In a case of first impression for the circuit, the Eleventh Circuit held in Davidson v. Capital One Bank (USA), No. 14-14200, 2015 U.S. App. LEXIS 14714 (11th Cir. August 21, 2015) that Capital One Bank did not qualify as a “debt collector” under the Federal Debt Collection Practices Act, 15 U.S.C. §§ 1692 (“FDCPA”). This is a significant decision for all financial institutions that acquire defaulted debt.

In 2012, Capital One acquired a portfolio of current and defaulted credit card debt from HSBC, including Keith Davidson’s account. Years earlier, Davidson had failed to pay his credit card debt to HSBC, had entered into a settlement with HSBC, which he did not honor, and had a judgment for $500.00 entered against him. After Capital One acquired Davidson’s account, Capital One filed suit against Davidson in state court to collect the $1,149.96 full amount of his debt to HSBC, rather than the settlement amount. Davidson then, for himself and on behalf of a class, sued Capital One in federal district court, alleging that Capital One’s state court complaint falsely stated the amount of his debt in violation of the FDCPA. Capital One, on the other hand, argued that the FDCPA did not apply.

The purpose of the FDCPA is “to eliminate abusive debt collection practices.” It provides borrowers with an avenue to sue debt collectors who utilize “any false, deceptive, or misleading representations or means in connection with the collection of any debt.” § 1692e.

The FDCPA defines “debt collector” as “[1] 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 [2] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” § 1692a(6). Capital One argued that it was not a debt collector under the FDCPA because its principal business purpose was not the collection of debt, and any debts it collected were owed to Capital One and not to “another.” Davidson countered that Capital One was a debt collector under the law because it “attempted to collect such…debts in the regular course of its business” and it “regularly acquired delinquent and defaulted customer debts that were originally owed to others.”

Different circuits have reached different conclusions as to whether a financial institution that acquires defaulted debt from another and seeks to collect it is a “debt collector” as defined by the FDCPA. Thus, in Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355 (6th Cir. 2012), the Sixth Circuit held that a financial institution is a “debt collector” if it seeks to collect debt that was in default when acquired. Applying similar reasoning, the Third Circuit has also found that an entity that assumed a mortgage in default was a “debt collector” under the FDCPA. Evankavitch v. Green Tree Servicing, LLC, No. 14-1114, 2015 U.S. App. LEXIS 12024 (3d Cir. July 13, 2015).

In Davidson, however, the Eleventh Circuit held that the fact that Davidson’s debt was in default at the time Capital One purchased it had no bearing on whether Capital One satisfied the statutory definition of a “debt collector.” Instead, the Eleventh Circuit held that whether a debt was current or in default when acquired was a relevant consideration only if the court first determined that Capital One met the FDCPA’s definition of “debt collector.” The court then found that Capital One did not meet the first definition of “debt collector,” as the collection of debts was not the principal purpose of the bank’s business.

The Eleventh Circuit went on to examine the FDCPA’s second definition of “debt collector” as a person “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The court interpreted this definition to mean that a “debt collector” must “regularly collect or attempt to collect debts for others,” not for itself. The court stated that “because Capital One acquired Davidson’s credit card account from HSBC, Capital One’s collection efforts in this case relate only to debts owed to it – and not to ‘another.’” Thus, the Eleventh Circuit held Capital One was not a “debt collector” under the FDCPA.

The Eleventh Circuit’s Davidson decision is in line with the Ninth Circuit’s decision in Schlegel v. Wells Fargo Bank, N.A., 730 F.3d 1204 (9th Cir. 2013). In Schlegel, the Ninth Circuit had similarly held that the default status of a loan when acquired by a financial institution had no bearing on whether the financial institution was a “debt collector” unless the financial institution otherwise met the FDCPA’s definition of a “debt collector.”

Davidson and Schlegel seem far better reasoned decisions than their Third and Sixth Circuit counterparts, and one would expect them ultimately to become the prevailing interpretations of this section of the FDCPA. Until this occurs, however, financial entities engaged in certain collection efforts will continue to be exposed to inconsistent interpretations of the FDCPA.