Antitrust Law Daily Wrap Up, RICO—E.D. Pa.: Consumers’ claims over auto title loan collection proceed, (Jan 12, 2015)

By Linda O’Brien, J.D., LL.M.

Two consumers alleged sufficient facts to pursue claims against an automobile repossession business and the business owner for using the company to collect a usurious auto title loan, the federal district court in Reading, Pennsylvania has decided (Gregoria v. Total Asset Recovery, Inc., January 7, 2015, Stengel, L.).

Constantine Gregoria and Christie Hudson were the owners of a 2006 Nissan, which was titled and registered in Pennsylvania. In June 2011, the couple was in need of personal loan of $4,000 and contacted Delaware Title Company (DTL) for an auto title loan. The loan, issued at a triple digit rate of interest, was secured by the couple’s car. When the couple was late in their payments in February and March 2012, DTL sought to repossess the vehicle.

DTL hired Delaware auto repossession business Total Asset Recovery, Inc. (TAR), which repossessed the vehicle near their home. The couple did not receive any money back from the repossession, although the car was valued at over $10,000. Gregoria and Hudson filed suit against TAR and company owner, Matthew Howard, alleging, in part, violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Specifically, the plaintiffs asserted that the loan agreement was not legally enforceable, since it violated the Pennsylvania usury law. The company and Howard knew or should have known that the auto title loan was illegal when they entered into Pennsylvania and repossessed the car in order to enforce an auto loan with a usurious 150% annual interest rate. TAR moved to dismiss.

The court determined that the plaintiffs’ allegations were sufficient to plausibly plead a civil RICO claim. RICO prohibits any person employed by an enterprise that engaged in activities affecting interstate commerce to participate in the enterprise’s activities through the collection of unlawful debt.

Howard’s argument that he could not be considered a debt collector under RICO and only collected the collateral was rejected. DTL repossessed the vehicle to liquidate the collateral in order to satisfy the unpaid balance of the plaintiffs’ loan. Under the Fair Debt Collection Practices Act (FDCPA), the term “debt collector” includes any business for which the principal purpose is the enforcement of security interests.

When TAR collected the car, the purpose of the collection was to satisfy the debt. The plaintiffs alleged that DTL was in the business of lending money. In the court’s view, RICO did not require the collector to also be the lender. Since TAR was a debt collector under the FDCPA, the FDCPA may be used to interpret RICO and support RICO liability for an auto repossession company, the court concluded.

The case is No. 12-4315.

Attorneys: Robert F. Salvin (Phila Debt Clinic & Consumer Law Center) for Constantine J. Gregoria. Elizabeth F. Walker (Campbell Lipski & Dochney) for Total Asset Recovery, Inc.

Companies: Total Asset Recovery, Inc.

Cases: RICO PennsylvaniaNews