In Henderson v. United Student Aid Funds, Inc., the Ninth Circuit recently reversed a decision by the District Court for the Southern District of California holding that a lender could not be held vicariously liable for the actions of the debt collection companies that had been hired by its loan servicer.

The plaintiff in Henderson is a borrower on a student loan that is owned by United Student Aids Funds, Inc. (“USA Funds”). Rather than interact with borrowers directly, USA Funds hired Navient Solutions, Inc. to service its loans. Navient then hires debt collection companies to collect on loans that are in default. When Henderson stopped paying her loan, she began receiving calls from five different debt collectors even though she claimed that she had neither provided her telephone number in connection with her loan nor given consent to receive such calls. Henderson filed suit against USA Funds, on behalf of herself and a class of similarly situated borrowers, alleging that these calls violated the Telephone Consumer Protection Act. (Although Henderson also filed suit against Navient and several of the debt collectors, these claims were dismissed for lack of personal jurisdiction.) The district court granted summary judgment in favor of the lender, finding that it could not be held vicariously liable for the actions of the debt collectors hired by Navient.

In reviewing the district court’s order, the Ninth Circuit rejected Henderson’s argument that USA Funds was automatically liable for any violation of the TCPA on the part of the debt collectors. Although a creditor may be held liable for the actions of third-party callers, there is no per se vicarious liability under the TCPA. Rather, to hold a lender responsible, an agency relationship must exist between it and the debt collectors placing the calls.

In Henderson, no direct contractual relationship existed between USA Funds and the debt collectors. But the lender reviewed Navient’s operations, including the servicer’s daily, weekly, and monthly reports tracking the performance of the debt collectors. USA Funds also conducted annual reviews of the collection firms. On three occasions, these audits allegedly revealed that collectors were calling borrowers at telephone numbers for which they had not provided consent. Although USA Funds indicated that this practice was improper and recommended corrective action, Navient continued to use the collectors.

Based on these facts, the Ninth Circuit determined that a reasonable jury could find that the debt collectors were acting as agents of USA Funds. Specifically, it held that questions of fact exist as to whether the lender had created an agency relationship by ratifying the actions of the debt collectors, either by: (a) remaining silent and continuing to accept the benefits of the collector’s conduct; or (b) knowledge of facts that would have led a reasonable person to investigate further. The Court therefore reversed the district court’s decision and remanded the case for further proceedings.

Although the Henderson case reaffirms that there is no automatic liability under the TCPA for the actions of third-party debt collectors, it also provides a warning: Lenders may not be able to avoid liability if they know that they are benefiting from TCPA violations, but the analysis could prove factual.