State Court of Appeals: Out-of-State Debt Collectors Do Not Need a License

Brad Council

The Indiana Court of Appeals has held that an out-of-state debt collector with no physical place of business in Indiana is not required to obtain a license from the Indiana Department of Financial Institutions (DFI) to collect debts within the state.

In Wertz v. Asset Acceptance, LLC, Nathan Wertz filed a counterclaim against Asset Acceptance, LLC alleging violations of the Indiana Deceptive Consumer Sales Act and the Fair Debt Collection Practices Act for failing to obtain a license from DFI to collect on consumer loans. Ind.App. No. 71A03-1305-CC-175 (Mar. 21, 2014). The Court accepted DFI’s opinion on the statute in interpreting the Indiana Uniform Consumer Credit Code (IUCCC) and held that a license is required only if a creditor has a physical location within Indiana.

On August 9, 2012, Asset filed suit against Wertz to recover a balance due on a Chase credit card on which Wertz had allegedly defaulted. Wertz filed a counterclaim and putative class action against Asset alleging that Asset engaged in the practice of taking assignment of and collecting on Indiana consumer debts without a license as required by the IUCCC. Wertz further claimed that by collecting consumer debts without a license, Asset violated the FDCPA and Indiana Deceptive Consumer Sales Act. Arguing that it was not required to seek a license to collect consumer debts under the Act, Asset filed a motion to dismiss the counterclaim. The motion to dismiss Wertz’s counterclaim and class action was granted and Wertz appealed.

The IUCCC requires that a license be obtained “to regularly engage in Indiana in … taking assignment of consumer loans [or] undertaking direct collection of payments from or enforcement of rights against debtors arising from consumer loans” unless they are a depositary institution or a registered collection agency. Asset admitted it is not classified as a depository institution and is not registered as a collection agency. It also admitted to taking assignment of and collecting on consumer loans without having a license to do so. Asset argued however, that the phrase “regularly engage in Indiana” does not include companies, such as itself, with no physical presence in the state and therefore the licensing requirement does not apply. Wertz alleges that the statute does apply and Asset has violated the statute by not obtaining a license.

The Court of Appeals found the language “regularly engage in Indiana” to be ambiguous and looked to both the purpose of the statute and the interpretation of the statute by the relevant administrative agency. The Court determined the purpose of the IUCCC is to protect consumers from unfair collection practices by requiring creditors with sufficient minimum contacts with Indiana that “regularly engage in Indiana” in the collection of consumer debts to obtain a license. DFI, the agency tasked with enforcement of the statute, has issued guidance indicating that “regular” refers to at least twenty-five times per year and “engaged in Indiana” requires a physical presence within the state.

Wertz argued that the DFI opinion should not be used, as the interpretation is based on the official comments to the statute rather than the statutory language itself, and the interpretation was not issued through a formal rule making process and therefore deference to the agency is not required.

The Court rejected Wertz’s first argument, relying on Basileh v. Alghusain, finding that the commentary to a uniform code enacted by the legislature is indicative of the legislature’s intent and the commentary is to be used when interpreting the statute. 912 N.E.2d 814 (Ind.2009). The Court then noted that a formal rulemaking process is not required before Indiana agencies are granted deference in statutory interpretation and the broad nature of DFI’s guidance authority would make such a process difficult.

The court held that the statutory guidance of DFI was valid and deserved great deference from the court. As such, an out-of-state business without a physical location within Indiana is not covered by the IUCCC and its licensing requirements. Asset did not meet the criteria to be covered by the statute and therefore did not need a license to pursue its case against Wertz. The dismissal of Wertz’s claims against Asset was affirmed.

The full text of the Wertz v. Asset Acceptance opinion may be found here

Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.

Brad A. Council is an associate in the Cincinnati based law firm of Slovin & Associates Co., LPA. His practice covers all areas of commercial litigation, creditor’s rights including compliance with federal and state consumer credit and collection laws, and landlord-tenant matters. He frequently represents national banking associations, medical service providers, debt-buyers, and other credit grantors in the areas of creditor’s rights and account receivables management. He also regularly advises and counsels these organizations on issues related to compliance with the federal Fair Debt Collection Practices Act and federal Fair Credit Reporting Act as well as similar state law acts and regulations.