By the Collections Agitator
Tribe, the above question is confusing and one that is commonly asked. Earlier, I included Debt Buyer in the list of entities identified as debt collectors; while accurate, the courts once treated them differently. Let’s take a closer look at Debt Buyers.
We know that the FDCPA applies to consumer debt collectors-you didn’t forget that, did you? To refresh, Debt Collectors are individuals or entities attempting to directly or indirectly collect the unpaid obligations due to others. Debt Collectors are those that also use any instrumentality of interstate commerce (phone, email, fax, trains, planes, automobiles, etc.) or mail whose primary purpose is to collect consumer debt. Simply put, if business activities do/can cross state lines, it is interstate commerce. If the majority of your business is collecting debt — you are a Debt Collector.
In 2014, California (you knew it, didn’t you) went further by enacting the Fair Debt Buyers Practices Act (FDBPA), and it applies to consumer debt that is sold or resold in January 2014 and after. Much like the Federal FDCPA, California’s Act proscribes business limitations and consumer protections to safeguard against sketchy business practices. The FDBPA permits individuals and class action suits to recover up to $1,000 or $500,000 or one percent net worth respectively for violations.
What are some FDBPA provisions, you ask?
It could look like this – Say Gimbels department store has several delinquent accounts and tried unsuccessfully to get the account holders to pay. After a time, Gimbels “charges off” the debt and no longer seeks to collect. A charge off is the process of writing off bad debt as a loss or an expense on their financial statements. Of course, Gimbels’ preference is current, up to date accounts, but debt write-offs can also be a business tool (not our focus).
Fleece and Grab (F&G) debt buyer enter the scene contracting with Gimbels to purchase a list (database) of charged-off debt. The list includes names, account numbers, and last known contact information. Gimbels sells the list, including a statement that sounds something like it does not warrant, guarantee or swear to the accuracy of the data therein. Think of it as “buyer beware or sold-as-is” notices.
F&G now seeks to collect the monies once owed to Gimbels with its bundle of delinquent obligations. It can do so on its own or enter into a contract with another entity to attempt collection. F&G signs an agreement with Quick$ LLC (Q$) debt collectors.
Quick$ undertakes steps to collect F&G’s delinquent account against Lisa W. In doing so, it knowingly and negligently violates FDCPA regulations. The specific violations are not our focus. Lisa is a member of the BWBC community and realizes she may have claims against both. Lisa files suit against Quick$ and F&G for FDCPA violations.
In its defense, F&G state it is not liable because it is a Debt Buyer and not a debt collector. F&G relies on the fact that Quick$ is the party engaged in collecting the delinquent funds; also, the debt is theirs purchased from Gimbels. In the alternative, since creditors are not subject to FDCPA regulation, it is further insulated from suit. Until recently, F&G stood a good chance of distancing itself from liability. The US Supreme Court and many lower courts regularly ruled in favor of debt buyers’ successful argument that they purchase debt as investments, not primarily to collect on delinquent accounts.
In a narrowly focused July 2017 ruling, the U.S. Supreme Court, in Henson v. Santander Consumer USA Inc., decided Debt Buyers are not debt collectors, thus not subject to the FDCPA. The decision focused on the second FDCPA definition—one that collects or attempts to collect others’ debts. However, The Court left open the possibility that Debt Buyers can be liable under the first definition- those whose primary business is debt collection.
Consumers and their counsel seized upon this opening. In 2018, a Federal District Court in Pennsylvania ruled that a consumer’s suit against a Debt Buyer could proceed because the Buyer met the FDCPA’s “principal purpose” definition. Soon after the Pennsylvania ruling, the 3rd and 9th U.S. Circuit Courts ruled in 2019 and 2020 respectively that Debt Buyers could be labeled debt collectors contrary to earlier arguments. These Courts found it irrelevant whether a debt buyer directly or indirectly (through another) sought to collect delinquent obligations. Debt Buyers can no longer comfortably rely on courts, limiting their interpretation of debt collectors in their favor.
Your immediate tasks: If suing a Debt Buyer, remember the 3rd and 9th Circuit rulings mentioned above. Lisa W., Fleece & Grab, and Quick$ are fictional entities.