Banks that meet the statutory definition of “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”) are prohibited from engaging in abusive consumer debt collection practices. Excluded from the debt collector classification are those banks that qualify as “creditors” under the FDCPA. But what if a bank that acquires a debt and seeks to collect it does not meet the precise definition of a creditor because it acquired the debt after default? Does that automatically make the bank a debt collector?
FDCPA Definitions of “Debt Collector” and “Creditor”
The FDCPA defines a “debt collector” as:
- “[A]ny 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” meanwhile is defined as:
- “[A]ny person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.”
Creditor, Debt Collector, or Neither?
Where a bank acquires an existing debt that it did not originate (perhaps through an assignment of the debt, for example), and the bank now seeks to collect on it, is the bank a debt collector or creditor? According to the Sixth Circuit Court of Appeals’ decision in Bridge v. Ocwen Federal Bank, FSB, if the debt was in default at the time the bank acquired it, the bank qualifies as a debt collector under the FDCPA. If the debt was not in default at the time of acquisition, the bank is a creditor. Because one of these two scenarios must exist, under the Sixth Circuit’s reasoning, if the bank is excluded from being a creditor because it acquired the debt after default, it must be a debt collector. As the Court in Bridge explained, “[t]o allow such an entity to define itself out of either category would mean that the intended protection of the FDCPA is unavailable.” Both the Third and Seventh Circuit Courts of Appeals also embrace the position advocated by the Sixth Circuit.
The Eleventh Circuit Court of Appeals disagrees. In its recent decision in Davidson v. Capital One Bank (USA), N.A., the Court considered whether a bank that acquired a credit card account in default at the time of the bank’s acquisition qualified as a debt collector under the FDCPA. The Court determined that whether or not the bank qualifies as a creditor or is subject to any other express exclusion to the definition of debt collector does not definitively answer whether the bank is a debt collector or not. The Court explained that to qualify as a debt collector, the bank must meet the definition, finding that if “the subject debt was in default at the time it was acquired . . . the [bank] may be a debt collector, but the [bank] is not undoubtedly a debt collector.”
Decisions of the Eleventh Circuit Court of Appeals are binding in the federal courts of the states of Florida, Georgia and Alabama. Banks should be aware of this split in opinion, as qualifying as a debt collector under the FDCPA carries with it a host of debt collection restrictions. Check back in as Rogers Towers, P.A. continues to monitor courts’ applications of the FDCPA.
