Justices Wrestle with Debt Collection Tactics
The Supreme Court recently heard oral arguments in a case involving an Ohio law that allows the state attorney general to use “special counsel” (independent contractors) to collect tax debts. This law has been in effect as far back as the Great Depression. Federal law, however, prohibits abusive and deceptive representation to collect debts as a way to protect consumers from predatory practices. Using any name other than the true name of the debt collector to pursue payment of a debt is unlawful, but with the exception of state employees and officers who act as debt collectors within the course of their duties.
Some are now arguing that this law should cover the broadest definition of the term “officer” in order to best protect “government operations.” They argue that with billions of dollars worth of unpaid tax debt and only a handful of assistant attorneys general to collect debts across the entire state of Ohio, making this change would result in a huge fiscal impact.
Ohio has intervened as a defendant in the case, which was filed by two plaintiffs who were sent collection notices from private firms on behalf of the state. Although the notices contained letterhead reading “Office of the Attorney General,” they were actually sent by third party “special counsel” with a personal financial stake in the matter. While some of the Supreme Court Justices did not agree that this constituted a deceptive practice, the plaintiffs’ attorneys pointed out that the law’s language specifically prohibits using any other name to collect a debt, and that to use a different name makes it unclear who is and is not the creditor. The opposition responded, however, that the purpose of the letterhead is to allow the debtor to know exactly who they are dealing with and that the collection attempt is not a scam. They further argued that the Attorney General would actually be more vigilant in policing those who collect on their behalf, which is actually a benefit.
This case is the first in the last 10 years that will require the eight-member court to interpret liability standards under federal debt collection law.