The Iowa Supreme Court entered a ruling earlier this month which resolved, at least for now, the question of whether a collection agency may file small claims actions on behalf of its clients. The collection agency, backed by its trade group the Iowa Collector’s Association, argued that the Iowa legislature has adopted legislation evidencing a clear intent that collection agencies be allowed to engage in such activities. The Iowa Supreme Court, relying on the exclusive authority vested in it to admit persons to practice law in the court of this State, rejected the collection industry’s statutory arguments and upheld a district court’s order enjoining a collection agency from filing small claims actions on behalf of its customers.

The primary legislation on which the collection agency relied in support of its case is found in two separate chapters of the Iowa Code. Chapter 539 provides in part that:

Bonds, due bills, and all instruments by which the maker promises to pay another...are assignable by endorsement on the instrument, or by other writing. The assignee, including a person who takes assignment for collection in the regular course of business, has a right of action on them in the assignee’s own name....

(Emphasis supplied.) Chapter 631 provides in pertinent part that:

A person who in the regular course of business takes assignments of instruments or accounts pursuant to Chapter 539, which assignments constitute small claims, may bring an action on an assigned instrument or account in the person’s own name and need not be represented by an attorney.

(Emphasis added.) The collection agency argued that it was precisely the type of entity the legislature had in mind when it allowed parties in the business of doing so to accept assignments of bills and notes “for collection” and then sue on those obligations in small claims court without representation by an attorney.

The Supreme Court deflected the collection agency’s argument by finding that the word “assignment”, as used in the above-quoted statutes, means a transfer of the assignor’s entire interest or rights in the subject bills or notes. Though absolute in form, the “assignment” to the collection agency did not carry with it the assignor’s entire interest – the creditor would still receive the proceeds of any recovery less a fixed sum representing the collection agency’s commission for its services. That arrangement, found the Court, was not the type of “assignment” to which the statutes referred.

In a brief dissent, Justice Carter pointed out that the majority’s ruling focused only on the word “assignment”, rather than the entire statutory phrase at issue. Justice Carter was convinced that the legislature intended to authorize the type of collection efforts before the court, by its use of the words “including a person who takes assignments for collection in the regular course of business”.