UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Division of Credit Practices
Bureau of Consumer Protection
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Clarke W. Brinckerhoff
Attorney |
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December 22, 1993
Ms. Kimberlee Arbuckle
MIDLAND CREDIT MANAGEMENT
500 West First Street
Post Office Box #576
Hutchinson, Kansas 67504
Dear Ms. Arbuckle:
This responds to your letter dated December 2, 1993, inquiring whether Midland Credit
Management, Inc. ("MCM") is a debt collector under the Fair Debt Collection
Practices Act ("FDCPA" or "Act"). You report that MCM "purchases
portfolios of delinquent accounts receivable for the purpose of profitable recovery,
resale and cure. These accounts are owned solely by MCM . . ."
Section 803(6) of the FDCPA defines the term "debt collector" 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." In our view, a party that purchases delinquent accounts from the
party to which the debts were originally owed and attempts to collect them from the
consumer debtors fits clearly within that definition. The party is attempting to collect
debts that were "owed or due another" and the fact that title to the accounts is
passed to the collector in no way changes that fact.
In the leading case on point, involving a company whose business included the purchase
of large volumes of checks that had been dishonored and subsequent collection of the
checks from their makers (in the same manner as MCM buys defaulted accounts and thereafter
attempts to collect from the account debtors), the court wrote persuasively that the
purchaser is covered by the FDCPA. It gave short shrift to the fact that the party had
actually purchased the checks in question:
By use of the language "owed or due another" Congress was attempting
to exclude those entities that extend credit from the effects of the Act. Congress
intended to protect borrowers from "third persons who regularly collect debts for
others." (Italics by court; citation omitted). (The purchaser) is a third party
collecting a debt originally owed to another. . . . It cannot escape the spirit of the Act
by the technicality of purchasing the debt upon default so that title technically rests in
itself.
Holmes v. Telecredit Service Corp., 736 F. Supp. 1289, 1293 (D. Del. 1990)
The only theory for exclusion of a party such as MCM from the "debt
collector" definition (and thereby from coverage under the FDCPA) is that it is a
"creditor."(1) Section 803(4) 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 that he
receives an assignment or trans-fer of a debt in default solely for the purpose of
facilitating collection of such debt for another." Since the accounts that MCM buys
are delinquent when purchased and are being transferred for the purpose of collection, we
believe that MCM is within the class that the "creditor" definition expressly
"does not include."(2) The words "for
another" at the end of the clause excepting assignees from the definition of creditor
in no way changes this result:
(T)he excluding factors in the exception are that the debts are the result of an
assignment or transfer and that the debts were already in default at the time of
assignment or transfer. With the phrase "for another" at the end of the
exception, Congress merely intended that the debts should have originally belonged to
another and that the creditor was therefore in effect a third-party or independent
creditor. (Italics by court)
Kimber v. Federal Financial Corp., 668 F. Supp. 1480, 1485 (M.D.Ala. 1987).
Accord, Holmes, supra, at 1293.
In sum, it is our view that a party that obtains consumer obligations in default for
the purpose of collection is a "debt collector" under the FDCPA, even if that
party actually purchases the accounts from the original creditor.
The views set forth in this informal staff opinion letter are not binding on the
Commission.
Sincerely yours,
Clarke W. Brinckerhoff
1. Section 803(6)(A) only specifically exempts creditors'
officers and employees. However, it "seems clear from the legislative history of the
Act that Congress intended that this exclusion cover creditors themselves as well as their
employees." Holmes v. Telecredit Service Corp., 736 F. Supp. 1289, 1291n.3
(D.Del. 1990), citing Kimber v. Federal Financial Corp., 668 F. Supp. 1480, 1484
(M.D.Ala. 1987).
2. See the comment on this subsection in our Staff Commentary
on the Fair Debt Collection Practices Act. 53 Fed. Reg. 50097, 50101 (Dec. 13, 1988.) |