What exactly is a “debt collector” under the FDCPA.

It is quite common for a debtor to receive a call from a 3rd party he or she does not recognize concerning a delinquent debt. Often, the calls are at inconvenient times and are quite confusing since the debtor does not recall ever borrowing money from or having a credit account with the 3rd party. Typically, these parties are debt collectors working on behalf of the original creditor. However, often the original creditor cuts its losses, sells the delinquent account to 3rd parties for pennies on the dollar, and relinquishes all ownership of the account to the 3rd party.  Until last year, whether these third party buyers of debt where “debt collectors” as defined by the federal Fair Debt Collection Practices Act (“FDCPA”)  and, therefore, subject to the FDCPA’s prohibitions and sanctions was unclear.

In June of 2017, the U.S. Supreme Court rendered a decision in Henson et. al. vs. Santander Consumer USA., Inc. which essential held that a purchaser of a defaulted debt who then seeks to collect the debt for itself is not a “debt collector” subject to the FDCPA. The issue before the Court was whether a purchaser of defaulted debt meets the FDCPA’s definition of a “debt collector” as one who “regularly collects or attempts to collect . . . debts owed or due . . . another.” 15 U. S. C. §1692a(6).

The case involved Santander Consumer USA Inc. , a 3rd party buyer of debt, acquiring defaulted loans from CitiFinancial Auto and then trying to collect on those loans. The petitioners argued that this activity made Santander a debt collector subject to the FDCPA. The Fourth Circuit Court of Appeals disagreed because the debt purchaser was not seeking to collect a debt “owed . . . another” but sought instead only to collect debts that it purchased and owned.

The Supreme Court found that there was very little dispute between the parties as to the facts. The complaint alleged that CitiFinancial Auto loaned money to petitioners seeking to buy cars; that petitioners defaulted on those loans; that respondent Santander then purchased the defaulted loans from CitiFinancial; and that Santander sought to collect in ways petitioners believe troublesome under the FDCPA. The parties also agreed that in deciding whether Santander’s conduct falls within the FDCPA’s ambit we should look to statutory language defining the term “debt collector” to embrace anyone who “regularly collects or attempts to collect . . . debts owed or due . . . another.” 15 U. S. C. §1692a(6). The Supreme Court found that it did not and affirmed the Fourth Circuit Court of Appeals in a unanimous decision.

In its opinion, the Supreme Court did not consider petitioners’ argument that Santander could qualify as a debt collector not only because it regularly sought to collect for its own account debts that it has purchased, but also because it regularly acts as a third party collection agent for debts owed to others. Petitioners failed to raise the theory in their petition for certiorari.

Similarly, the Supreme Court refused to consider whether a purchaser of defaulted debt is engaged “in any business the principal purpose of which is the collection of any debts.” §1692a(6). Under the FDCPA, the term “debt collector” is one that encompasses those engaged “in any business the principal purpose of which is the collection of any debts.” §1692a(6). Again the Court refused to consider the argument as petitioners failed to raise it in their petition for certiorari.

In Gomez v. Cavalry Portfolio Services, LLC et al., the U. S District Court for the Northern District of Illinois seemed to arrive at decision contradicting Henson despite being bound by the Supreme Court’s ruling. (See Case No. 14-cv-9420 (N.D. Ill. Sept. 24, 2018)). The case primarily involved statute of limitation questions and what happens to a subsequent creditor’s right to collect interest if the original creditor stopped doing so after charge off. However, the Court also examined briefly whether a purchaser of defaulted debt is a debt collector subject to the FDCPA.

In Gomez, Plaintiffs incurred a credit card debt through FIA Card Services. In accordance with its policies, the account was charged off, and the bank stopped assessing interest on the account and stopped sending periodic statements. Eventually, the account was sold to Cavalry SPV I, LLC (Cavalry SPV), which placed the account for collection with Cavalry Portfolio Services, LLC (CPS).

The court considered whether Cavalry SPV, as a debt purchaser, was subject to the FDCPA when CPS — not Cavalry SPV — was collecting on the debt. The court cited the U.S. Supreme Court’s three-part definition of debt collector from Henson as “(1) a person whose principal purpose is to collect debts; (2) a person who regularly collects debts owed to another; or (3) a person who collects its own debts, using a name other than its own as if it were a debt collector.”

The court looked at a Ruth v. Triumph Partnerships, 577 F.3d 790 (7th Cir. 2009) which was decided before Henson. Ruth states that a debt purchaser is considered a debt collector if the purchased debt is in default. The reasoning for this being “[t]he purchaser of an already-defaulted debt — like the debt collector, and unlike the originator and servicer of a non-defaulted debt — has no ongoing relationship with the debtor and, therefore, no incentive to engender goodwill by treating the debtor with honesty and respect.” Without any further analysis and seemingly at odds with the Supreme Court’s decision, the Gomez court simply found that Cavalry SPV is subject to the FDCPA because it purchased the account in question after default.

The court in Gomez fails to explain the apparent contradiction between Ruth and  Henson. The court also fails to consider how Cavalry SPV and CPS, both of which contain “Cavalry” in their name, avoid the third part of the Henson definition – a person who collects its own debts, using a name other than its own as if it were a debt collector.