On Friday, June 13, 2014, the Michgan Supreme Court expanded the definition of a "collection agency" which could impact a company's decision to obtain a collection agency license in Michigan.

The court ruled in Badeen v. PAR, Inc., et al. that forwarders or forwarding companies[1] are a “collection agency” under Michigan’s Occupation Code (“Code”), MCL §  339.901 et seq

The plaintiff in Badeen owns and operates a licensed collection agency.  He sued various creditors and forwarding companies on behalf of himself and other licensed collection agents in Michigan, claiming that the forwarding companies were acting as collection agencies without possessing a license in violation of MCL 339.904(1), and the creditors had violated MCL 445.252(s)[2] by hiring unlicensed collection agencies. 

The Code defines a “collection agency” as:

a person directly or indirectly engaged in soliciting a claim for collection or collecting or attempting to collect a claim owed or due or asserted to be owed or due another, or repossessing or attempting to repossess a thing of value owed or due or asserted to be owed or due another arising out of an expressed or implied agreement.[3]

Both the trial court and the Michigan Court of Appeals ruled in favor of the forwarding companies.  They held that “soliciting a claim for collection” under MCL §  339.901(b) requires asking the debtor to pay his or her debt, which the forwarding companies did not do. 

The Michigan Supreme Court reversed, holding that forwarding companies “solicit a claim for collection” when they contact “the creditor regarding any unpaid claims that the collection agency can pursue.” Badeen at * 8.  If “solicit a claim” were interpreted to mean only contacting a debtor to collect the account, the Court concluded there would be no need for the clause “or collecting or attempting to collect a claim owed or due or asserted to be owed or due another” in the definition of “collection agency”.  Id.

The Court’s decision may not be the final word on this case or the licensing issue.  A bill was introduced in the Legislature to exclude forwarding companies from the Code, and the trial court must rule whether certain defendants are not required to be licensed under the Code because their collection activities in Michigan are limited to interstate communications.[4]  

Regardless of the outcome of Badeen, companies involved in acquiring or collecting unpaid consumer accounts should evaluate whether they need a collection agency license in Michigan and other states with collection statutes containing language similar to the Code.