Banks, retailers, finance companies and other entities that buy and sell loans are sounding alarms about a U.S. Supreme Court case that could bring them under the regulatory eye of a 1977 law prohibiting certain debt collection practices.

The U.S. Chamber of Commerce and banking industry trade associations warn that applying the Fair Debt Collection Practices Act to the exploding debt-buying industry could sweep many banks and consumer finance companies into the act as well, despite Congress' intent to exclude them.

If that happens, Morrison & Foerster's Joseph Palmore, the U.S. Chamber's amicus counsel, predicted the cost of credit will increase and the secondary market in loans will be chilled. There also would be a “boon to the 'cottage industry' of litigation that has arisen” out of the FDCPA, said Sullivan & Cromwell's Matthew Schwartz, amicus counsel to the Clearing House Association, American Bankers Association and Consumer Bankers Association.