Court of Appeals (Mich.) Finds No Licensing Violation for Auto Lenders who Hire Repossession Assignment “Forwarders” — A Repossession Company Who Acts as a General Contractor to Hire Local, Licensed Repossession Companies

In Badeen v. Par, Inc., — N.W.2d —-, 2013 WL 1489372 (Mich.App. 2013), the Michigan Court of Appeals found that auto finance lenders’ practice of hiring a single, general repossession contractor (a “forwarder”) who forwards assignments to local, licensed repossession agents did not trigger Michigan’s debt collection licensing statutes for the forwarder.

Plaintiff George Badeen, a licensed collection agency manager, owns plaintiff Midwest Recovery and Adjustment, Inc. (“Midwest Recovery”). Midwest Recovery is a licensed collection agency that is hired by automobile lenders to repossess financed vehicles whose owners have defaulted on their loans. In the past, automobile lenders would contract directly with repossession agents, like Midwest Recovery. However, more recently, lenders are contracting with forwarding companies. Apparently, repossession agents receive less money when hired by forwarding companies than when hired directly by lending institutions. Plaintiffs claim that this practice has caused them harm.

  The Michigan Court of Appeals found that the ‘forwarders’ conduct did not trigger Michigan’s debt collection licensing statutes.  

Thus, the issue boils down to whether the for-warder defendants “directly or indirectly engaged in repossessing or attempting to repossess” collateral. We conclude that they did not. “Engage” means “to occupy the attention or efforts of; involve.” Random House Webster’s College Dictionary (1997). And “occupy” is defined as “to fill up, employ, or engage.” Id. Plaintiffs’ complaint alleges that the forwarder defendants hired and contracted with “local, licensed, Michigan debt collection agencies to repossess the collateral sought to be seized.” However, the fact that the forwarder defendants contracted out the work demonstrates that they were not “occupied” or “involved” with the act of repossession itself. There were no allegations that the forwarding defendants had any involvement or input whatsoever with the actual re-possession effort process, and we decline to find that a forwarder who contracts out the actual repossession process is “indirectly engaged in repossessing or attempting to repossess.” Such an extension of the process would be too attenuated. ¶  Our construction of the phrase “indirectly en-gaged in repossessing or attempting to repossess” is consistent with the purpose of the statute “to protect the debtor and the creditor from the potentially improper acts of a third-party collection agency.” Asset Acceptance Corp v. Robinson, 244 Mich.App 728, 732; 625 NW2d 804 (2001). Because forwarders are not involved with “collection activities” (they do not collect debts, they do not contact consumers, and they are not involved with the actual act of repossession), requiring them to be licensed would not further the purpose of the statute. ¶  Because forwarders are not required to be li-censed, the forwarder defendants did not violate the Occupational Code, and the lender defendants did not violate the MCPA. Accordingly, the trial court did not err in granting defendants’ motions for summary disposition.