Second Circuit Confirms Personal Liability of Individual Owner for FTCA and FDCPA Violations of Payday Debt Collection Companies | Ballard Spahr srl


The Second Circuit recently upheld a ruling declaring two individual co-owners personally liable for nearly $ 11 million for their companies’ violations of the Federal Trade Commission Act (FTCA) and the Fair Debt Collection Practices Act (FDCPA). Much of the business of the companies was to collect the payday loan debts they had purchased.

In FTC c. Federal Check Processing, Inc., et al., in summary judgment, the United States District Court for the Western District of New York found that the defendant companies falsely claimed to be government-owned, wrongly accused consumers of committing check fraud, threatened consumers with arrest if they did not pay their debts, and sometimes called friends, family, co-workers or employers of debtors, “telling them the debtors had a debt, had committed a crime. crime by not paying it and faced possible legal repercussions ”. The district court ruled that the two individual co-owners and co-directors were personally liable for $ 10,852,396, the FTC’s calculation of the total amounts received by defendant companies from consumers as a result of their illegal acts.

On appeal, a co-owner did not challenge the district court’s finding that the companies violated the FTCA and FDCPA, but argued that (1) he was wrongly held personally liable and (2) that the court erred in setting the equitable monetary relief at $ 10,852,396. (The other co-owner failed to submit a timely brief, so his appeal was dismissed according to local rules.)

The Second Circuit agreed with the district court that the defendant had both the power to control legal persons and sufficient knowledge of their practices to be held individually liable for their fault in law. He owned a 50 percent stake in the defendant companies, had signing authority over their bank accounts, was their co-director and general manager, and had the authority to hire and reprimand employees, and therefore had the authority to control companies. illegal actions. As co-director and general manager, he was also “intimately involved in the illegal activities in question: collection calls”. He maintained an office in the collection call center which he visited at least once a day, spending there for up to half the day, and “made some of the more offensive collection calls himself.”

The second circuit also confirmed the amount of the ordered remission. The defendant claimed that the FTC relied on “about 45 calls where it claimed fraudulent calls were made”, which was insufficient to establish that “the whole transaction was” steeped in fraud ” “. The Second Circuit noted that the FTC had submitted more than 500 consumer complaints about defendants’ debt collection practices, aggressive collection scripts retrieved from collector booths, and audio recordings of twenty-one of the twenty-five. collectors falsely telling consumers that collectors were law enforcement officers or “processors”. In view of this evidence and the Respondent’s decision not to present any evidence that the companies realized all or part of their income by lawful means, the Second Circuit concluded that the amount of the refund of the gross revenue of the companies was appropriate. .

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