3rd Circuit Rules on Definition of Debt Collector
Recently, the U.S. Court of Appeals for the Third Circuit held that an entity whose primary purpose is the collection of debts, even if it hires a third party to engage in the actual collection activity, is still within the FDCPA’s definition of a debt collector.
In Barbato v. Greystone Alliance, LLC, et al., the Third Circuit addressed whether an entity that acquires debt for the purpose of collection but outsources the actual collection activity qualifies as a debt collector under the FDCPA. The underlying case involved an entity that purchased delinquent accounts, but contracted the collection activity to a third-party. The plaintiff in the lawsuit ceased payment on a consumer credit card, leaving an outstanding balance. The entity at issue purchased the debt and then referred it to a third-party for collection. After subsequent collection attempts, the plaintiff filed suit against the third-party and the entity alleging violations of the FDCPA.
Both parties filed motions for summary judgment on the topic of whether the entity was a debt collector as defined by the FDCPA. Specifically at issue was the “principal purpose” definition, which, put simply, defines a debt collector as any business whose principal purpose is the collection of any debts. The entity argued that, because it had no communication with the plaintiff, did not take any action on its own to collect the debt, and did not review or approve the letter sent to her by the third-party, it could not be a debt collector. Further, it reasoned that because the principal purpose of its business was the acquisition of debt—rather than the debt’s collection—it did not fall under the ambit of the FDCPA’s definition of a debt collector. The lower court ruled against the entity, finding that the record showed the entity’s principal purpose was the collection of debts. During these proceedings, in a separate case the Supreme Court ruled on an alternate definition of debt collector, the “regularly collects” definition. The entity sought reconsideration of the district court’s prior decision based on this new precedent. The attempt was unsuccessful, as the district court held that the Supreme Court opinion did not apply to the principal purpose definition. The entity appealed.
The Third Circuit agreed with the lower court, and held that the entity qualified as a debt collector under the principal purpose definition for three reasons: 1) the Supreme Court’s decision did not address the principal purpose definition and, based on Third Circuit precedent, was unrelated to the issue before the court; 2) the language of the FDCPA expressly states that as long as a business’s main objective is obtaining payment on debts it acquires, it is a debt collector, regardless of the existence of a “middleman;” and 3) that the legislative history of the FDCPA lends credence to the idea that Congress meant to define actors just like the entity as debt collectors. The case was remanded back to the district court to address the issue of ultimate liability, which was not at issue on appeal.
