Recently, the U.S. Court of Appeals for the Eleventh Circuit affirmed the dismissal by the U.S. District Court for the Northern District of Georgia of a debtor’s suit against Capital One Bank alleging a violation of the Fair Debt Collection Practices Act (FDCPA) for attempting to collect on the debtor’s defaulted credit card account after acquiring it from the card’s issuer, HSBC.[1]
After debtor-plaintiff Davidson failed to pay an agreed-upon settlement in response to HSBC’s state court collection action, HSBC won a judgment in its favor. Later, Capital One Bank acquired the account, one of a large portfolio, and subsequently sued to collect on it in state court. Soon thereafter, Davidson filed his FDCPA-based suit, alleging that the amount claimed was inflated, and that the affidavit filed by Capital One Bank in its state court action violated the FDCPA’s prohibitions against any false, deceptive or misleading representation in the collection of a debt. In response to Capital One Bank’s motion to dismiss for failure to state a claim, Davidson amended his complaint. Again, Capital One Bank moved to dismiss, arguing that Davidson could not show that it was a debt collector within the ambit of the FDCPA because it collected on its own accounts rather than for another. Davidson responded that his complaint was sufficient because it alleged that Capital One Bank’s regular course of business was to acquire and collect on defaulted consumer debts, and fell within the regulatory reach of the FDCPA.
The court below found in Capital One Bank’s favor and, in dismissing the action, determined that neither the Bank regularly collected, or attempted to collect, on debts due another, nor was debt collection the principal purpose of its business.
In its review, the U.S. Court of Appeals narrowed the issue to the meaning of “debt collector” in the FDCPA and reminded the parties that procedurally, Davidson must have pleaded sufficient facts to permit the reasonable inference that the Bank is a debt collector subject to the provisions of the FDCPA.
According to the FDCPA, a debt collector is any person whose principal business purpose 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.”[2] The Act narrows this definition to exclude a person collecting or attempting to collect a debt that was not in default when the person acquired the debt.[3] Davidson argued, on the strength of this exclusion, that because his debt was in default at the time that Capital One Bank acquired it, the Bank is not excluded from the definition of debt collector, but rather is such an entity. The court disagreed.
The court found the statute to be very clear (“The statutory text is entirely transparent.”), and that it should be construed in its contextual entirety. The gravamen of its reasoning is that before applying a narrow exclusion in a statutory sub-element, viz., whether a debt is in default when acquired, the threshold definition of debt collector applies — particularly, in this matter, that portion stating that a debt collector is one for whom debt collection is its principal business or who regularly collects on debts owing to another. The court found no basis in Davidson’s amended complaint for plausibly inferring that Capital One Bank’s principal business is debt collection, notwithstanding that some part of it may be. As to the second part of the definition of debt collector, Davidson’s amended complaint failed, according to the appellate review, plausibly to allege that the Bank regularly collected debts due another rather than to itself.
To Davidson’s argument that the holding creates a loophole in the FDCPA’s application to acquirers of, and collectors on, defaulted debt, the court responded that Congress did not intend for the Act to regulate those who collect, in the course of conducting business, on debts owned by and owed to themselves. However, according to the court, anyone whose principal business purpose is the collection of any debts, in default or not, for itself or another, is subject to the Act’s provisions.
[1] Davidson v. Capital One Bank (USA), 797 F.3d 1309 (11th Cir. 2015).
[2] 15 U.S.C. § 1692a(6).
[3] 15 U.S.C. § 1692a(6)(F)(iii) (emphasis added).