In Davidson v. Capital One Bank (USA), N.A., a case closely followed by the financial services industry and handled by Burr & Forman, LLP, the Eleventh Circuit held that an entity collecting a debt that was acquired after default, and which the entity now owns, is not a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”) unless the principal purpose of the entity’s business is the collection of debts or the entity regularly collects debts owed to others. In so holding, the Eleventh Circuit broke from the large majority of courts (including the Third, Seventh, and Sixth Circuit Courts of Appeals) which have held that an entity that acquires a debt after the borrower defaults on the underlying obligation is a “debt collector,” even if the entity owns the debt and is collecting the debt on its own behalf.[1]

The distinction in these courts’ rulings turns on the interpretation of the statute’s definition of “debt collector” and the statutory exclusions thereto. The Act defines “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.” The statute also provides that the term “debt collector” does not include “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity . . . concerns a debt which was originated by such person.” See 15 U.S.C. § 1692a(6)(F)(iii).

Davidson asserted that Capital One fell within the definition of “debt collector” under § 1692a(6)(F)(iii) because the subject debt was in default at the time it was acquired by Capital One as part of a portfolio of credit card accounts from HSBC. The Eleventh Circuit disagreed, stating that before a defendant can be brought within the scope of the FDCPA, it must satisfy one of the two “substantive requirements” of the “debt collector” definition: either having a principal purpose of debt collection or regularly collecting debts owed or due another. The court held that these statutory requirements apply “without regard to the default status of the underlying debt,” explaining that “Davidson cannot rely on § 1692a(6)(F)(iii) to bring entities that do not otherwise meet the definition of “debt collector” within the ambit of the FDCPA solely because the debt on which they seek to collect was in default at the time they acquired it. Section 1692a(6)(F)(iii) is an exclusion; it is not a trap door.”

The Eleventh Circuit then affirmed the district court’s holding that Davidson’s complaint was due to be dismissed because Davidson had not adequately alleged that Capital One fell within either part of the statute’s definition of “debt collector.” The court held that Davidson did not plausibly allege that the principal purpose of Capital One’s business was debt collection by alleging that Capital One “has attempted to collect . . . delinquent or defaulted debts in the regular course of its business.” The Eleventh Circuit found that this allegation only led to the inference that debt collection was “some part of Capital One’s business,” but not that the “principal purpose” of Capital One’s business was debt collection.

The court also rejected Davidson’s claim that Capital One fell within the second definition of “debt collector,” which includes entities that “regularly collect[ ] or attempt[ ] to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Although Capital One owned the subject account and therefore was collecting debts owed to itself, Davidson argued that Capital One nonetheless fell within this definition because the subject debt was “originally owed to another” — HSBC. However, the court found such a definition would be inconsistent with the plain text of the statute, stating, “[W]e will not write into the phrase ‘owed or due another’ the limiting adverb ‘originally’ in order to express what Davidson thinks Congress intended.”

The Eleventh Circuit’s holding tightens the reins on FDCPA plaintiffs who had been relying on the default status of assigned debts as evidence of a non-originating debt holder’s “debt collector” status under the FDCPA. Entities that collect debts that they own, and whose main business is something other than debt collection (such as issuing loans or credit cards), can now rely on Davidsonto avoid FDCPA claims, at least in the Eleventh Circuit.