• DYE CULIK PC | Consumer Protection Division

Debt Collector Portfolio Recovery Associates Can’t Force Consumers to Arbitrate Claims

Updated: Jan 31

Portfolio Recovery Associates is one of the largest debt collectors in the country. In addition to being a debt collector (a company that collects delinquent debts for profit, often by filing lawsuits), it is also what is called a “debt buyer.” A “debt buyer” is a company that, in addition to collecting debts, also buys debts. A debt buyer like Portfolio Recovery Associates has as its business model the purchase of large portfolios of defaulted debts, especially credit card accounts. It makes money by suing consumers or getting payment in other ways.

Accusations of unfair and deceptive practices abound against Portfolio Recovery Associates. They have been sued for a variety of violations of laws like the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692, et seq., and the North Carolina Collection Agency Act, G.S. §§ 58-70-1, et seq.

Debt Collector Portfolio Recovery Associates Can’t Force Consumers to Arbitrate Claims
Debt Collector Portfolio Recovery Associates Can’t Force Consumers to Arbitrate Claims

Though Portfolio Recovery Associates usually sues consumers in court to collect money from them, the debt collector has tried to force any lawsuits against it for violating collection laws into arbitration. In private arbitration, the allegations are usually confidential. Furthermore, many consumer advocates argue that arbitration is more weighted in favor of corporations and against consumers.

Two Recent Court Decisions

A pair of recent decisions from the North Carolina Court of Appeals, however, hold that despite Portfolio Recovery Associates’ strenuous objections, certain consumers’ lawsuits are allowed to proceed in court.

Two class-action lawsuits were filed against Portfolio Recovery Associates alleging that it violated the North Carolina Consumer Economic Protection Act (the NCCEPA). The NCCEPA was passed to provide consumers with protections against illegal debt collection by debt collectors like Portfolio Recovery Associates. Specifically, the NCCEPA required that when debt buyers sue consumers in court, those debt buyers must have valid documentation that they own the debts. Debt buyers also must prove ownership of the debts before the court will enter a judgment against consumers. Portfolio Recovery Associates was alleged to have routinely violated these requirements in numerous lawsuits in which it was collecting Citibank credit cards.

In response to the class-action lawsuits, Portfolio Recovery Associates filed a request to arbitrate them privately. Though it virtually always sues consumers in court, it did not want the class actions to go to court. The consumers objected and asked the North Carolina Court of Appeals to decide where the class actions should be decided, in court, or in arbitration.

No, said the Court of Appeals, Portfolio Recovery Associates may not force the consumers into arbitration. The consumers’ class-action lawsuits were allowed to proceed in court.

First Court Decision

Why did the Court of Appeals deny Portfolio Recovery Associates’ request to arbitrate? The court gave two reasons. First, because Portfolio Recovery Associates had waived the right to arbitrate by having already sued the consumers in court. The credit card agreements did contain arbitration clauses that normally would have required consumers to arbitrate any disputes. But, the right to arbitration, like other contractual rights, can be waived by acting contrary to that right.

Here, Portfolio Recovery Associates had the right to arbitrate but instead chose to file lawsuits against consumers in court. In short, Portfolio Recovery Associates doesn’t get to have it both way – it can either arbitrate, or sue, but not both.

Second Court Decision

The second reason the court gave for denying arbitration was that the agreement pursuant to which Portfolio Recovery Associates purchased the Citibank credit card accounts did not specify that one of the rights it was purchasing was the right to force arbitration. Portfolio Recovery Associates purchased the credit cards using a Bill of Sale from the original creditor, Citibank. The Bill of Sale was specific as to what was being sold – only the debts, and nothing else. The court said that if the right to arbitrate was being sold, the Bill of Sale had to specifically say so.

Thus, in a pair of decisions, the Court of Appeals roundly rejected Portfolio Recovery Associates’ arguments that it should be able to force the consumer class actions into private arbitration. The two decisions are here:

Despite this consumer victory, the consumers’ cases are not over. They will now probably proceed toward an eventual trial. The cases will be decided by a judge and jury, not an arbitrator, though. The consumers will ultimately have to show that Portfolio Recovery Associates violated the state consumer debt-collection laws.

DYE CULIK PC has represented many consumers in lawsuits and disputes with Portfolio Recovery Associates throughout North Carolina and Massachusetts. We have handled settlements, trials, and we have gone after debt collectors for unfair collection practices. If you have an issue with a debt collector – whether it is Portfolio Recovery Associates or any other collector – contact us at 800-704-4214 to see how we can help.