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Arbitration Agreements Not Enforceable by Third Party Debt Purchasers

Saturday, October, 15, 2016

A company that purchases consumer debt from a lender cannot enforce an arbitration agreement entered into by the debtor and the original lender, according to a recent ruling from a New Jersey appeals court. The ruling was a reversal of an earlier ruling from a trial judge. It reversed a motion by Midland Funding LLC to enforce the arbitration clause and dismiss a case. Midland was unable to offer evidence the debtor had agreed to be bound by the terms of the existing agreement.


According to details from the case, Midland Funding’s suit against Roberta Bordeaux was made in an effort to collect a debt of just over $1000. It had purchased the debt from WebBank and was part of a computer purchase from Dell Inc. Midland’s evidence was the original arbitration agreement it had photocopied two pages of that contained the arbitration notice and according to details from the case, the font on the pages is smaller than what was used in the appellate briefs and did not reflect Bordeaux’s agreement to be bound to the agreement or contain a signature.


Bordeaux’s answer to the suit denied liability and brought a counterclaim against Midland Funding for violation of the Fair Debt Collection Practices Act. In response, Midland moved to compel arbitration, and the Superior Court Judge conducted a hearing in September 2014. The judge declared the clause was valid.


On appeal, additional judges said the evidence did not establish that Bordeaux had knowingly agreed to waive her right to a court trial in favor or arbitration.