Opinion ID: 2316469
Heading Depth: 3
Heading Rank: 1

Heading: Coverage Under the Fair Debt Collection Practices Act

Text: If [the Fair Debt Collection Practices Act] is not enacted, Congress will then be classifying as `deadbeats' those individuals who through no fault or action of their own are being harassed, hounded, threatened and intimidated by debt collectors. H.R.Rep. No. 131, 95th Cong. 1st Sess. 9 (1977). Congress did enact the FDCPA, however, effectuating its intention to prohibit precisely this kind of misclassification and harassment. We conclude that the district court's judgment must be vacated because the Bridges have sufficiently alleged that the Defendants are debt collectors within the coverage of the FDCPA. Under the FDCPA, a debt collector is defined as: 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. Notwithstanding the exclusion provided by clause (F) of the last sentence of this paragraph, the term includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. . . . The 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 (i) is incidental to a bona fide fiduciary obligation or a bona fide escrow arrangement; . . . [or] (iii) concerns a debt which was not in default at the time it was obtained by such person. . . . 15 U.S.C. § 1692a(6). We note, as other circuits have, that 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. FTC v. Check Investors, Inc., 502 F.3d 159, 173 (3d Cir.2007) (citing Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir.2003)); cf. Montgomery v. Huntington Bank, 346 F.3d 693, 698 (6th Cir.2003) (holding the definition of debt collector does not include the consumer's creditors). If an entity which acquires a debt and seeks to collect it cannot be both a creditor and a debt collector, can it be neither? We answer no. To allow such an entity to define itself out of either category would mean that the intended protection of the FDCPA is unavailable. Both the statutory language and legislative history of the FDCPA establish that such an entity is either a creditor or a debt collector and its collection activities are covered under the FDCPA accordingly. The distinction between a creditor and a debt collector lies precisely in the language of § 1692a(6)(F)(iii). For an entity that did not originate the debt in question but acquired it and attempts to collect on it, that entity is either a creditor or a debt collector depending on the default status of the debt at the time it was acquired. [3] The same is true of a loan servicer, which can either stand in the shoes of a creditor or become a debt collector, depending on whether the debt was assigned for servicing before the default or alleged default occurred. Wadlington v. Credit Acceptance Corp., 76 F.3d 103, 106-8 (6th Cir. 1996); see also Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir.1985). This interpretation of the Act is supported by Congress's intent in passing it. This bill also protects people who do not owe money at all. In the collector's zeal, collection efforts are often aimed at the wrong person either because of mistaken identity or mistaken facts. This bill will make collectors behave responsibly towards people with whom they deal. H.R.Rep. No. 131, at 8 (emphasis added); see also S. Rep. 95-382, 95th Cong. 1st Session 4, reprinted in 1977 U.S.C.C.A.N. 1695, 1698 (1977) ([T]he committee does not intend the definition [of debt collector] to cover . . . mortgage service companies and others who service outstanding debts for others, so long as the debts were not in default when taken for servicing[.]). Thus, we do not accept Defendants' argument that, even if they are not creditors under the Act, neither are they debt collectors. It would thwart the purpose of the Act to find that a non-originating debt holder is neither a creditor nor a debt collector based on that defendant's adoption of contradictory factual positions. Defendants may not so easily define themselves out of FDCPA coverage. Echoing the Third Circuit's sentiment, [a]lthough 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 the legislation. Check Investors, 502 F.3d at 172-73. [4] The same is true of a creditor who uses any name other than his own which would indicate that a third person is attempting to collect the debt. See 15 U.S.C. § 1692a(6) (Notwithstanding the exclusion provided in clause (F) of the last sentence of this paragraph, the term [debt collector] includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.). No such creditor may escape liability by alleging that it is neither a creditor nor a debt collector and thus not subject to the FDCPA. As to Lisa Bridge, the SAC properly alleges that Defendants are categorized as debt collectors under the Act. First, the Bridges have made allegations addressing all elements of the statutory definition of debt collector under the first sentence of § 1692a(6). The Bridges alleged that: (1) there is no assignment of record to establish that Deutsche is a creditor or that Ocwen Bank is a loan servicer, thus making the alleged debt due another; (2) Ocwen Bank made persistent efforts to collect a debt, i.e., mortgage payments; and, (3) the Defendants used the mails as well as an instrumentality of interstate commerce, i.e., the telephone system, in the collection of debts. Second, the Bridges have alleged that they received collection letters regarding Lisa Bridge's mortgage from an agent or arm of Defendants, the law firm of Moss, Collis, Stawiarski, Morris, Schneider and Prior, LLC. For the purposes of a 12(b)(6) motion, this allegation may also bring Defendants within the statutory definition of a debt collector under the second sentence of § 1692a(6) (Notwithstanding the exclusion provided in clause (F) of the last sentence of this paragraph, the term [debt collector] includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts.). Third, the Bridges have alleged the Defendants are debt collectors notwithstanding the definitional exclusion contained in § 1692a(6)(F)(iii) (excluding activity concerning a debt which was not in default at the time it was obtained) because the Defendants sought collection of Lisa Bridge's debt which they claimed was already in default at the time they obtained it from Aames. Therefore, we find Defendants' argument on appeal, that even if Deutsche is not a creditor there is no allegation that it is a debt collector, is contradicted by the allegations of the SAC. Further, we find disingenuous Ocwen Bank's argument that Ocwen also is not a debt collector because servicing transferred to Ocwen on May 1, 2002, and Plaintiffs themselves allege that the account was not in default at that time. (R. 98 at 7). We note this argument is exemplary of an unsettling trend in FDCPA claims. Defendants seek to have it both ways: after having engaged in years of collection activity claiming a mortgage is in default, Defendants now seek to defeat the protections of the FDCPA by relying on Plaintiffs' position throughout those years that the mortgage is not in default. As noted in the analysis of the Third Circuit, FDCPA coverage is not defeated by clever arguments for technical loopholes that seek to devour the protections Congress intended. The legislative history of the FDCPA indicates that Congress intended to address the very situation the Bridges allege. A Senate Report states that the purpose of the Act's debt verification is to eliminate the recurring problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid. S. Rpt. 95-382 at 4, reprinted in 1977 U.S.C.C.A.N. 1695, 1699. A House Report noted congressional intent to regulate collection activities based on either mistaken identity or mistaken facts. H.R.Rep. No. 131, at 8. Congress recognized that computer errors are a related problem, and that [c]onsumers who are victims of computer error find it extremely difficult to obtain correction of records. This may lead to collection agency harassment. Id.; see also Barany-Snyder v. Weiner, 539 F.3d 327, 333 (6th Cir.2008) ([T]he FDCPA is extraordinarily broad, crafted in response to what Congress perceived to be a widespread problem.) (citations omitted). Based on the Bridges' allegations, computer error may be the case here. On the other hand, it may be the most benign explanation available. Regardless, the Act was intended to protect victims of all such errors, irrespective of the collector's intent. In addition, the Federal Trade Commission's Staff Commentary on the FDCPA is instructive. See Dunham v. Portfolio Recovery Assocs., LLC, 663 F.3d 997, 1002 (6th Cir.2011) (finding the same Staff Commentary persuasive in construing the FDCPA). There, the FTC states that a debt collector must verify a disputed debt even if he has included proof of the debt with the first communication, because the section is intended to assist the consumer when a debt collector inadvertently contacts the wrong consumer at the start of his collection efforts. FTC Staff Commentary, 53 Fed.Reg. 50097-02, 50106 (Dec. 13, 1988). The statutory language itself confirms that Congress intended to provide protection for those persons being dunned in error. Schroyer v. Frankel, 197 F.3d 1170, 1174 (6th Cir.1999) (When interpreting the FDCPA, we begin with the language of the statute itself.). Throughout the Act, statutory terms are defined by the satisfaction of some condition or the alleged satisfaction of some condition. For example, a consumer is a person obligated or allegedly obligated to pay any debt. 15 U.S.C. § 1692a(3) (emphasis added). A debt is any obligation or alleged obligation. 15 U.S.C. § 1692a(5) (emphasis added). A debt collector is a person who, inter alia, collects or attempts to collect debts owed or due or asserted to be owed or due another. 15 U.S.C. § 1692a(6) (emphasis added). Throughout the FDCPA coverage is based upon actual or merely alleged debt. Thus, a debt holder or servicer is a debt collector when it engages in collection activities on a debt that is not, as it turns out, actually owed. [5] This stands to reason since the pursuit of collection activities presupposes that the collector alleges or asserts that the subject of those activities is obligated. [6] Under the consumer definition, the Eighth Circuit has recently reinforced the application of the FDCPA to individuals who are mistakenly dunned by debt collectors. In Dunham v. Portfolio Recovery Associates, LLC, the court reversed the determination below that the FDCPA does not provide a remedy to non-debtors mistakenly targeted by debt-collection efforts. 663 F.3d at 1001. Parallel to the argument advanced here, there it was claimed that Congress intended to exclude protection for consumers mistakenly contacted by a debt collector as they would not come within the definition of persons obligated or allegedly obligated to pay any debt under § 1692a(3). The Eighth Circuit made short shrift of that argument noting: Under PRA's interpretation of the Act, a person who has been abused by a debt collector's harassing tactics, which the FDCPA generally prohibits, could not invoke the protection of the FDCPA if the debt collector contacted the individual by mistake. This interpretation would read the phrase allegedly obligated to only apply to those who actually owe or owed the specific debt at issue, despite whether a debt collector asserted a person owes the specific debt. PRA's position too narrowly constricts the plain meaning of alleged. Id. at 1002 (paragraph break omitted). The court then determined that a consumer under the FDCPA includes those who are mistakenly alleged to have owed a debt. As we have previously noted, [t]he Fair Debt Collection Practices Act is an extraordinarily broad statute. Congress addressed itself to what it considered to be a widespread problem, and to remedy that problem it crafted a broad statute. Frey v. Gangwish, 970 F.2d 1516, 1521 (6th Cir.1992). Our actions are guided by the hand of Congress, and thus we apply the Act broadly according to its terms. Our sister circuits have done the same. See, e.g., Bass v. Stolper, Koritzinsky, Brewster & Neider, S.C., 111 F.3d 1322, 1325 (7th Cir.1997) (noting that the plain language of the Act defines `debt' quite broadly). Therefore, we hold that the definition of debt collector pursuant to § 1692a(6)(F)(iii) includes any non-originating debt holder that either acquired a debt in default or has treated the debt as if it were in default at the time of acquisition. It matters not whether such treatment was due to a clerical mistake, other error, or intention. Thus, a FDCPA defendant cannot escape coverage under the Act by asserting to the court that the debt was not actually in default, despite having dunned plaintiffs for months or years in the face of plaintiffs' pleas or proof that the collector has made some error. A defendant may not retroactively change the status of the plaintiff it has pursued as an alleged debtor. To hold otherwise would defy the clear congressional mandate we are charged with upholding. As to William Bridge, Plaintiffs alleged that Defendants have been dunning him in violation of the FDCPA as he is not obligated on Lisa Bridge's mortgage. Defendants have not responded to Mr. Bridge's allegations and the district court dismissed his claims without analysis. It appears that Deutsche is not a creditor and, similarly, that Ocwen Bank is not a loan servicer as to Mr. Bridge. We specifically note that Congress intended to protect people like Mr. Bridge in enacting the FDCPA. See H.R.Rep. No. 131, at 8 (Another group of people who do not owe money, but may be deliberately harassed are the family . . . of the consumer. These people are also protected by this . . . bill.). And, as alleged in the SAC, Mr. Bridge is included in the protections for such persons in the prohibitions of 15 U.S.C. § 1692d, A debt collector may not engage in any conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt. (emphasis added).