Eleventh Circuit Limits Application of FDCPA

In a divergence from the majority, the Eleventh Circuit held last week that an entity is not a debt collector subject to the FDCPA when it seeks to collect purchased delinquent debt. In Davidson v. Capital One Bank (USA), N.A., 2015 U.S. App. LEXIS 14714 (11^th Cir. Aug. 21, 2015), the court held that an entity is not a debt collector when it attempts to collect a debt that was acquired after default if either the entity’s principal purpose is not the collection of debts or the entity does not regularly collect debts owed to others. 

In Davidson, Capital One purchased a portfolio of delinquent credit card debt from HSBC Bank Nevada and then proceeded to attempt to collect on it.  Davidson filed a putative class action against Capital one alleging various FDCPA violations.  Capital One responded by moving to dismiss alleging that it was not a debt collector subject to the FDCPA.

Under the FDCPA, in order to be a debt collector subject to the Act, a person must “use any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of debts or who regularly collects or attempts to collect…debts owed or due or asserted to be owed or due another.” 15 U.S.C. §1692a(6) (emphasis supplied).  The Act also provides that “any 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.”  15 U.S.C. §1692a(6)(F)(iii).  The Act also defines who is a creditor and excludes “any person to the extent that he receives assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.  Davidson contended that the distinction between creditor and debt collector is drawn by whether or not the debt is in default.  Davidson contended that Capital One was a debt collector because it was seeking to collect an account which was in default when it was acquired.

The court debunked that notion, focusing on the two substantive elements of the debt collector definition which require that the entity either: (a) have a principal business purpose of collecting debts; or (b) regularly collect debts owed or asserted to be owed or due to another.  The court reasoned that the exceptions to the definition cannot come into play unless the entity first meets one of the two substantive elements of the definition.  The court noted that neither of these substantive elements are conditioned upon whether or not a debt is in default and supported the district court’s conclusion that “to qualify as a debt collector under the FDCPA, Capital One has to “regularly” collect or attempt to collect on debts “owed or due another” or the principal purpose of Capital One’s business has to be “the collection of any debts.” Davidson, 2015 U.S. App. LEXIS 14714, *5-6.    The court therefore concluded that Davidson could not rely on the exceptions provided in section 1692a(6)(F) “to bring entities that do not otherwise meet the definition of “debt collector” within the ambit of the FDCPA solely because the debt on which they seek to collect was in default at the time they acquired it.  Section 1692a(6)(F)(iii) is an exclusion; it is not a trap door.” Id. at *14. 

The implication of the decision is that, at least in the Eleventh Circuit, financial entities purchasing debt portfolios will not come within the ambit of the FDCPA so long as their principal business purpose is not debt collection and they do not regularly collect debts on behalf of third parties.