Eleventh Circuit Court Cites “Plain Language” of the FDCPA, Rules in Favor of Capital One in Debt Collection Case

If an entity acquires a debt in default and tries to collect on it, does that automatically make it a “debt collector” under the Fair Debt Collections Practices Act? Several courts, including the Third, Seventh, and Sixth Circuit Courts of Appeals, all said yes it does. In a surprise ruling earlier this week, however, the Eleventh Circuit Court bucked the trend and ruled instead that the FDCPA is just not that simple. An entity’s primary purpose matters.

In the case in question, Davidson v. Capital One Bank (USA), N.A., plaintiffs argued that Capital One most certainly fits the FDCPA’s definition of “debt collector” because the subject debt it acquired from HSBC, as part of a portfolio of credit card accounts, was already in default. Capital One argued that it did not meet the definition because it was collecting on debt owed to it and not on debts owed to another entity.

Multiple circuit courts ruled that the distinction does not matter. Capital One acquired this debt in default and tried to collect on it. It is, by FDCPA definition, a debt collector – even if it’s collecting on its own debt – and therefore subject to the FDCPA.

Not so fast, said the Eleventh. Before an entity gets saddled with the Act’s “debt collector” designation, it has to meet one of two “substantive requirements.” It has to collect debt regularly or function, primarily, as a debt collecting entity. In other words, a single instance where an entity attempts to collect a debt in default does not make it, per the FDCPA, a “debt collector.” The court found that since Capital One does not function primarily as a debt collector and was, in this instance, only making an effort to collect debts owed to it, it does not meet either of the requirements.

“We need look no further than the statutory text to conclude that, under the plain language of the FDCPA, a bank (or any person or entity) does not qualify as a ‘debt collector’ where the bank does not regularly collect or attempt to collect on debts ‘owed or due another’ and where ‘the collection of any debts’ is not ‘the principal purpose’ of the bank’s business, even where the consumer’s debt was in default at the time the bank acquired it,” the ruling states.

Davidson attempted to argue that Capital One should count as a debt collector under the FDCPA because it regularly collects debts originally owed to other entities – debts that were in default when Capital One acquired them.

The salient distinction involves debt ownership and timing, not the simple act of collecting debt in default, the court countered.

“Our inquiry … is not whether Capital One regularly collects on debts originally owed or due another and now owed to Capital One; our inquiry is whether Capital One regularly collects on debts owed or due another at the time of collection,” the ruling notes. “The amended complaint makes no factual allegations from which we could plausibly infer that Capital One regularly collects or attempts to collect debts owed or due to someone other than Capital One.”

The ruling affirms the district court’s earlier dismissal of the plaintiff’s complaint, noting that, contra the plaintiff’s assertion, Capital One does not meet the definition of “debt collector” under the FDCPA.

insideARM Perspective

In addition to the fact that this decision does not fall in line with those by other courts, this case is interesting in light of the CFPB’s focus on looking at first party collectors. The Bureau’s questions during its process of debt collection rulemaking, and recent enforcement actions, seem to point to its intention to treat first party collectors more like third party collectors.