Michigan Court of Appeals Holds Companies Hired by Automobile Lenders to Arrange for the Repossession of Collateral Need Not Be Licensed as Collection Agencies

Auto Finance Debt Collection

On April 11, the Michigan Court of Appeals affirmed a trial court’s ruling that the Michigan Occupational Code did not require licensure of companies that contract with automobile lending institutions to handle collection services on delinquent accounts (“forwarding companies”) because the forwarding companies did not directly or indirectly engage in collections activities. Badeen v. Par, Inc., 2013 WL 1489372 (Mich. Ct. App. Apr. 11, 2013). Plaintiffs, licensed debt collectors, filed multiple amended complaints alleging that defendants, automobile lenders and forwarding companies, violated the Michigan Occupational Code by hiring unlicensed collections agencies and indirectly engaging in collections activities. The court of appeals held that plaintiffs were not entitled to relief for their claims that defendants engaged in licensable activity without a license. The court explained that because the forwarding companies hired by the automobile lenders contract out the activities of solicitation of claims and repossession of property to properly licensed collection agencies, and do not themselves “directly or indirectly” engage in the collection of debts, the forwarding agencies are not required to be licensed.