• DYE CULIK PC | Consumer Protection Division

Is a Debt Buyer a “Debt Collector” Subject to the Fair Debt Collection Practices Act?

A business that bought and profited from consumer debts, but which outsourced its collection activities, qualified as a “debt collector” subject to the requirements of the Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq., concluded a Court of Appeals. This decision concurs with a number of other courts on this issue. The name of the case is McAdory v. M.N.S. & Associates, LLC.

Is a Debt Buyer a “Debt Collector” Subject to the Fair Debt Collection Practices Act?
Is a Debt Buyer a “Debt Collector” Subject to the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act (FDCPA) is a federal law that was passed after debt collectors had run roughshod over consumers’ rights. Congress found existing laws and procedures for redressing unjust methods of debt collection were inadequate to protect consumers because there was abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors.

A commonly litigated issue is whether a business is regulated under the FDCPA. The FDCPA rarely applies to the original creditor who loaned the money or gave you credit.

Rather, the FDCPA only applies to “debt collectors.” “Debt collectors” under the FDCPA are actually two types of entities.

First, a debt collector can be a third party who is hired to do the collection after an account goes behind.

And second, a debt collector is also “any business the principal purpose of which is the collection of any debts.”

The case of McAdory v. M.N.S. & Associates, LLC involved whether a company who collected debt from a consumer-plaintiff qualified as a debt collector under the second definition.

The case began when the consumer filed a lawsuit under the FDCPA alleging that the company committed “false, deceptive, or misleading representations in connection with the collection of a debt” in violation of the FDCPA, 15 U.S.C. 1692e.

The consumer claimed that the company was a debt collector under the second definition, above, because its principal purposes was the collection of debts.

The company filed a motion to dismiss the case, arguing that it was not a debt collector. Even though it bought bad debts to have them collected, the actual collection activities (phone calls, dunning letters, etc.) were done by a third party. The company claimed it did not meet the definition of “debt collector,” so the FDCPA was inapplicable. The company said it was merely “buying debt for investment purposes” to “profit on its investment.”

The case was dismissed, but the consumer appealed to the Court of Appeals. The Court of Appeals reversed the lower court and agreed with the consumer that the company was indeed a debt collector subject to the FDCPA.

Explaining, the Court of Appeals said that the “principal purpose” language of the FDCPA did not require actual interaction between the debt collector and the consumer. Rather, because the company’s “principal purpose” was to have debts collected – regardless of who did the actual collecting – the company was a debt collector.

This is an important decision because many so-called debt buyers have attempted to avoid being regulated by the FDCPA by doing what this collector did and having a third party do the actual collecting.

Debt buyers are companies that buy bad debts, often hundreds or thousands of accounts at a time, in order to collect. They do not issue credit or loan money. Rather, their business model is to purchase credit card debt, loans, and medical debt for pennies on the dollar to collect. Usually, they collect by filing lawsuits in state court.

Unfortunately, abusive debt collection is still common. The rules of the FDCPA are required to try to stanch these practices.

If a debt collector violates the FDCPA when collecting a debt from you, you may be entitled to up to $1,000 plus costs and your legal fees. Dye Culik PC represents consumers in Massachusetts, North Carolina, and federal court against debt collectors in cases under the FDCPA, as well as defending consumers in debt-collection lawsuits. If you have been contacted by a debt collector, contact us to see if we can help.

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