Page 19 - John Hundley 2012

Sharp Thinking

No. 65 Perspectives on Developments in the Law from The Sharp Law Firm, P.C. June 2012

Collection Agency Non-Registration Voids Judgment

By John T. Hundley, Jhundley@lotsharp.com, 618-242-0246

A judgment obtained by a collection agency that sues in its own name without registering under the
Collection Agency Act (225 ILCS 425) is void, an Illinois Appellate Court panel has ruled. However, when
registered and holding a written assignment separate from the contract listing the debt with the agency, a
collection agency may sue to collect in its own name, even though it is only an assignee for collection,
another panel has ruled.

The voidness ruling came in LVNV Funding, LLC v. Trice, 2011 IL App (1st) 092773, and its
significance is that it permits belated challenges to unregistered collection agencies’ judgments without
the requirement of diligence that ordinarily applies to a debtor’s challenge to a judgment under 735 ILCS
5/2-1401. The agency argued that its failure to register merely
made its judgment voidable, not void; if the judgment was
merely voidable, the debtor would have had to show diligence
both in discovering his defense and in presenting the § 2-1401 First of three issues focusing
petition. Noting the act’s criminal penalties and likening on the Collection Agency Act.
the suit to one commenced through unauthorized practice
of law, the court rejected the plaintiff’s arguments and
held the suit void.

The ruling permitting collection-agency suits came in Unifund CCR Partners v. Shah, 407 Ill.App.3d
737 (2011), rebuffing a debtor’s argument that an assignee “for collection only” lacked the personal
interest in the claim necessary to confer standing. Relying on other jurisdictions’ recognition of the
separability of legal and beneficial interests in a claim, the panel said such an
assignee can have standing and sue if it pleads and proves an assignment in
writing, separate from and in addition to the contract listing the debt with the
collection agency. The assignment can take the form of multiple documents, if
they collectively meet the requirements of the act, the panel said. However, the
attachments must be operational documents, not affidavits, it ruled. See also
Grant-Hall v. Cavalry Portfolio Serv., LLC, __ F.Supp.2d __, 2012 WL 619651
(N.D. Ill. 2012). Where the agency is remote from the original creditor, the
documents must prove every link in the chain of title. Moreover, the assignment
must specifically state the consideration for the assignment (see Grant-Hall; Mutual
Mgmt. Serv., Inc. v. Swalve, 2011 IL App (2d) 100778), and it must expressly state
its effective date (Swalve; see also Business Serv. Bur., Inc. v. Webster, 298
Ill.App.3d 257 (1998)). Hundley

The recent cases have brought increased attention to a statute that long has rested largely
unnoticed on the books. Its scope is broad, but not unlimited.

Terms Defined Broadly: Under the act, “debt collector” or “collection agency” is any person who,
in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in debt
collection, and “debt collection” means any act or practice in connection with the collection of consumer

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