District Court rules debt collection attorney can invoke arbitration provision

Courts Debt Collection FDCPA Arbitration

On October 8, the U.S. District Court for the Northern District of Illinois granted a defendant’s motion to compel arbitration in a putative class action suit alleging that he threatened to charge unauthorized late fees on defaulted consumer debt. The suit claimed that the defendant, who was an attorney hired to collect the debt, violated the FDCPA when he sent a letter attempting to collect on a delinquent account containing the language: “Because of interest, late charges, attorneys fees, if any, and other charges that my vary from day to day, the amount due on the day you pay may be greater.” According to the borrower, the statement was false and misleading because late fees could not accrue on her debt anymore since the debt had already been “fully accelerated” under the provisions of consumer loan agreement signed with the company that owned her consumer loan account. The attorney moved to compel arbitration based on an arbitration provision in the borrower’s loan agreement. While the borrower did not dispute that the arbitration provision was valid, she argued that the attorney does not fall within the provision’s scope. Among other things, the borrower asserted that (i) the attorney was not a party to the loan agreement and, thus, could not invoke its arbitration provision; and (ii) FDCPA claims can only be brought against a debt collector and not against the creditor, and that, because the company (not the attorney) was her creditor, the arbitration provision would not cover her FDCPA claims.

The court disagreed. “The fact that an FDCPA claim against [the company] would be a clear loser does not mean that the arbitration provision does not cover FDCPA claims—which have been brought, and will continue to be brought, against creditors,” the court stated. “Arbitration provisions cover weak and strong claims alike, so long as the claim falls within the provision’s defined scope.” According to the court, the claims fell comfortably within the provision’s broad agreement to arbitrate “any dispute, claim or controversy” related to a borrower’s account, loan agreement or relationship with the company. Concerning the borrower’s argument that the attorney cannot invoke the arbitration provision because he is not a party to the loan agreement, the court agreed that, “as a general rule, ‘[o]nly signatories to an arbitration agreement can file a motion to compel arbitration.’” However, it ruled that Illinois law allows an exception to the general rule where the signatory’s agent seeks to compel arbitration. Moreover, the court further ruled that the attorney has not waived his right to arbitration by litigating the case for nine months before moving to compel arbitration.