The North Carolina Supreme Court left undisturbed a pro-consumer decision in a case involving one of the country's largest debt buyers, but it did so in a way that will have little impact on future litigation.
Three justices voted to affirm and another three voted to reverse the lower court's decision, which found that Portfolio Recovery Associates violated a North Carolina consumer protection law in its pursuit of a default judgment against a debtor.
A pro-consumer ruling could have made it more difficult for debt buyers operating in North Carolina to file a large volume of lawsuits, which often lead to default judgments against borrowers. But the split decision means the lower court's ruling can't be used as a precedent in other litigation.
"[The recent ruling] doesn't weaken or strengthen or clarify the consumer protection," said Nadine Chabrier, senior policy and litigation counsel at the Center for Responsible Lending.
The lawsuit began in 2015 after Portfolio Recovery Associates sued to collect unpaid debt from Pia Townes, a former HSBC credit-card customer who had stopped making payments on a card opened in 2006. The company obtained a default judgment against Townes for $1,866.90. It later dismissed the collection action.
Later, Townes sued Portfolio Recovery Associates, arguing the company had violated North Carolina's Consumer Economic Protection Act of 2009 by failing to provide an itemized accounting that could "reasonably verify" the amount Townes allegedly owed.
In 2020, an appeals court sided with Townes, ruling that Portfolio Recovery Associates "failed to comply with several provisions of the act governing attempts by debt buyers to pursue default judgments," including providing itemized statements outlining charges and fees and properly authenticating business records that established the amount and nature of the debt.
Portfolio Recovery Associates, a subsidiary of PRA Group, then
After charging off debts they have failed to collect, consumer lenders often sell the unpaid debt to buyers at a steep discount. Debt buyers pursue legal action against borrowers, sometimes obtaining default judgments that require unresponsive borrowers to pay amounts greater than the debt initially owed.
In 2015, the Consumer Financial Protection Bureau announced a $27 million settlement with Portfolio Recovery Associates, including $19 million worth of consumer refunds and an $8 million penalty. Under the agreement, Portfolio Recovery Associates was required to stop reselling debts and to stop collecting debts it couldn't verify.
Because the decision in the Portfolio Recovery Associates case doesn't carry precedential value, both sides will likely continue to debate the implications of North Carolina's 2009 consumer protection law.
"They're going to continue to fight it out," Chabrier said. "The battle will continue, and PRA is likely to continue what it's doing."
Portfolio Recovery Associates declined to comment Friday.
