Consumer Finance Litigation
Action Item: In light of the Eleventh Circuit Court of Appeals decision in Davidson, the definition of “debt collector,” for purposes of the Fair Debt Collection Practices Act (the “FDCPA”), is strictly limited to the statutory definition in 15 U.S.C. § 1692a(6). Plaintiffs cannot use the exclusionary language in 15 U.S.C. § 1692a(6)(F)(iii) to expand the application of the FDCPA solely due to the fact that the alleged debt was already in default on the date the person or entity acquired the debt. Entities that engage in debt collection activities should be mindful of this decision if faced with FDCPA claims.
In Davidson v. Capital One Bank (USA), N.A., No. 14-14200 (11th Cir. Aug. 21, 2015), the Eleventh Circuit Court of Appeals held that, for purposes of the FDCPA, a person does not qualify as a “debt collector” if the person fails to satisfy the statutory definition even though the “debt on which [the person] seek[s] to collect was in default at the time they acquired it.” Id. slip op. at 12. In essence, plaintiffs cannot use other sections of the FDCPA in an attempt to enlarge the statutory definition.
Section 1692a(6) defines the term “debt collector” as “(1) any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or (2) who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Id. at 7–8 (quoting § 1692a(6)). The first definition of “debt collector” has been denoted as the “principal purpose” definition while the latter is often termed the “regular collection” definition. Significantly, Section 1692a(6)(A)–(F) contains a list of persons that Congress intended to exclude from the application of the FDCPA. Id. at 8. Among those excluded categories are “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due to another to the extent such activity … concerns a debt which was not in default at the time it was obtained by such person.” Id. (quoting § 1692a(6)(F)(iii)).
In Davidson, HSBC commenced a state court action against Davidson to collect on a past due credit card account that was used for “personal, family or household purposes.” Id. at 3. During the pendency of the state court proceeding, the parties executed a settlement agreement where Mr. Davidson agreed to pay HSBC $500.00. Id. However, after Mr. Davidson failed to pay the agreed amount, the court entered a judgment in favor of HSBC. Id. Subsequently, Capital One acquired a significant portfolio of HSBC’s United States-based credit card accounts, many of which were previously delinquent, including Davidson’s account. Id. In an attempt to collect the debt now owed to Capital One, it commenced its own lawsuit against Mr. Davidson to collect on the past due account that was previously the subject of litigation between HSBC and Davidson. Id. Upon being sued for a second time involving the same account, Davidson commenced a putative class action in the District Court for the Northern District of Georgia against Capital One, alleging that Capital One’s state court action violated the FDCPA. Id. at 4.
Based on certain events that occurred in the District Court action, Davidson filed an Amended Complaint. Id. The Amended Complaint alleged that Capital One “regularly acquires delinquent and defaulted consumer debts that were originally owed to others and has attempted to collect such delinquent or defaulted debt in the regular course of its business, using the mails and telephone system.” Id. at 15. Capital One moved to dismiss the Amended Complaint and argued that the plaintiff failed to “plausibly allege that Capital One was a ‘debt collector’ for purposes of the FDCPA, and [as such, the Amended Complaint should be dismissed because] only debt collectors are subject to liability under the” FDCPA. Id. at 4. Specifically, Capital Once argued that the debt at issue was owed to it and not to another, which is a requirement under the “regular collection” definition. Id. In response, Davidson asserted that [c]ompanies that regularly purchase and collect defaulted consumer debts … are regulated by the” FDCPA. Id. at 5. The District Court agreed with Capital One and granted its motion to dismiss, stating that Davidson failed to satisfy either the “principal purpose” or “regular collection” definitions. Id.
In affirming the District Court, the Eleventh Circuit held that a bank (or any person or entity) does not qualify as a “debt collector,” unless a plaintiff plausibly alleges the defendant’s purported collection activities satisfy the “principal purpose” or “regular collection” definitions, “even where the consumer’s debt was in default at the time the bank acquired it.” Id. at 2 (emphasis added). Davidson argued that whether Capital One qualified as a “debt collector” depended on the default status of the debt on the date of acquisition, which, in turn, would lead to the conclusion that a person was either a “creditor” or a “debt collector”. Id. at 8. In support of this argument, Davidson relied on the exclusionary language contained in section 1692a(6)(F)(iii). Davidson reasoned that if the debtor was in default on the date the debt was acquired, the exclusionary language exempted the person or entity from the statutory definition of “debt collector,” and, by default, the person or entity would be a “creditor.” Id. at 9. By contrast, Davidson asserted that where the debt was already in default on the acquisition date, the exception did not apply, and the party was a “debt collector” governed by the FDCPA. Id.
In rejecting Davidson’s arguments, the Eleventh Circuit relied on the plain and unambiguous meaning of “debt collector” set forth in section 1692a(6) and the standards contained therein. Id. at 11. Otherwise, Davidson’s interpretation would result in a strained reading of the statutory framework. Id. As a result, the Eleventh Circuit rejected Davidson’s attempt “to bring entities that do not otherwise meet the definition of ‘debt collector’ within the ambit of the FDCPA” solely due to the default status of the debt on the date it was acquired. Id. at 11–12. Critically, the Eleventh Circuit cautioned that the language contained in section 1692a(6)(F)(iii) “is an exclusion; it is not a trap door.” Id. at 12.
Since the Amended Complaint did not plausibly allege the “principal purpose” or the “regular collection” definitions, the Eleventh Circuit affirmed the District Court’s decision. Specifically, the Amended Complaint only alleged that some part of Capital One’s business was devoted to debt collection. Id. at 16. Based on the “principal purpose” definition, such allegations are insufficient to state a claim. Id. Likewise, the “regular collection” definition requires that the person or entity collect a debt “owed or due another at the time of collection” and not “debts originally owed or due another” and now owed to a subsequent entity by virtue of an acquisition. Id. at 16–17 (emphasis in original). Since Capital One’s conduct only concerned collection efforts related to a debt Davidson owed to Capital One, and not to another party, the Amended Complaint failed to plausibly state facts that would entitle Davidson to relief under the regular collection definition. Id. Consequently, the Eleventh Circuit affirmed the District Court’s dismissal of the Amended Complaint. Id. at 18.
In light of this decision, entities that engage in debt collection activities can be reassured that there are limits on the application of the FDCPA. Not all collection activity is governed by the statutory framework. This decision deals a significant blow to plaintiffs who have been attempting to expand the reach of the FDCPA. Davidson also confirms that the plain meaning doctrine is strictly enforced and courts should not allow litigants to enlarge a statute’s intended application or purpose. Entities that engage in debt collection activities should be mindful of this decision if faced with FDCPA claims.