The purchase and sale of debt was not a common practice at the time Congress enacted the Fair Debt Collection Practices Act ("FDCPA") and the Third Circuit has observed that that "the proliferation of debt buying [has led to] questions about the boundaries of the statute's definitions." One such question arose in the case Barbato v. Greystone Alliance, LLC, in which the Third Circuit held that the boundaries of the FDCPA encompass businesses that purchase debt.
In Barbato, a consumer failed to pay the entirety of a credit card debt. The creditor charged-off the debt and defendant Crown Asset Management purchased it. Crown does not itself collect the debts it purchases, but rather engages vendors to do so. The debt collection agency that Crown hired to collect the debt at issue, Turning Point Capital, Inc., sent the debtor a letter and left her two voicemails. Although Crown did not directly communicate with the debtor and did not approve Turning Point's collection letter, the debtor nevertheless sued Crown for alleged violations of the FDCPA.
The FDCPA, which protects consumers from unfair debt collection practices, governs the conduct of "debt collectors." The Act defines "debt collectors" alternatively as those engaged "in any business the principal purpose of which is the collection of any debts" and those "who regularly collect [debts] owed or due another." The question in Barbato was whether Crown, which did not itself collect debts but rather engaged others to do so, nevertheless qualified as a "debt collector" on the grounds that its "principal purpose" was the collection of debts.
The Third Circuit held that Crown was a "debt collector" within the meaning of the FDCPA. The Court explained that "an entity that has 'the collection of any debts' as its 'most important' 'aim' is a debt collector." The focus of the inquiry, the Court observed, should not be on "the act of collecting [but rather on] what is collected." The Court held that "[a]s long as a business's raison d'être is obtaining payment on the debts that it acquires, it is a debt collector. Who actually obtains the payment or how they do so is of no moment." Applying these principles, the Court concluded that Crown was a debt collector because its "only business is the purchasing of debts for the purpose of collecting on those debts, and . . . without the collection of those debts, Crown would cease to exist."
This is the second case in the past year in which the Third Circuit had held that debt purchasers are subject to the FDCPA. Indeed, in Tepper v. Amos Financial LLC, the Court held that debt buyers are "debt collectors" within the meaning of the FDCPA even though they own the debts they are collecting. As these cases make clear, debt buyers would be well-advised to assume that they will be subject to the provisions of the FDCPA, at least in courts in the Third Circuit.
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