Case: Davidson v. Capital One Bank (USA), N.A.
Issue: Whether a bank that attempts to collect a debt, that was in default when it was acquired by the bank, qualifies as a “debt collector” under the Federal Debt Collection Practices Act.
Case Summary: The Federal Trade Commission (FTC) filed an amicus brief with the Eleventh Circuit urging a full panel to review its prior ruling to dismiss a Fair Debt Collection Practices Act (FDCPA) class action against Capital One Bank (USA), N.A. (Capital One).
Capital One acquired plaintiff Keith Davidson’s debt from HSBC while the debt was in default. Capital One then sued Davidson to collect $1,150 in debt he originally owed as a result of failing to pay HSBC for a $500 default judgment against him. Davidson brought the class action against Capital One asserting that it violated the FDCPA for falsely stating the amount of his debt and robo-signing an affidavit in support of its state court collection complaint.
In its motion to dismiss, Capital One argued that it was not a debt collector under the FDCPA because it collected debts that were owed to it and not debts “owed or due to another.” The Georgia district court agreed with Capital One and dismissed the case.
On August 24, 2015, the Eleventh Circuit affirmed the district court’s ruling on appeal, holding that because Capital One does not function primarily as a debt collector and was only making an effort to collect debts owed to it, Capital One did not meet the requirements of a debt collector even though the debt was in default.
The FTC submitted an amicus brief with the Eleventh Circuit urging the Court to review en banc its decision to affirm the district court. In criticizing the Court for misinterpreting the FDCPA, the FTC wrote that the decision “created an irrational loophole in the FDCPA that enables unscrupulous debt collectors to avoid its requirements.” The FTC asserted that the “primary purpose” requirement “makes nonsense of the statutory scheme” because companies could escape FDCPA regulation simply by creating a diversified business that includes activities unrelated to debt collection. Further, the FTC criticized the panel’s reasoning that Davidson’s debt was not “owed or due another” after Capital One acquired the debt from HSBC as “flouting congressional intent” and exempting mortgage services who regularly buy debt portfolios from loan originators.
Bottom Line: The Eleventh Circuit’s ruling creates a circuit split with the Third, Seventh, and Sixth Circuits through which these circuits held that a company that acquires debt in default, and then tries to collect on that debt, qualifies as a debt collector.