Successors by Merger May Not be Debt Collectors

A recent decision from a Louisiana district court should provide some comfort to banks and other financial institutions who acquire other entities by merger – at least in the Fifth Circuit, they are not debt collectors.  As most know, Bank of America (BoA) acquired Countrywide Bank FSB and its mortgage portfolio in 2008.  In Jackson v. Bank of America, N.A., the consumer brought an FDCPA claim against BoA based upon its actions in a foreclosure suit and an underlying mortgage which originated with Countrywide.  The consumer alleged BoA was a debt collector under the FDCPA because his “loan was in default prior to the transfer from his original lender Countrywide to Bank of America.”  Jackson v. Bank of America, 2017 U.S. Dist. LEXIS 46117 at *6 (M.D. La. Mar. 28, 2017).

In reviewing the issue of whether BoA was a debt collector subject to the FDCPA, the court took judicial notice that BoA acquired the mortgage loan by merger and not by transfer or assignment while in default.  The acquisition by merger was a key factor for the court which also relied upon prior Fifth Circuit precedent, Brown v. Morris, 243 Fed. Appx. 31 (5^th Cir. 2007).  In Brown, the “Fifth Circuit considered that the term ‘obtained’ had not been defined under the FDCPA, and looked to the act’s legislative history noting how, ‘[t]he Senate Report accompanying the FDCPA explained that the purpose of the act was ‘to protect consumers from a host of unfair, harassing, and deceptive debt collection practices without imposing necessary restriction on ethical debt collectors.’” Jackson at *7.  As was the case in Brown, the court concluded that “obtained” was synonymous with “assigned” and ultimately, since the mortgage company had not been specifically assigned the mortgage for debt collection purposes but rather had acquired it through merger from its prior mortgage company, the mortgage company was not a debt collector.

In addition to those cases which rely upon the creditor’s primary purpose not being debt collection, this case should also prove useful to those representing successor creditors against debt collection claims-  particularly those where portions of the portfolios acquired are performing loans.