Consumer Finance Insights
April 4, 2019

Ninth Circuit Holds Lender Could Be Vicariously Liable for Debt Collector’s Misconduct

On March 22, 2019, the Ninth Circuit Court of Appeals reversed summary judgment in Henderson v. United Student Aid Funds, Inc., 2017 WL 766548 (S.D. Cal. Feb. 28, 2017), and remanded the matter back to the Southern District of California to determine if a student loan lender could be vicariously liable for the misconduct of debt collectors in a Telephone Consumer Protection Act (TCPA) action.

The TCPA action, initially filed in August of 2013, against the student loan lender, loan servicer and several debt collectors, alleged the defendants placed a number of unsolicited calls using artificial or prerecorded voices to the plaintiff’s wireless phone number.  Plaintiff claimed she never gave express consent to autodialed calls or prerecorded messages.  In 2015, the student loan servicer and the debt collectors were dismissed for lack of jurisdiction, leaving the lender as the sole defendant.

Discovery proceeded for a year, and after the plaintiff requested class certification, the lender filed for summary judgment, arguing it was not responsible for the calls because it did not control the way in which the debt collectors handled their calls.  The Southern District of California agreed, and ruled in the lender’s favor in February of 2017, dismissing the action in its entirety.

Thereafter, Plaintiff appealed to the Ninth Circuit, alleging the lender had remained willfully ignorant of the debt collector’s actions in order to avoid liability.  After reviewing the record, a divided Ninth Circuit Court of Appeals agreed.  Writing for the majority, Circuit Judge Dorothy Nelson noted that the record suggests the lender had set up its collection practices “to remain willfully ignorant and avoid liability,” creating genuine issues of material fact regarding whether the lender ratified or affirmed the debt collector’s practices through willful ignorance.  Circuit Judge Jay Bybee dissented, noting that the facts did not show willful ignorance of the debt collector’s misconduct.  It is now up to the Southern District of California to decide whether the lender is vicariously liable for TCPA violations.