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Financial Services Law Insights and Observations

Another appellate court holds that a debt buyer qualifies as a debt collector under the FDCPA

Courts Appellate Ninth Circuit Debt Buyer FDCPA Debt Collection


On March 9, the U.S. Court of Appeals for the Ninth Circuit held that an entity that purchases consumer debts, but outsources the collection activity to a third party still qualifies as a debt collector under the FDCPA. According to the opinion, the plaintiff sued the debt buyer (defendant) claiming it was “vicariously and jointly liable” for alleged FDCPA violations by the third party collector. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to state a claim because debt purchasing companies like the defendant “who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts.” The district court reasoned that Congress intended the FDCPA to apply only to those who directly interact with customers, based on the court’s interpretation of the language used in the substantive provisions of the law.

On appeal, the 9th Circuit reversed the dismissal, determining that the FDCPA does not solely regulate entities that directly interact with consumers. As applied to the defendant, the court found that the purpose of the FDCPA would be “entirely circumvented” if the law’s restrictions did not apply to companies like the defendant. Accordingly, the appellate court concluded that an entity that otherwise meets the “principal purpose” definition of debt collector—“any business the principal purpose of which is the collection of any debts”—cannot avoid liability under the FDCPA merely by hiring a third party to perform debt collection activities on its behalf. The appellate court stressed that Congress’s intent in enacting the FDCPA was to eliminate abusive, deceptive, and unfair collection practices, and that its interpretation of the principal purpose prong of the debt collector definition furthers the FDCPA’s purpose. The 9th Circuit joined the 3rd Circuit, which issued an order last year (covered by InfoBytes here) concluding that “[a]s long as a business’s raison d’etre is obtaining payment on the debts that it acquires, it is a debt collector. Who actually obtains the payment or how they do so is of no moment.”

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