Opinion ID: 3026290
Heading Depth: 3
Heading Rank: 2

Heading: The Payors of the NSF Checks are “Consumers”

Text: under the FDCPA. As noted earlier, “[t]he FDCPA was enacted in 1997 as an amendment to the Consumer Credit Protection Act to protect O:\PRECEDENTIAL\2005\053558p.wpd 35 consumers from a host of unfair, harassing, and deceptive collection practices without imposing unnecessary restrictions on ethical debt collectors.” Staub, 626 F.2d at 276-77 (citation and internal quotations omitted). Check Investors and Hutchins argue that the payors of the NSF checks are not “consumers” and therefore are not protected by the FDCPA. More specifically, they argue that [a]n individual’s conduct, when taken as a whole, determines whether he or she qualifies as a consumer for FDCPA purposes. An individual who issues a NSF check or a closed account check, in exchange for money, goods, services or insurance, and who subsequently fails to make restitution within the criminal code statutory period established by the state legislature, is not a FDCPA consumer because the individual has not acted like a consumer. However, the argument ignores that the FTC’s cause of action is controlled by the FDCPA. That governing statute defines “consumer” as “any natural person obligated or allegedly O:\PRECEDENTIAL\2005\053558p.wpd 36 obligated to pay any debt.” 15 U.S.C. § 1692a(3) (emphasis added). Even if we accept the claim that these payors are criminals and tortfeasors, those labels would advance neither our inquiry, nor Appellants’ position, because “any” is all inclusive and does not exclude criminals or tortfeasors. Rather, it unambiguously includes them. As noted above in our discussion of the analysis in Bass and Keele, it is clear that Congress realized that some people who write “bad checks” do so knowingly and willfully and that their conduct is fraudulent. It is just as clear that Congress enacted a definition of “consumer” that did not exclude such persons from the protections they would otherwise be afforded under the FDCPA. Yet, Appellants’ argument requires that we ignore the phrase: “any natural person,” that Congress used to define “consumer.” Just as the obligations underlying the NSF checks are O:\PRECEDENTIAL\2005\053558p.wpd 37 “debts” that the payor remains obligated to pay, see Duffy, 133 F.3d at 1123 (“[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. . . .”), the payors of those checks are “consumers” within the meaning of the FDCPA. C. Appellants are “Debt Collectors” and not “Creditors” Under the FDCPA. “The FDCPA’s provisions generally apply only to debt collectors.” Pollice, 225 F.3d at 403 (citation and internal quotations omitted). “Creditors – as opposed to debt collectors – generally are not subject to the FDCPA.” Id. (citation and internal quotations omitted). A “debt collector” is broadly defined as one who attempts to collect debts “owed or due or asserted to be owed or due another,” 15 U.S.C. § 1692a(6). A “creditor” is one who “offers or extends to offer credit creating O:\PRECEDENTIAL\2005\053558p.wpd 38 a debt or to whom a debt is owed.” 15 U.S.C. § 1692(a)(4). The district court held that Check Investors and Hutchins11 are “debt collectors” as defined by the FDCPA because Check Investors obtained the “debts,” i.e., the NSF checks, after they were in default.12 It relied on our decision in Pollice v. National Tax Funding, L.P., supra. There, National Tax Funding (“NTF”) purchased homeowner’s water and sewer obligations from a municipality and sought to collect on those 11 Attorneys who regularly engage in debt collection or debt collection litigation are covered by the FDCPA, and their litigation activities must comply with the requirements of the FDCPA. Heintz v. Jenkins, 514 U.S. 291, 292 (1995). 12 Hutchins contends that because a check is an unconditional promise to pay, a check can never be in default. We disagree. “Default” is “the omission or failure to perform a legal or contractual duty; esp., the failure to pay a debt when due.” Blacks Law Dictionary 449 (8th ed. 2004). Because the checks Check Investors purchased from Telecheck had already been dishonored, they were in default when purchased. Holmes v. Telecredit Service Corp., 735 F. Supp. 1289, 1293 (D. Del. 1990). O:\PRECEDENTIAL\2005\053558p.wpd 39 obligations for its own benefit. We held that water and sewer obligations are “debts” within the meaning of the FDCPA. We also held that NTF was a “debt collector” and that the district court should not have dismissed FDCPA claims against it. We explained: Courts have indicated that an assignee of an obligation is not a “debt collector” if the obligation is not in default at the time of assignment; conversely, an assignee may be deemed a “debt collector” if the obligation is already in default when it is assigned. . . . Here, there is no dispute that the various claims assigned to NTF were in default prior to their assignment to NTF. Further, there is no question that the “principal purpose” of NTF’s business is the “collection of any debts,” namely defaulted obligations which it purchases from municipalities. 225 F.3d at 403-404 (citations omitted). This is equally true of Hutchins and Check Investors. Nevertheless, they contend that the district court’s holding that they are “debt collectors” was O:\PRECEDENTIAL\2005\053558p.wpd 40 error because they are actually “creditors”13 collecting debts actually owed to them, as opposed to “debt collectors” collecting obligations owed to someone else. The FDCPA defines “creditor” as any 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 he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another. 15 U.S.C. § 1692a(4) (emphasis added). Appellants contend that because Check Investors bought the NSF checks from Telecheck, Check Investors is the actual owner of those checks and is therefore not collecting “debts of another,” as a debt collector would. Rather, according to Appellants, Check Investors is actually the entity “to whom a debt is owed.” They 13 The district court held that Check Investors and Hutchins were “debt collectors” as defined in the FDCPA. It did not address their claim that they were “creditors.” O:\PRECEDENTIAL\2005\053558p.wpd 41 claim further that because Check Investors is owed the debt, it did not “receive[] an assignment or transfer” of the NSF checks “solely for the purpose of” collecting the debt for Telecheck. Thus, Appellants argue that Check Investors satisfies the statutory definition of a “creditor,” and, therefore, they are not subject to the provisions of the FDCPA. Although the argument is rather clever, it is wrong. It would elevate form over substance and weave a technical loophole into the fabric of the FDCPA big enough to devour all of the protections Congress intended in enacting that legislation. Admittedly, Check Investors appears at first blush to satisfy the statutory definition of a creditor. As the Court of Appeals for the Seventh Circuit noted in Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003), “for debts that do not originate with the one attempting collection, but are acquired from another, the collection activity related to that debt O:\PRECEDENTIAL\2005\053558p.wpd 42 could logically fall into either category.” However, as to a specific debt, one cannot be both a “creditor” and a “debt collector,” as defined in the FDCPA, because those terms are mutually exclusive. As the court explained in Schlosser, “[i]f the one who acquired the debt continues to service it, it is acting much like the original creditor that created the debt. On the other hand, if it simply acquires the debt for collection, it is acting more like a debt collector.” Id. Thus, in determining if one is a “creditor” or a “debt collector,” courts have focused on the status of the debt at the time it was acquired. 15 U.S.C. § 1692a controls that inquiry. That provision provides in relevant part: (6) The term “debt collector” means 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. . . . The O:\PRECEDENTIAL\2005\053558p.wpd 43 term does not include – (F) 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 . . . (iii) 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). In Pollice, we relied on this provision of the FDCPA to hold that one attempting to collect a debt is a “debt collector” under the FDCPA if the debt in question was in default when acquired. Conversely, we concluded that § 1692a means that an entity is a creditor if the debt it is attempting to collect was not in default when it was acquired. 225 F.3d at 403-04. Other courts agree. See Schlosser, 323 F.3d at 536; Bailey v. Security Nat’l Servicing Corp., 154 F.3d 384, 387 (7th Cir. 1998); Whitaker v. Ameritech Corp., 129 F.3d 952, 958 (7th Cir. 1997); Wadlington v. Credit Acceptance Corp., 76 F.3d 103, 106-07 (6th Cir. 1996); Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985). O:\PRECEDENTIAL\2005\053558p.wpd 44 Admittedly, focusing on the status of the debt when it was acquired overlooks the fact that the person engaging in the collection activity may actually be owed the debt and is, therefore, at least nominally a creditor. Nevertheless, pursuant to § 1692a, Congress has unambiguously directed our focus to the time the debt was acquired in determining whether one is acting as a creditor or debt collector under the FDCPA. The legislative history explains the wisdom of that provision. The term “debt collector,” subject to the exclusions discussed below, was intended to cover all third persons who regularly collect debts. “The primary persons intended to be covered are independent debt collectors.” S. Rep. No. 95-382, at 2, 1997 U.S.C.A.A. at 1697. The Senate Committee explained that the FDCPA was limited to third-party collectors of past due debts because, unlike creditors, “who generally are restrained by the desire to protect their good will when collecting past due O:\PRECEDENTIAL\2005\053558p.wpd 45 accounts,” independent collectors are likely to have “no future contact with the consumer and often are unconcerned with the consumer’s opinion of them.” Id. at 1696. Thus, as the court explained in Schlosser: Focusing on the status of the obligation asserted by the assignee is reasonable in light of the conduct regulated by the statute. For those who acquire debts originated by others, the distinction drawn by the statute – whether the loan was in default at the time of the assignment – makes sense as an indication of whether the activity directed at the consumer will be servicing or collection. If the loan is current when it is acquired, the relationship between the assignee and the debtor is, for purposes of regulating communications and collections practices, effectively the same as that between originator and the debtor. If the loan is in default, no ongoing relationship is likely and the only activity will be collection. 323 F.3d at 538. Here, Check Investors acquired the defaulted checks only for collection purposes. Indeed, it is in business to do just that: O:\PRECEDENTIAL\2005\053558p.wpd 46 acquire seriously defaulted debt, the age of which allows Check Investors to acquire it for a few pennies on the dollar. The low cost of acquisition allows for substantial profit if the checks are subsequently collected.14 This is particularly true given the size of the “fees” that Check Investors adds on to each check. The fact that the NSF checks were purchased and owned outright by Check Investors, rather than Check Investors merely receiving an assignment of the rights of the original payee is therefore irrelevant for purposes of determining whether Check Investors was acting as a debt collector or creditor. Check Investors clearly had no intention of servicing the debt. Check Investors and Hutchins do not dispute the FTC’s claim that they 14 This is particularly true given the size of the “fees” that Check Investors adds to each check. Their tactics then allow them a remarkable measure of success even though prior debt collection efforts have failed. The result is a very profitable enterprise. O:\PRECEDENTIAL\2005\053558p.wpd 47 employed harassing and abusive tactics to collect the debts they acquired and added “collection fees” that exceeded limitations imposed by state laws. No merchant worried about goodwill or the future of his/her business would have engaged in the kind of conduct that was the daily fare of the collectors at Check Investors. Neither Check Investors nor Hutchinson intended any future contact with the payees of the NSF checks they acquired, and their collection practices reflected as much. The collectors working there resorted to whatever harassment appeared likely to succeed; the only limit appears to have been a given tactic’s likelihood of bearing fruit by yielding a profit. If the future of Appellants’ business was in any way dependent upon their goodwill, they would not have dreamed of unleashing their collectors in this manner. Not only do we conclude that Appellants are “debt collectors” rather than “creditors,” we believe that their course of conduct exemplifies O:\PRECEDENTIAL\2005\053558p.wpd 48 why Congress enacted the FDCPA and the wisdom of doing so. It also shows why Congress has directed us to focus on whether a debt was in default when acquired to determine the status of “creditor” vs. “debt collector.” D. The Federal Trade Commission Act. As noted earlier, Hutchins and Check Investors do not dispute the FTC’s claim that their collection practices constituted unfair and deceptive practices under the FTC Act. Instead, they argue that the payors of their NSF checks were not “consumers.” “[T]he deceptive acts or practices forbidden by the [FTC Act] include those used in the collection of debts.” Trans World Accounts, Inc. v. FTC, 594 F.2d 212, 214 (9th Cir. 1979). Accordingly, we must also reject the argument that the payors of the NSF checks were not “consumers” under the FTC Act. Nevertheless, Check Investors argues that O:\PRECEDENTIAL\2005\053558p.wpd 49 [t]his is not a case where consumers are being solicited to buy time-shares in non-existent condos or swamp land in Florida, and that the district court erred in determining that the Check Investors’ practices were, in fact, deceptive as to a consumer. Selling time shares for swamp land in Florida is but one kind of deceptive business practice. The collection techniques involved here are another. Moreover, Check Investors offered nothing in the district court to challenge the FTC’s allegations that its collection practices included material misrepresentations in violation of the FTC Act. Accordingly, we will not consider that argument, raised for the first time on appeal, absent a compelling circumstance requiring us to consider it. Srien v. Frankford Trust Co., 323 F.3d 214, 224 n.8 (3d Cir. 2003). Check Investors does not allege the existence of any compelling circumstance, and we can think of none. Thus, we will not consider its argument that the district court erred in finding that O:\PRECEDENTIAL\2005\053558p.wpd 50 its practices were deceptive to a consumer.