3rd Circuit: Debt buyer qualifies as debt collector under FDCPA

Courts Third Circuit Appellate Debt Collection FDCPA

On February 22, the U.S. Court of Appeals for the 3rd Circuit issued a precedential order affirming a district court’s ruling that an entity that purchases charged-off receivables and outsources the collection activity to a third party still qualifies as a debt collector and, therefore, may be bound by the dictates of the FDCPA. According to the opinion, a consumer filed a lawsuit against the debt-buying company alleging voicemail messages she received from the company’s contractor failed to identify the contractor as a collection agency. The consumer further alleged that a letter the contractor sent did not inform her how to exercise her validation rights, in violation of the FDCPA. The district court ruled that the defendant, which identifies itself as a creditor, meets the “principal purpose” definition of a debt collection under the FDCPA and therefore must comply with its provisions. On appeal, the defendant argued that debt collection and purchasing are “mutually exclusive,” and that the district court's ruling should be reversed under the U.S. Supreme Court’s decision in Henson v. Santander Consumer USA, which held that the FDCPA does not necessarily apply to a company collecting debts in default that it purchased for its own account. (See previous Buckley Special Alert on the decision here.)

However, the 3rd Circuit agreed with the district court’s decision, and rejected the defendant’s arguments that the Henson decision renders it a creditor rather than a debt collector. “The Supreme Court went out of its way in Henson to say that it was not opining on whether debt buyers could also qualify as debt collectors” under certain provisions of the FDCPA, and moreover, “[a]n entity qualifies under the definition if the ‘principal purpose’ of its ‘business’ is the ‘collection of any debts,’” the panel wrote. “As 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,” the 3rd Circuit wrote.

The appellate court’s opinion, however, did not address the actual question of liability asserted against the defendant, but rather remanded the case for consideration as to whether the defendant is vicariously liable for claims related to the contractor’s actions.