Monday, August 31, 2015

FYI: 11th Cir Confirms "Debt in Default at Time of Acquisition" Not Enough to Be "Debt Collector" Under FDCPA

The U.S. Court of Appeals for the Eleventh Circuit recently confirmed that an entity is not a "debt collector" under the federal Fair Debt Collection Practices Act (FDCPA), where it does not regularly collect on debts owed to a third party, and debt collection is not the principal purpose of the entity's business, even when the debt was in default at the time the entity acquired it.


A copy of the opinion is available at:


A lender sued a borrower to collect credit card debt.  The parties entered into a settlement agreement, but the borrower failed to pay pursuant to the settlement and the lender obtained a judgment against the borrower. 


Another entity then acquired the borrower's credit card account from the lender and filed suit to collect on the same account subject to the prior lawsuit and claiming an amount in excess of the prior judgment. 


Thereafter, the borrower sued the second entity in federal court alleging violations of the FDCPA.  The case was dismissed and the borrower appealed.


On appeal, the Eleventh Circuit held the second entity was not a "debt collector" under the FDCPA, as it there was no indication that the second entity regularly collects on debts owed to a third party, and no indication that debt collection is the principal purpose of the second entity's business.


As you may recall, the FDCPA defines "debt collector" to mean "[1] any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or [2] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another."  15 U.S.C. § 1692a(6).


"[A]ny person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity…concerns a debt which was not in default at the time it was obtained by such person," is excluded from the definition of "debt collector" pursuant to 15 U.S.C. § 1692a(6)(F)(iii).


In addition, unlike debt collectors, creditors typically are not subject to the FDCPA.


A "creditor" is "any person who offers or extends credit creating a debt or to whom a debt is owed," but "any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another" is excluded from the definition of "creditor."  15 U.S.C. § 1692a(4).


The borrower relied on the statutory exclusion to the definition of "debt collector," and argued that the default status of the debt at the time it is acquired determines whether an entity is either a creditor or a debt collector.


The Eleventh Circuit disagreed, recognizing that a person must satisfy the FDCPA's substantive requirements in 15 U.S.C. § 1692a(6) in order for to qualify as a "debt collector," without regard to the default status of the underlying debt. 


The Court specifically rejected the borrower's definition of "debt collector" to encompass any regular purchaser of a debt in default even if the purchaser owns the debt and is collecting for itself.


In addition, the Eleventh Circuit further held the second statutory definition of "debt collector" was not modified or otherwise limited by Congress to include debts "originally" owed or due to another.


Accordingly, the Court affirmed dismissal of the borrower's amended complaint for alleged violations of the FDCPA. 





Ralph T. Wutscher
Maurice Wutscher LLP
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Chicago, Illinois 60602
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