Assignment of Claims to Collection Agency.

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Collection agencies frequently identify debtors who owe small bills to multiple creditors. Individually, the claims may be for amounts which do not permit effective resort to the judicial system to obtain payment. Where legal action can be effective, the collection agency often forwards the file to one or more attorneys selected by the clients in accord with UPR 3, who then may initiate multiple legal actions to obtain collection.

In addition to the foregoing two situations, collection agencies encounter the situation in which a creditor may prefer to assign for consideration claims arising out of the breach of contract to a third party for collection. This relieves the creditor or the burden of collection. Banks may elect to assign credit card balances for collection by third parties, for instance.

Section 8.01-26 of the Code of Virginia permits the assignment of causes of action ex contractu.

The relationship of this general statute to UPR 3 gives rise to three questions:

(1) May a collection agency take an assignment of several contract claims and engage counsel to file suit in the name of the agency as holder of the claim to collect the combined amount?

(2) May a collection agency accept an assignment of a claim upon the condition that the consideration for the assignment will be a percentage of the recovery, where suit is to be brought in the name of the agency?

(3) May a collection agency accept an assignment of a claim upon payment of fixed consideration and engage counsel to initiate suit in the agencyís name?

The Committee has concluded as follows:

1. If a creditor assigns a claim to a collection agency for affixed consideration and the creditor retains no interest in the claim, the collection agency will not violate Unauthorized Practice Rule 3 if it hires a lawyer on its own behalf to collect the claim. If the creditor no longer has any interest in the claim, then the collection agency will be the lawyerís client.

2. On the other hand, if a creditor assigns a claim to a collection agency and the consideration for the assignment is a percentage of the recovery, the creditor continues to have an interest in the claim. The collection agency must comply with Unauthorized Practice Rule 3 in order to avoid the unauthorized practice of law.

In reaching the foregoing conclusion, we have assumed that a creditor can effectively assign all interest in a claim to a collection agency for a fixed consideration under Virginia law.

We would like to point out that if a collection agency solicits claims from creditors, the collection agency must be careful not to violate the unauthorized practice of law rules when making those solicitations.

Committee Opinion
August 10, 1988
Updated: Aug 28, 2006