Opinion ID: 3026290
Heading Depth: 3
Heading Rank: 1

Heading: Are the NSF Checks “Debts” Under the FDCPA?

Text: “A threshold requirement for application of the FDCPA is that the prohibited practices are used in an attempt to collect a ‘debt.’” Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1167 (3d Cir. 1987). Congress incorporated a broad definition of both “debt” and “debt collector” into the FDCPA in order to achieve its remedial purpose. 15 U.S.C. §§ 1692a(5), 1692a(6). The FDCPA defines a “debt” as any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject to the transaction are primarily for personal, family, or 8 (...continued) F.3d 205, 208 (3d Cir. 2001). 9 Check Investors makes its own arguments in its appeal and has adopted the arguments Hutchins makes in his appeal. O:\PRECEDENTIAL\2005\053558p.wpd 25 household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5) (emphasis added). Appellants claim that the FDCPA does not apply to them because the NSF checks they purchased were not “debts” within the meaning of the FDCPA. They begin by noting that all 50 states criminalize the act of writing a check knowing that it will be dishonored; and that the law of many states creates a presumption of knowledge and/or willfulness when a check is written on insufficient funds and not paid within a certain period after it has been dishonored, or after the payor receives notice that it has been dishonored. Appellants also stress that since writing a fraudulent check gives rise to tort liability, and since they only attempted to collect NSF checks after a presumption of knowledge or willfulness arose under state law, their NSF checks were not “debts” within the meaning of the FDCPA O:\PRECEDENTIAL\2005\053558p.wpd 26 because they did not arise out of a consumer “transaction.” Rather, according to Appellants, their NSF checks arose out of criminal or tortious conduct.10 Four Courts of Appeals have rejected this argument. and held that payment with a NSF check creates a “debt” as defined in the FDCPA. See Bass, 111 F.3d at 1322; Duffy v. Landberg, 133 F.3d 1120 (8th Cir. 1998); Charles v. Lundgren & Assocs., 119 F.3d 739 (9th Cir. 1997); Snow v. Riddle, 143 F.3d 1350 (10 Cir. 1998). The Court of Appeals for the Seventh Circuit was first to reject this argument in Bass, and its analysis has been followed by three other courts of appeals. In Bass, the court explained: 10 However, Check Investors and Hutchins do not dispute the fact that the obligors they attempted to collect from used the checks in question to obtain “money, property, insurance, or services primarily for personal, family, or household purposes.” O:\PRECEDENTIAL\2005\053558p.wpd 27 [T]he plain language of the Act defines “debt” quite broadly as “any obligation to pay arising out of a [consumer] transaction.” In examining this definition, we first focus on the clear and absolute language in the phrase, “any obligation to pay.” Such absolute language may not be alternatively read to reference only a limited set of obligations as appellants suggest. As long as the transaction creates an obligation to pay, a debt is created. We harbor no doubt that a check evidences the drawer’s obligation to pay for the purchases made with the check, and should the check be dishonored, the payment obligation remains. 111 F.3d at 1325 (citations omitted) (emphasis added); see also Duffy, 133 F.3d at 1123 (“Since a check written by a consumer in a transaction for goods or services evidences the ‘drawer’s obligation to pay’ and this obligation remains even if the check is dishonored, abusive collection practices related to the dishonored check are prohibited by the FDCPA.”) (quoting Bass, 111 F.3d at 1325). Although we have not yet addressed this precise issue, we have held that a transaction’s status as a “debt” under the O:\PRECEDENTIAL\2005\053558p.wpd 28 FDCPA must be determined at the time that the obligation first arose. See Pollice v. National Tax Funding, L.P., 225 F.3d 379, 400 (3d Cir. 2000). In Pollice, we held that water and sewer obligations constituted a “debt” based on their status when they first arose, and they remained a “debt” after assignment to a collection agency. Thus, our view of a “debt” under the FDCPA is consistent with the four courts of appeals that have held that an NSF check is a “debt.” Nonetheless, Check Investors and Hutchins attempt to circumvent the impact of our analysis in Pollice by relying on our earlier decision in Zimmerman v. HBO Affiliates Group, 834 F.2d 1163 (3d Cir. 1987). In Zimmerman, we held that the FDCPA did not apply to attempts by cable television companies to collect money from people who allegedly stole cable television signals by installing illegal antennas. Id. at 1167-69. Check Investors and Hutchins now argue that since the payors O:\PRECEDENTIAL\2005\053558p.wpd 29 on its NSF checks were also subject to criminal or tort liability, Zimmerman compels the conclusion that the FDCPA does not apply to their collection efforts. We disagree. In Zimmerman, we explained that the FDCPA was enacted to protect people who have “contracted for goods or services and [are] unable to pay for them,” and that it was not intended to “protect against a perceived problem with the use of abusive practices in collecting tort settlements from alleged tortfeasors through threats of legal action.” Id. at 1168. We also explained this in Pollice, 225 F.3d at 401 n.24, by noting: “[c]learly, there was no ‘debt’ in Zimmerman because the obligations arose out of a theft rather than a ‘transaction.’” Check Investors and Hutchins argue that the payors on their NSF checks are similarly situated to the “consumers” who stole cable television signals in Zimmerman, and that, like those “consumers,” the payors here are not entitled to the protection O:\PRECEDENTIAL\2005\053558p.wpd 30 embodied in the FDCPA because they are criminals and tortfeasors rather than “consumers.” They argue that, as in Zimmerman, no “debt” was created by executing the NSF checks here because there was no “transaction,” as that term is commonly understood and as it is used in the FDCPA. As the court explained in Bass when rejecting identical arguments there: Appellants misstate the law when they categorize all dishonored checks as criminal and tortious. Both under the common law of fraud, a specific intent crime, and under most criminal statutes which specifically address dishonored checks, liability attaches only if the drawer either knew or intended that the check be dishonored at the time the check was drawn. A bank may refuse payment on a check for a variety of reasons lacking in the necessary fraudulent intent: administrative holds on the account of which the drawer is unaware, bank error, and the drawer’s reliance on deposited checks that themselves are dishonored, to name a few. Even when the drawer is at fault for the dishonor, the requisite intent may be absent – for example, when the drawer makes a simple miscalculation or has a O:\PRECEDENTIAL\2005\053558p.wpd 31 subsequent emergency need for funds. We recognize that by the time a dishonored check has been turned over to a third party collector, the issuer has typically received notice of dishonor yet has still refused to pay. Nevertheless, an issuer whose intention not to pay the check arises only at some point after it is issued has still not, in most jurisdictions, committed a fraudulent or criminal act. The requisite knowledge or intent that the check be dishonored must arise at the time the check is written. We therefore must reject appellants’ argument that all dishonored checks are fraudulent and thus not covered by the [FDCPA]. 111 F.3d at 1329 (emphasis in original) (footnote omitted). Moreover, even if some of the payors of NSF checks had engaged in fraud at the time of the transaction, the court held in Bass that there is no “fraud exception” in the FDCPA. Given the explicit and unambiguous text of the FDCPA, we agree. In Bass, a debt collector argued that the FDCPA should not apply to debts it was collecting because it was attempting to collect an NSF check that was presumed to be fraudulent under O:\PRECEDENTIAL\2005\053558p.wpd 32 Wisconsin law. 111 F.3d at 1329. The court of appeals rejected that argument because the presumption that the check writer engaged in fraud was rebuttable under Wisconsin law, and because the debt collector had not made the showing required to establish fraudulent intent under state law. Id. In rejecting the defendants’ argument, the court commented that, even if the requisite intent had been established, the court would be reluctant to “create a fraud exception where none exists in the [FDCPA’s] text.” Id. at 1329-30. The court explained: A review of the legislative history reveals that Congress considered the entire field of defaulting debtors, stating its belief that most debtors fully intended to repay their debts. “Most” is not “all,” however, yet Congress still chose not to exempt debt collectors from following the Act if they could prove that the consumer intended his check to be dishonored or accepted credit from a merchant intending default. No section of the Act requires an inquiry into worthiness of the debtor, or purports to protect only “deserving” debtors. To the contrary, Congress has clearly indicated its belief that no consumer deserves to be abused in O:\PRECEDENTIAL\2005\053558p.wpd 33 the collection process. Moreover, we think that such a fraud exception would violate the spirit of the Act. The Act’s singular focus is on curbing abusive and deceptive collection practices, not abusive and deceptive consumer payment practices. We are not unaware that in some cases . . . the absence of a fraud exception will allow consumers who intend to pass worthless checks to invoke the protections of the FDCPA. . . . Absent an explicit showing that Congress intended a fraud exception to the Act, the wrong occasioned by debtor fraud is more appropriately redressed under the statutory and common law remedies already in place, not by a judicially-created exception that selectively gives a green light to the very abuses proscribed by the Act. Id. at 1330. The court thereafter amplified this discussion in Keele v. Wexler, 149 F.3d 589 (7th Cir. 1998). There, the court explained: We touched upon a similar request in Bass without formally deciding the issue, but did express at length “our discomfort with the proposition that the courts should create a fraud exception where none exists in the Act’s text.” Unfortunately for the [debt collector], this “discomfort” has not subsided since Bass, and it is time we put to rest any lingering doubts as to the nonexistence of a fraud exception to the FDCPA. O:\PRECEDENTIAL\2005\053558p.wpd 34 Id. at 595 (citation omitted). The court’s analysis continued: [T]he FDCPA’s legislative history reflects that Congress acknowledged there may be a “number of persons who willfully refuse to pay just debts,” but apparently “believe[d] that the serious and widespread abuses” of debt collectors outweighed the necessity to carve out an exception for these so called “deadbeats.” If the Act was designed to protect those who willfully refused to pay their debts, it makes little sense why consumers who write checks, knowing they will be dishonored, should not enjoy the same protections. Id. at 596 (citations omitted). We agree that, given the legislative history of the FDCPA, its structure and text, we could not craft the kind of fraud exception that underlies the arguments of Check Investors without amending the statute.