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TCPA Vicarious Liability Passes from Collector Through Servicer to Original Creditor

The Ninth Circuit Court of Appeals recently held that an original creditor was liable under the Telephone Consumer Protection Act (TCPA) for calls made by a debt collector with which the creditor had no contractual relationship. In Henderson v. United Student Aid Funds, Inc., Henderson took out student loans ultimately owned by United Student Aid Funds, Inc. (USA Funds). USA Funds contracted with Navient Solutions, Inc. (Navient) to service certain of its loans, including Henderson’s, and Navient, in turn, contracted with various collectors. Henderson alleged that these collectors sent her prerecorded messages in violation of the TCPA and sued those collectors, Navient, and USA Funds. All but USA Funds were dismissed for lack of jurisdiction, and Henderson’s claims against USA Funds depended on establishing vicarious liability on USA Funds for the calls of the collector with whom USA Funds had no contractual relationship.

After first rejecting Henderson’s argument that a 2008 order of the Federal Communications Commission (FCC) created per se liability on USA Funds (and affording that order Chevron deference), the court turned to Henderson’s vicarious liability theory. In doing so, the court started by noting the well accepted state of the law that federal common law agency principles apply to the TCPA in determining whether the acts of third party callers bind the defendant. Ultimately, the court’s ruling hinged on its determination that a party—through ratification—may create an agency relationship where none existed previously. In Henderson, the court determined that “a reasonable jury could find that USA Funds ratified the debt collectors’ calling practices by remaining silent and continuing to accept the benefits of the collectors’ tortious conduct despite knowing what the collectors were doing or, at the very least, knowing of facts that would have led a reasonable person to investigate further.”

Toeing the line between control and willful ignorance with independent contractors and third party vendors can be difficult. Henderson shows that attempting to insulate oneself through a servicer will not suffice and that lack of contractual relationship or a facially direct relationship cannot avoid vicarious liability for TCPA suits. Ultimately, every caller should vet vendors and servicers thoroughly and never ignore non-compliant practices.