Ill App Says Debt Collector's Alleged Failure to Register As Collection Agency Would Void Collection Judgment

An Illinois Appellate Court recently reversed a lower court’s judgment against a debtor in a collection suit, because the plaintiff-debt collection agency was not properly registered under the Illinois Collection Agency Act (“Act”), 225 ILCS 425/14, et seq., at the time the collection lawsuit was filed.


A copy of the opinion is available at: http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/March/1092773.pdf


After plaintiff debt collector LVNV Funding, LLC (“LVNV”) obtained a judgment against defendant debtor (“Debtor”), Debtor filed a motion to vacate the judgment. Debtor alleged that LVNV had not registered with the state as a collection agency before it filed the suit against him. However, Debtor did not include any allegations concerning how he discovered that LVNV had not registered, and he included no other allegations related to his diligence. Debtor sought only a finding that LVNV’s failure to register rendered void the judgment entered against him.

The trial court denied Debtor’s motion to vacate the judgment without hearing evidence because Debtor did not notify the court before trial that LVNV had not registered as a collection agency. Debtor appealed, and the Appellate Court reversed and remanded.

A party seeking relief from a judgment under an Illinois section 2-1401 petition to vacate judgment (735 ILCS 5/2-1401) must plead and prove, among other things, that he acted with “diligence in both discovering the defense or claim and presenting the petition. However, “when the trial court enters a void judgment, a party aggrieved by the judgment may attack it in a section 2-1401 motion without showing diligence.” Accordingly, the issue before the Court was whether the lower court’s judgment was void, or merely voidable.

The Court held Debtor “alleged adequate grounds for vacating the judgment entered in favor of LVNV.” The Court reasoned that the Act makes it a crime to engage in collection business without a proper license. See 225 ILCS 425/4.5, 14, 14b. Moreover, “a contract calling for performance in violation of this requirement is illegal and void.” Thus, “if LVNV had not registered before it bought the original creditor’s interest in Debtor’s debt, the contract between the creditor and LVNV was void ab initio because the contract violated the Act and the Act established that this kind of violation constituted a crime.”

Accordingly, the “trial court should not enforce a judgment in LVNV’s favor on a complaint LVNV filed in violation of criminal law, because to do so would abet LVNV in the commission of the crime of debt collection by an unregistered collection agency.” The Court also noted that the criminal aspect of the Act distinguished this case from others in which “the contractual obligations owed to a professional service corporation law firm which lacked registration could not be voided absent a showing of prejudice resulting from the failure to register.” See Ford Motor Credit Co. v. Sperry, 214 Ill. 2d 371 (2005).

The Court finally instructed that, if LVNV disputes the accuracy of Debtor’s factual allegations, the trial court should hold an evidentiary hearing on the issue before deciding whether to grant Debtor’s motion to vacate the judgment.