In a cautionary tale to banks who use assumed names for their recovery divisions, the District of Rhode Island recently denied a motion to dismiss by Wells Fargo in an FDCPA case, holding that the bank was not exempt from the definition of a debt collector.  Pimental v. Wells Fargo Bank, N.A., 2016 U.S. Dist. LEXIS 1825 (D.R.I. Jan. 6, 2016).  The consumers filed suit alleging that: (a) the bank does business in Rhode Island by collecting mortgage debts using the name America’s Servicing Company (“ASC”); (b) at the time ASC acquired the right to collect, the mortgage and debt were in default; (c) the letters ASC sent to the consumers did not identify the bank as the obligor, did not indicate ASC was collecting on behalf of the bank and did not reference the bank at all; (d) ASC attempted to collect the debt using a name other than the entity to whom it was owed; and (e) ASC’s letters violated sections 1692d and 1692e of the FDCPA.

The FDCPA defines a “debt collector” as “any person who uses any instrumentality of interstate commerce of the mails in 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.”  Under 15 U.S.C. §1692a(6)(F), entities collecting on debts they originate or which were acquired by them prior to default are not debt collectors.  Moreover, banks generally are not considered as debt collectors even when they do obtain accounts which are in the default because their principal business purpose is not the collection of debts. 

As noted by the magistrate judge in her Report and Recommendation concerning the motion, however, while creditors are not generally covered by the FDCPA, the creditor exemption is lost when the creditor opts to collect under a different name.  “Any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts” is a debt collector under the FDCPA. See 15 U.S.C. 1692a(6).  The court held that the consumers had sufficiently pled facts to support a claim that the bank was a debt collector on this basis.  In accepting the Magistrate Judge’s recommendations and denying the bank’s motion to dismiss, the court rejected the bank’s argument that the plaintiffs were required to plead that they believed a third party was collecting the debt from them.  Instead the court determined that it is enough if a “hypothetical unsophisticated consumer” would have been misled by the bank’s use of the ASC name.

The case serves as a reminder to banks who operate using fictitious names for their recovery divisions to use caution in their outward facing communications with consumers as they may lose their FDCPA exempt status if they do not clearly identify themselves as the creditor.  If there is good news from the case to be had, even though the debt was alleged to be in default at the time it was acquired by the bank, the court did not hold that the bank was a debt collector on that basis.