Reed Smith Client Alerts

The Ninth U.S. Circuit Court of Appeals decided in a split 2–1 decision that a loan owner could be liable for its debt collectors’ tactics that violate the TCPA, effectively closing the window on creditors using a No Vicarious Liability defense for claims arising from its debt collectors. The dissent contended that no agency existed between the loan owner and the third-party debt collectors, and held that the majority is inappropriately legislating a strict liability provision into the TCPA from the bench.

In Henderson v. United Student Aid Funds, Inc., No. 17-55373, 2019 WL 1302915, at *5 (9th Cir. Mar. 22, 2019), the lead plaintiff, Henderson, defaulted on her student loan. Henderson sued United Student Aids Funds, Inc. (USA Funds) for alleged TCPA violations related to the collection of her student loan debt. Henderson alleged she began receiving many calls from debt collectors on a phone number she did not provide consent to be called on. Henderson contended that the pattern of calls and prerecorded messages showed that the debt collectors were combining the use of skip-tracers and auto-dialers in violation of the TCPA. The TCPA explicitly allows for skip-tracing: the technique of obtaining a phone number through online resources only and circumventing consent of the borrower. The TCPA also explicitly allows the use of auto-dialers to call a borrower. The TCPA prohibits, however, a debt collector from combining the use of an auto-dialer to call a skip-traced phone number absent consent of the consumer to call their cell phone.

USA Funds hired a loan servicing company that employs various debt collectors to collect Henderson’s unpaid loan on behalf of USA Funds.1 USA Funds did not have a contractual relationship with the debt collectors employed by the loan servicer or any day-to-day dealings with them. USA Funds did, however, have access to its loan servicer’s reports that tracked the debt collectors’ performance, and could and did review debt collectors’ calling notes. USA Funds also conducted an annual audit of its loan servicers’ debt collectors. The annual audit did not focus on TCPA violations, but USA Funds noted instances of problematic collection practices and called on its loan servicer for corrective action in some cases. USA Funds was also generally aware that auto-dialers and skip-tracers were used by debt collectors in the industry. Henderson argued that this evidence was enough to show USA Funds had agency with its loan servicer’s collectors by ratifying their allegedly improper conduct; the Ninth Circuit majority agreed.