So you are sued for a credit card debt by a company you've never heard of. For example, you are sued by Worldwide Asset Purchasing, LLC or Pride Acquisitions, LLC. In New York City, all debt collection agencies must be licensed before engaging in collection activity. But does a debt collector automatically become liable under the Fair Debt Collection Practices Act for failing to be so licensed?
The answer depends on the facts of the case. A simple communication from a non-licensed debt collector, without more (e.g. deceptive statement, harassment, collection lawsuit) seems to be insufficient to "state a claim" (bring a plausible case). But at least one New York case does imply that if a non-licensed debt collector were to sue you, it would be misrepresenting its legal authority, and would thus expose itself to an FDCPA claim under 15 U.S.C. § 1692e(5) for taking an action it could not legally take and using deceptive means to collect a debt.
The New York City Administrative Code requiring licensure § 20-490 states:
§ 20-490. License required.
It shall be unlawful for any person to act as a debt collection agency without first having obtained a license in accordance with the provisions of this subchapter, and without first being in compliance with all other applicable law, rules and regulations.
"Penalties" (§20-494) of the same code even increases monetarily by $100 for each contact by an unlicensed debt collector. By penalizing the unlicensed debt collector for each contact, the New York City legislature clearly seeks to regulate their business activity. The purpose of a license is to gain the required permission by a regulatory body to conduct business in a particular area of commerce. Regulatory agencies supervise and regulate business actors while providing protection to the consuming public. Isn't it unfair and deceptive to cheat this process?
The second annotation (explanatory casenote) to this city code cites Castillo v. Frankel, 2010 WL 5507904 [N.Y. Sup. App. Term, 2010], which specifically held that "[t]he failure to possess a license in violation of New York City Administrative Code § 20-490 does not constitute a violation of the Fair Debt Collection Practices Act. But
Castillo, along with other similarly held cases, involved only collection letters – not lawsuits – initiated by unlicensed collectors. The
Castillo court was uncomfortable cementing a categorical declaration that a violation of state or city law makes a plausible claim under the FDCPA. The court held that the contention that every violation of state law raises a federal claim under the FDCPA "reflects a false, narrow, and overly mechanical reading" of the statute.
Other cases imply that even a threat of litigation when not licensed amounts to an FDCPA e(5) or an e(10) violation. For example:
Nero v Law Off. of Sam Streeter, P.L.L.C., 655 F Supp 2d 200, 209 [EDNY 2009], as amended (Dec. 4, 2009) ("With respect to plaintiff's § 1692e(10) claim, again, plaintiff failed to alert the court to any representations by Streeter Law that it is licensed in New York City or that it has the
legal authority to litigatein the courts of this state."). Regarding its discussion of an e(5) claim,
Nero held, "[i]t appears that other courts in this circuit tend to recognize a violation of § 1692e(5) only when an unlicensed debt collector specifically threatens to take legal action against a debtor which it cannot do, because of its unlicensed status.
Reading Nero, I would think that it's fair to infer that non-licensed debt collectors who bring lawsuits take action that cannot legally be taken and/or use deceptive means to collect a debt.