Is Your Business a Debt Collector?—If So, Watch Out.
On Aug. 7, the U.S. Court of Appeals for the Third Circuit issued an opinion in the case of Tepper v. Amos Financial (Case No. 17-2851) which has sent, and should send, shock waves to creditors and institutions that not only regularly purchase debt, but also those who can be classified as "debt collectors" under the Federal Fair Debt Collection Practices Act (FDCPA) 15. U.S.C. Section 1692.
August 28, 2018 at 10:56 AM
5 minute read
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On Aug. 7, the U.S. Court of Appeals for the Third Circuit issued an opinion in the case of Tepper v. Amos Financial (Case No. 17-2851) which has sent, and should send, shock waves to creditors and institutions that not only regularly purchase debt, but also those who can be classified as “debt collectors” under the Federal Fair Debt Collection Practices Act (FDCPA) 15. U.S.C. Section 1692.
In the somewhat recent U.S. Supreme Court case of Henson v. Santander Consumer USA, (137 S. Ct 1718 (2017)), Justice Neil Gorsuch, in his first opinion, left open the meaning of the definition of a “debt collector” under the FDCPA in holding that a debt purchaser is subject to the FDCPA if its principal business is the collection of debts. In the Henson case, the question was raised whether a bank which purchased a defaulted FDIC insured loan would be subject to the FDCPA, and the holding by the Supreme Court was that a person or entity that purchases a defaulted debt is not a “debt collector” and not subject to the FDCPA.
In the Tepper case, the Third Circuit answered the question left open by the Supreme Court in Henson as to the extent of the meaning of the definition of “debt collector” under the FDCPA.
The Third Circuit opinion concludes with the following: Whether an entity acquired the debts it collects after they became defaulted does not resolve whether that entity is a debt collector. Instead, we follow the plain text of the statute: an entity whose principal purpose of business is the collection of any debts is a debt collector regardless whether the entity owns the debts it collects.
At first blush, the Tepper ruling may not have consequential significance. However, when looking deeper, the Third Circuit makes it clear that the FDCPA applies to a “debt collector” but not to a “creditor.” A “debt collector” is defined as “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 who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” A “creditor” under the FDCPA is someone who extends credit or someone “to whom a debt is owed.”
In the opinion addressing “the task before us today, ” Chief Judge Thomas Ambro said that no circuit has issued a precedential opinion “ on Henson's applicability to the 'principal purpose' definition of 'debt collector.'” Picking up on what Henson held and what it did not hold, he said that Henson “affects” but “did not decide” who”fits the 'principal purpose' definition of 'debt collector.'”
Judge Ambro said that the phrase “any debt” as used in the statute does “not distinguish to whom the debt is owed.” In contrast, he said, “debts owed or due … another” only applies to the “regularly collects” definition.
Additionally, in the Tepper case, the creditor maintained that it could not be a debt collector because it also met the definition of creditor, in other words, arguing that the definition of creditor and debt collector are mutually exclusive. The Third Circuit opinion rejected the argument, stating “following Henson, an entity that satisfies both is within the [FDCPA's] reach.” The Tepper court went on to state whether the defendant owns the debt, “does not resolve whether that entity is a debt collector.” Because there was no question that the debt purchaser was in the principal business of collecting debts, the Third Circuit held that the debt buyer was subject to the FDCPA because it was a “debt collector under the 'principal purpose' definition.”
There is every reason to believe that the precedent created by the Tepper case will be adopted by other circuits, and, if so, without a challenge, it will be as effective as the Supreme Court decision. Thus, it will now be incumbent upon all credit grantors, businesses and even law firms to determine if they fall within the expanded definition of “debt collector” which would then subject the entity to the regulations and penalties for violating the regulations under the FDCPA. Given that aggrieved parties can seek damages, costs and attorneys' fees for each proven violation, the cost of defense and penalties for transgressions can be substantial.
This appellate decision should serve as a wake-up call to everyone in business to evaluate whether or not their direct or peripheral business subjects them to the provisions of the FDCPA.
Charles Tatelbaum and Ian Lis are directors at Tripp Scott in Fort Lauderdale.
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