party that wasn't part of the original sale.
Basically, the court ruled that if you buy a car, the seller can be held liable under the act if he or she tells you lies to get you to purchase the car. But if you take out a car loan, don't pay your bills, and get turned over to a collection agency, the act doesn't apply to the collection agency because the debt collector had nothing to do with the original sale, even if they're being deceptive in how they try to collect the debt, or even if you don't
The court appeared to leave the door open for other legal actions, however, writing:
We acknowledge and commend the State’s efforts to aggressively police the marketplace of trade and commerce. With our holding, we do not suggest that the actions alleged in the Petition are not actionable. However, we cannot undertake a legislative role and write into the MPA language that simply does not exist.
Debt collection scams were the most common complaint consumers filed with Koster's office in 2010.