11th Circuit Opinion – FDCPA Does Not Apply to Debt Acquirers if Not ‘Debt Collectors’
The 11th Circuit ruled recently that a non-originating debt holder is not a “debt collector,” even though the debt was in default at the time it was acquired, thus reinforcing the 11th Circuit precedent narrowly applying the federal Fair Debt Collection Practices Act (FDCPA) to debt collectors only. In Davidson v. Capital One Bank, N.A., __ F. 3d. __, 2015 WL 4994733 (11th Cir. 2015), the 11th Circuit affirmed the district court’s dismissal of this putative class action in which Capital One Bank had acquired $28 billion of credit card accounts from HSBC, including Davidson’s account, which, at least in part, had been reduced to a $500 judgment in favor of HSBC at the time of Capital One’s acquisition. Of the overall portfolio of credit card accounts, over $1 billion were listed as delinquent or in default at the time of the acquisition, including Davidson’s account.
Davidson’s amended complaint alleged that Capital One’s collection efforts related only to debts it was owed, and that debt collection was only some part of, rather than the principal purpose of, Capital One’s business.
Capital One sued Davidson in state court after acquiring his account even though that account had been the subject of the prior HSBC judgment. Davidson then commenced his class action in the district court for alleged violations of the FDCPA based on false statements of the amount of Davidson’s debt, among other allegations. Capital One was successful in having the complaint dismissed for Davidson’s failure to establish that Capital One was a “debt collector” under the FDCPA.
The 11th Circuit focused on the definition of “debt collector” under the Act, which includes the two prongs of “ 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.” Excluded from the definition is “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity … concerns a debt which was not in default at the time it was obtained by such person.” 15 U.S.C. § 1692a(6)(F)(iii)(emphasis added).
Davidson argued that the line between an exempt creditor and a debt collector was drawn by the default status at the time the debt was acquired, for those who are not originating their own debt. However, the district court and 11th Circuit rejected this distinction and, instead, held that the first consideration or “substantive requirement” under the FDCPA is whether either of the two prongs was met (i.e., principal purpose being debt collection or collection of debts due another) to establish that the person was a “debt collector.” In other words, even though acquired debts, if in default at the time of acquisition, would prevent the acquirer from being exempt from the definition, the defaulted status of acquired debt cannot drive the primary determination of whether the acquirer is a debt collector. Therefore, even an acquirer like Capital One with an acknowledged portfolio of defaulted indebtedness will not be subject to the FDCPA if its principal purpose is neither the collection of debts nor the collection of debts due another, and therefore it is not a debt collector. In the words of the 11th Circuit, Section 1692a(6)(F)(iii) “is an exclusion; it is not a trap door.”