State Statutes and Municipal Ordinances

A collection agency is a business whose concern is to collect all kinds of claims, as well as notes, drafts, and other negotiable instruments, on behalf of others and to render an account of the same[i].

Collection agencies are closely regulated by state statutes[ii].  A state under its police power has the right to regulate any business, occupation, trade, or calling in order to protect the public health, morals, and welfare, subject to the certain restrictions[iii].

The power to regulate includes the power to license. Generally, in order to protect the health, morals, and welfare of the public, a state can license an occupation, trade, or calling.  Also, licenses may be imposed in order to control those occupations that are necessary to the public so that their operation may be harmless and that they don’t subserve the public good.

Thus, the right of personal liberty and the right to earn a livelihood in any lawful calling and to pursue any lawful trade or vocation is subject to the governmental right to license such trade or occupation where justified under the police power.  Even the due process and equal protection provisions of the federal and state Constitutions are not intended to interfere with the power of the state in the exercise of the police power to prescribe regulations for the protection and promotion of the welfare of the people[iv].

However, the exercise of police power is only subject to the qualification that the measure adopted for the purpose of regulating the exercise of the rights of liberty and the use and enjoyment of property must be designed to effect some public object which the government may legally accomplish.  It must be reasonable and have some direct, real, and substantial relation to the public object sought to be accomplished.

A municipal ordinance imposing a license tax upon persons conducting, managing, or carrying on the business of collecting debts, claims, or demands, and known as a collection agency, is not void[v].  In Ex parte Smythe, 116 Tex. Crim. 146 (Tex. Crim. App. 1930), the court held that an ordinance making it unlawful for any person or persons who are engaged in the business or trade of lending money and making collection in connection therewith to transact any part of such business on the streets of the city is void as being arbitrary, discriminatory, and unconstitutional.

The Texas Debt Collection Practices Act defines debt collection as any action, conduct, or practice in collecting debts owed or due, or alleged to be owed or due a creditor by a consumer[vi].  Unlike the federal statute, the Texas Debt Collection Practices Act, does not require that debt collection be the principal business of a debt collector[vii].  The statute applies to an entity attempting to collect the entity’s own debts[viii].  In Smith v. Heard, 980 S.W.2d 693 (Tex. App. San Antonio 1998), the court held that an actor is not excused from following the provisions of the statute.  In Monroe v. Frank, 936 S.W.2d 654 (Tex. App. Dallas 1996), the court held that attorney’s fees are recoverable under the Texas Debt Collection Practices Act.  Also, damages for mental anguish are recoverable under the statute.

In Idaho, statute prohibits a person, firm, co-partnership, company, association or corporation conducting a collection agency for compensation without obtaining a permit from the commissioner of finance[ix]. 

Under a Colorado statute, it is unlawful for any person, firm or corporation engaged in the business of the solicitation of accounts for collection and the collection of accounts, to engage in said business without first giving bond to the people of the State of Colorado[x].  Upon complying with the bond condition imposed by statute, a person, firm, association or co-partnership may conduct a collection agency, bureau or office in Washington, receive payment for others of any account, engage in the business of soliciting the right to collect any account, or advertise for, or solicit in print, the right to collect, etc., for another[xi].

The Wisconsin Collection Agency Law does not impede the flow of interstate commerce by placing upon it an undue burden either as to discriminatory or prohibitive fees or by other discriminatory provisions.  The provisions of the statute apply equally to those engaged in intrastate commerce and to those engaged in interstate commerce[xii].

In Meyers v. Matthews, 270 Wis. 453 (Wis. 1955), the court held that the field of regulation of collection agencies and solicitors for the purpose of protecting the interests of the public is not pre-empted by congress.  Further, in the absence of the barriers of discrimination and undue burden, a state may pass regulatory laws to protect its residents from fraud and unconscionable conduct by out-of-state collection agencies who maintain representatives within the borders of the state.  Similarly, where congress has not already legislated, a state may exact licenses and reasonable fees as well as conformance with provisions designed to assure the responsibility of out-of-state concerns and their integrity in dealing with the residents of the state, even where such concerns are engaged in interstate commerce[xiii]. 

[i] Lynch Jewelry Co. v. Bass, 220 Ala. 96 (Ala. 1929)

[ii] State ex rel. Frieson v. Isner, 168 W. Va. 758 (W. Va. 1981)

[iii] Hankins v. Spaulding, 78 Idaho 533 (Idaho 1957)

[iv] Id

[v] Cuthbert v. Woodman, 185 Cal. 43 (Cal. 1921)

[vi] Smith v. Heard, 980 S.W.2d 693 (Tex. App. San Antonio 1998)

[vii] Monroe v. Frank, 936 S.W.2d 654 (Tex. App. Dallas 1996)

[viii] Id

[ix] Hankins v. Spaulding, 78 Idaho 533 (Idaho 1957)

[x] Young v. Cox, 96 Colo. 205, 206 (Colo. 1935)

[xi] Wash. State Bar Ass’n v. Merchants’ Rating & Adjusting Co., 183 Wash. 611 (Wash. 1935)

[xii] Meyers v. Matthews, 270 Wis. 453 (Wis. 1955)

[xiii] Id


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