The Third Circuit Holds that the FDCPA Applies to Debt Collectors that Are Collecting Debts They Own

By Stephen J Shapiro

The Fair Debt Collection Practices Act (“FDCPA”) regulates the conduct of debt collectors.  The Act defines a “debt collector” as (a) any entity whose “principal purpose . . . is the collection of any debts” (the “principal purpose” definition), or (b) any entity that “regularly collects or attempts to collect . . . debts owed or due . . . another” (the “regularly collects” definition).  15 U.S.C. § 1692a(6).  In a recent precedential opinion, the Third Circuit held that an entity whose principal purpose is the collection of debts is a debt collector even if it owns the debt it is collecting and, therefore, is not collecting a debt owed another.  In other words, an entity that meets the “principal purpose” definition is a debt collector even if it does not also meet the “regularly collects” definition.

In Tepper v. Amos Financial, LLC, a creditor sold a loan on which its borrower had defaulted to Amos Financial, whose sole business involved purchasing and attempting to collect debts originated by others.  The debtor sued Amos alleging that, during its efforts to collect the debt, Amos violated the FDCPA by making false representations about the debt in both its written and oral communications with the debtor.  After a bench trial, the district court held that Amos was a “debt collector” within the meaning of the FDCPA and that it actions violated the Act.

On appeal, Amos challenged the district court’s conclusion that it is a debt collector.  Amos argued that, because it owned the debt it was attempting to collect, it was not collecting a debt “owed or due . . . another” and, therefore, was not a debt collector.  The Third Circuit rejected this argument because in the “principal purpose” definition the phrase “‘[a]ny debts’ does not distinguish to whom the debt is owed” and the phrase “‘debts owed or due . . . another’ . . . limits only the ‘regularly collects’ definition.”  Because there was no dispute that Amos’ principal purpose was the collection of debts, the Court held that Amos was a debt collector under the “principal purpose” definition even if it would not also qualify as a debt collector under the “regularly collects” definition: “[A]n entity whose principal purpose of business is the collection of any debts is a debt collector regardless whether the entity owns the debts it collects.”

Amos also attempted to rely on the fact that the FDCPA does not apply to “creditors,” which the Act defines as entities “to whom [the] debt is owed.”  Amos argued that, because it owned the debt at issue, it was a “creditor” and not subject to the Act.  The Third Circuit rejected this argument as well, holding that “an entity that satisfies both [the definition of debt collector and creditor] is within the Act’s reach.”

The Court also noted that the Supreme Court recently rejected the test the Third Circuit previously applied when analyzing whether an entity that purchased a debt was a debt collector.  Specifically, in Pollice v. National Tax Funding, L.P., the Third Circuit, adopting what is referred to as the “default test,” held that “an assignee of an obligation is not a ‘debt collector’ if the obligation is not in default at the time of the assignment; conversely, an assignee may be deemed a ‘debt collector’ if the obligation is already in default when it is assigned.”  The Third Circuit explained that in 2017 the Supreme Court repealed the “default test” in Henson v. Santander Consumer USA Inc.

In light of the Third Circuit’s ruling, debt collectors should remain vigilant about complying with the FDCPA, whether they are attempting to collect debts that they own or debts owned by others.

 

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