Third Circuit holds that bad debt buyer deemed “debt collector” under the FDCPA

The Third Circuit in Tepper v. Amos Financial LLC, No. 17-2851 (3d Cir. Aug. 7, 2018) has extended the reach of the FDCPA’s definition of debt collector to include entities whose principal business is to collect the defaulted debts they purchase.

The debtors had a home equity line of credit with a bank that was closed by the FDIC. They tried to make payments but the FDIC did not cash their checks, so the couple decided to wait until they received a periodic statement from the loan’s new servicer.

Some months later, the FDIC declared the loan to be in default and sold it, also assigning the mortgage securing the loan, to the Defendant. Defendant is an Illinois limited liability company but it is not a financial institution or lender. Its sole business is purchasing debts entered into by third parties and attempting to collect them. Defendant made efforts to collect the debt and eventually filed a foreclosure action in Pennsylvania. At that time, Defendant was not registered to do business in Pennsylvania.

The debtors filed a complaint alleging defendant violated the FDCPA in part because it was not registered to do business in Pennsylvania when it threatened and filed foreclosure. Defendant did not challenge the debtors’ allegation that it was a debt collector, but responded that it was required to register in Pennsylvania as a foreign business entity because its sole business was acquiring and collecting debt.

Before the district court issued a decision, the Supreme Court decided Henson v. Santander 137 S. Ct. 1718, 198 L. Ed. 2d 177 (2017). The court found that, under Henson, Defendant was a debt collector under the FDCPA and that it had violated the Act.

The Third Circuit affirmed. Defendant argued that it was not a debt collector but just a creditor and therefore not covered by the Act. The Court noted there are two ways for a plaintiff to prove a defendant is a debt collector: either (1) its “principal purpose … is the collection of any debts,” or (2) it “regularly collects or attempts to collect … debts owed or due … another.” Prior to Henson, the Third Circuit had looked at whether the debt was in default at the time it was purchased. After Henson the “default” test falls away for a “principal purpose” framework.

There was no dispute that Defendant’s sole business was collecting debts it had purchased. It uses the mails and wires for its business. Thus,“[i]t can be no plainer that [Defendant] ‘uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts.’” The fact that it is also a creditor does not mean it is not a debt collector. “[F]ollowing Henson, an entity that satisfies both is within the Act’s reach.” Thus,“[w]hether 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.”

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