In a pair of unanimous decisions, the North Carolina Court of Appeals issued rulings today that constitute major victories for thousands of consumers targeted by the controversial “debt buyer” industry.
A 2014 report from the Center for Responsible Lending provided this basic description of the industry and how it works:
Debt buyers are specialized companies that purchase charged-off or other delinquent debt from credit card companies, banks, and other creditors for pennies-on-the-dollar. These companies then attempt to collect the debts themselves or through collection agencies or law firms. Some debt buyers also repackage and sell the debt they have bought to another debt buyer, either almost immediately or after already having attempted to collect the debt. Credit card debt is the most prevalent type of defaulted debt purchased by debt buyers. Debt buyers also purchase student loans, medical debt, utility and phone bills, tax liens, car loans, and mortgage and auto deficiencies.
At issue in the cases of Pounds v. Portfolio Recovery Associates and Spector v. Portfolio Recovery Associates was whether Portfolio — the nation’s largest debt buyer — could force the plaintiffs (one group of which had filed its lawsuit as representatives of a class including thousands of similarly situated consumers) to arbitrate each individual claim they had brought alleging violations of consumer protection laws on a case-by-case basis.
Lawyers for Portfolio argued that the firm had acquired a right to compel arbitration when it bought the old debt, which had originally included arbitration clauses between the parties. In rejecting that argument, however, the Court of Appeals found that the bill of sale between the parties when the debt was sold did not specify that the arbitration rights were part of the deal.
The rulings will now allow plaintiffs to move ahead with their lawsuits — one of which was brought on behalf of a class more than 20,000 consumers.
Lawyers for the plaintiffs lifted up the wins as establishing an important new precedent and sending a positive signal to consumer rights attorneys across the state and nation in an era in which a series of previous court rulings have made mandatory arbitration clauses (a phenomenon that effectively bars consumers from winning meaningful relief) difficult to defeat.
Note: The plaintiffs’ attorneys include employees of the North Carolina Justice Center (parent organization of NC Policy Watch).