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Old OC is acquired by New Creditor. Is New Creditor debt collector?


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I got a call from someone the other day asking for me to call them back. The name on the caller ID was an Old Creditor where I had an account which had gone delinquent and has since gone outside of sol.

I then got a letter from a New Creditor who claims to have acquired the Old Creditor. There was no actual demand for money or reference to the delinquent account, just,"This name change does not change the terms or conditions of your account".

I think that a demand for payment may not be needed to redefine the New Creditor as debt collector. The fact that they contacted me means that there were contacting me in reference to the delinquent debt. They bought the debt in default, they knew it was in default, and they knew they were contacting me about a delinquent debt which they purchased in default.

To avoid the FDCPA, New Creditors sell delinquent debts upon aquisition of another Creditor. They do not contact the debtor. If they do then they are a debt collector.

Am I correct?

Edited by Downto0
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Let me post the bases for my reasoning. In the definition of "Creditor" the FDCPA states

(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

If the New Creditor acquires the Old Creditor and attempts to collect the Old Creditor's defaulted debts then they are collecting a debt for another. The New Creditor did not extend credit to the consumer. The New Creditor is not a "Creditor". They are attempting to collect a debt for another. They are a debt collector.

The FDCPA also gives this definition of "debt collector" where it exempts certain situations:

(F) 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 (i) is incidental to a bona fidefiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.

Here an entity trying to collect an account is not a debt collector if the debt was obtained while not in default. So, if my account had been in good standing when the New Creditor acquired the Old Creditor and then the account went delinquent, the New Creditor would not be a debt collector because the account had not been in default when they acquired the Old Creditor.

But the reverse occurred so the reverse is true. They did buy the debt in default and are collecting for another so the New Creditor is a debt collector.

Make sense?

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1692a(6) The term "debt collector" means 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.

Is the principal purpose of new "creditor's" business the collection of debt?

Do they "regularly collect or attempt to collect, directly or indirectly, debts owed or due or asserted to be owed or due another"?

What is the definition of "principal purpose"? What is the definition of "regularly collect or attempt to collect"?

Good question.

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From your FDCPA quote:

or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Here we do not need to define "principle".

If the New Creditor has a policy which states that they attempt to collect the debts of acquired creditors or if they regularly (not always) attempt to collect the debts of acquired creditors then the above FDCPA definition would apply to the New Creditor.

On the other hand, if the New Creditor occasonally collects some debts for some acquisitions then the definition probably would not apply.

I've had two phone calls and one letter from the New Creditor thus far. They have not specifically asked for payment but they have told me that the (delinquent) account's terms remain the same. They did not say delinquent but it would not take a rocket sceintist to see that the account was delinquent and one could safely assume that they knew, or should have known, that they were referencing a delinquent account.

According to the FDCPA, the New Creditor cannot be a "creditor" because they received the account in default. The problem of putting the lable of "debt collector" on the New Creditor will be establishing that they collect debts for another on a regular basis. Then define "regular basis".

I would then go back to my previous comment and say that if they regularly collect the delinquent accounts of acquisitions then they would be a "debt collector".

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Has any court held that Washington Mutual was a debt collector as a result of the Providian acquisition?

Is Chase a debt collector as a result of the Washington Mutual acquisition?

I think you'll find the answer to these questions, and yours, in the text of the opinion rendered in Robertson v. GE Consumer Finance, Inc., 2008 U.S. Dist LEXIS 91263.

A plain reading of the [FDCPA] reveals that it is designed to prevent assignee collectors from avoiding debt collector status by becoming "owners" of the debt. It does not convert legitimate owners of debts into "debt collectors."

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Of course I have to agree about Wash Mut and Chase, but I'm not claiming they're CAs and therefore subject to the FDCPA.

I'm saying the "new" creditor is more like a JDB...and therefore probably doesn't have the records to back up their claims. I have heard that even Wells Fargo in their recent aquisitions is having a very difficult time reconciling their computer systems.

If I were an attorney, I think I'd attack their claims on "record keeping" details.

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I read a synopsis of the case cited and it appears that the debt was not in default when the New Creditor acquired the Old Creditor.

GE, representative Martha Koehler, has conceded that the Robertsons' account was paid in full on October 20, 2004, and that proof of the Robertsons' payment was contained in contemporaneous account records maintained by GE...

...the plaintiffs contend that collection efforts on the debt began shortly after October 2004 when the Robertsons' account was not properly credited with the payoff. They therefore argue that when GEMB acquired the debt in February 2005, the account was allegedly in default, thus making GEMB a debt collector. This is where the plaintiffs' argument derails.

However, I am beginning to think that the FDCPA was alluding to JDB's when Congress spoke of persons who bought debts in default for the purpose of collecting debts for another. And, acquisitions don't ususally happen on a regular basis.

Still, the cited case could very well have turned out differently if the debt had been in default. And, as far as Chase being a debt collector because they acquired Washington Mutual...I believe that Chase sold all the delinquent debts to JDB's and such which washed Chase's hands of the debt collection label. They may have acquired delinquent debts when they acquired Washington Mutual but I don't believe they ever attempted to collect them.

I have run across some articles dealing with the matter but I never really paid any attention as I had never run into the situation of a New Creditor collecting for the Old Creditor until now. I'll do some more research and let you guys know if I find anything substantial.

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Let me post the bases for my reasoning. In the definition of "Creditor" the FDCPA states

(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

If the New Creditor acquires the Old Creditor and attempts to collect the Old Creditor's defaulted debts then they are collecting a debt for another. The New Creditor did not extend credit to the consumer. The New Creditor is not a "Creditor". They are attempting to collect a debt for another. They are a debt collector.

The FDCPA also gives this definition of "debt collector" where it exempts certain situations:

(F) 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 (i) is incidental to a bona fidefiduciary obligation or a bona fide escrow arrangement; (ii) concerns a debt which was originated by such person; (iii) concerns a debt which was not in default at the time it was obtained by such person; or (iv) concerns a debt obtained by such person as a secured party in a commercial credit transaction involving the creditor.

Here an entity trying to collect an account is not a debt collector if the debt was obtained while not in default. So, if my account had been in good standing when the New Creditor acquired the Old Creditor and then the account went delinquent, the New Creditor would not be a debt collector because the account had not been in default when they acquired the Old Creditor.

But the reverse occurred so the reverse is true. They did buy the debt in default and are collecting for another so the New Creditor is a debt collector.

Make sense?

I don't think it makes sense. You seem to have gotten wrapped around the axle a little bit.

Let me say this first: If one bank buys another, that new bank becomes a creditor, with the same standing as the Original Creditor. That's because the new bank didn't just buy the first bank's debts, they bought the whole business: buildings, machinery, and accounts receiveable, both those in good standing and those in default. And then the new bank is going to conduct all the various facets of the business in addition to collecting on accounts in default: accepting deposits, making loans, servicing accounts in good standing, and issuing credit cards to new consumers.

In summary:

If a bank assigns a defaulted account to an entity to collect for them, that entity is a Collection Agency, not a creditor

If a bank sells a defaulted account to an entity, that entity is a (Junk) Debt Buyer, and is not a creditor.

That's what the first section you cite is about.

The second section you cite, the debt collector exclusion, generally doesn't apply to credit cards. For this one, think mortgages.

In summary:

If someone who extends a mortgage, which is in good standing, sells it to another entity, that entity is now the creditor, with the same standing as the Original Creditor.

If someone who extends a mortgage, which is in default, sells it to another entity, that entity is a (Junk) Debt Buyer, and is consider a debt collector by the FDCPA.

The key here is that there is a difference between selling a debt, and selling an entire business which includes in its holdings a debt, which is your situation.

Regards,

DH

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That's a reasonable opinion but I'm not convinced.

Congress did trust creditors to behave while collecting their own debts but they did not seem to trust someone else who bought a debt to be quite as well behaved. An original creditor pretty much has the complete records of the delinquent account and can usually go back to day one when the account started out at zero. Once the debt is sold, the problems begin, especially in acquisitions. I doubt if any creditor/debt buyer could come up with a proper accounting of any debt they bought. Look at how they are sold. We know that debt buyers generally get a last statement and that's about it. I doubt if the New Creditor gets anything more.

I think this may be why Congress said that a creditor is no longer a creditor when they purchase a debt.

I think that once the rights to collect are assigned to another that assignee is held to a different standard. They do not have a working relationship with the debtor as the OC did. Situations like this can digress quickly because the debtor won't even talk to the assignee and the assignee is likely to think outside the box when considering ways to get their money.

I think most New Creditors sell the delinquent accounts they acquire because they are not in the debt collection business, they don't have the evidence to support a claim, and they may be liable to the FDCPA.

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  • 4 weeks later...

Okay, so I've done a little more research and still don't have an answer.

The cases which I have read are dealing with JDB's where their principle business is debt collection. Their argument was that they own the debts that they purchase so they are not "collecting for another" and that because of this they were exempt from the debt collector label and not liable to the FDCPA.

The courts ruled against them as the debt originated with another, they were assigned the rights to collect thus they were collecting for another.

The exemption for the definition of a creditor keeps telling me that someone who buys a debt in default for the purpose of collecting that debt is a debt collector:

(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

For the purposes of the FDCPA, the collector is either a creditor or a debt collector. There is no in between or outside this definition. If an entity is attempting to collect a debt they are one or the other.

Clearly then, a company who acquires another company and "receives an assignment or transfer of a debt in default" via that acquisition and attempts to collect that debt in default, rather than selling the debt, has received assignment, "solely for the purpose of facilitating collection of such debt for another".

I have never experienced or heard of any normal creditor such as Chase or Citi or Bofa receiving a defaulted debt and then attempting to collect that debt. They always seem to sell their acquired defaulted debt.

The key here is that there is a difference between selling a debt, and selling an entire business which includes in its holdings a debt, which is your situation.

For the purposes of the FDCPA there is no difference. The FDCPA focuses on the debt itself and is not concerned with anything else. For example, what if one JDB bought another JDB lock, stock, and barrel? Would the new owner of these debt not be considered a debt collector of the debts they bought because they acquired the entire business of the old JDB and not just the debts?

Your opinion probably would work somewhere else but it is misplaced concerning the FDCPA. It is, however, a defense the new owner, in my case, may use as a defense and I appreciate your opinion as it gives me a heads up at what may be coming.

As always, I would be very interested in hearing all opinions whether they support my theory or go against it. Right now I think that anyone who receives a debt in default and attempts to collect that debt is a debt collector for the purposes of the FDCPA.

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to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.[/I]

This seems to be the pertinent language. If bank A buys bank B, they are your new creditor. Debt collectors do not get involved unless the bank hires them to go after delinquent account holders. Up until then, the extent of the bank's "collection" efforts is to send you a statement each month. That isn't defined as collections, it's defined as billing.

There is a difference between a collection agency and a plaintiff who owns the account. CAs collect on behalf of others for a percentage. Owners, such as junk debt buyers, sue to collect and use collections attorneys who are subject to the FDCPA. Often the JDBs, like Midland, are both......they are owners as well as debt collectors. You may get a letter from a place like Midland offering a settlement when the OC still owns the account.

As for the above quote, the key words are for another. If you own the account, you are not collecting for another, you are collecting for yourself.

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(4) The term "creditor" means any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

If the New Creditor acquires the Old Creditor and attempts to collect the Old Creditor's defaulted debts then they are collecting a debt for another. The New Creditor did not extend credit to the consumer. The New Creditor is not a "Creditor". They are attempting to collect a debt for another. They are a debt collector.

If you're referring to a creditor such as a credit card company and not a JDB:

"The term 'creditor' means any person who offers or extends credit creating a debt."

It doesn't matter that the new creditor didn't extend credit to you. Extending credit is their business.

Clearly then, a company who acquires another company and "receives an assignment or transfer of a debt in default" via that acquisition and attempts to collect that debt in default, rather than selling the debt, has received assignment, "solely for the purpose of facilitating collection of such debt for another".

Did the new creditor purchase only the defaulted debts of the previous creditor? If so, that would show that they were purchased debts solely for the purpose of collection.

OR did they purchase all of the accounts owned by Creditor #1? If they purchased all of the accounts, it stands to reason that some of them might be in default. BUT, they didn't purchase only defaulted debts solely for purpose of collecting those debts. In addition, they are collecting for themselves. They're not collecting for the previous company.

These are distinctions which could be important. Has your state or the Eighth Circuit Court of Appeals ruled on the issue?

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This is the argument that JDB's tried years ago and lost.

The FTC cited Kimber v FFC when explaining that Midland was still a debt collector even though they owned the debt and thought that they were not collecting "for another":

With the phrase "for another" at the end of the exception, Congress merely intended that the debts should have originally belonged to another and that the creditor was therefore in effect a third-party or independent creditor. (Italics by court)

FDCPA Staff Opinion: Brinckerhoff-Arbuckle

The way I read this is that any creditor who is assigned a debt while in default is a debt collector if they attempt to collect the debt. If they sell it, a most creditors do, then they wash their hands of the FDCPA.

Some parts of the FDCPA are not easy to figure out without court intervention. 803(4) and 803(6) seem to be in some conflict.

803(4) says that one is a debt collector if they receive a debt in default for the purpose of collecting for another. For the FDCPA, a collector is either a debt collector or a creditor. If they are not a creditor then they are a collector and the deciding factor is whether the debt is in default when assigned. Pretty simple.

803(6) says that a debt collector is one who regularly collects debts for another. This means that the person collecting the debt must be collecting on a regular basis. Define regular.

A JDB regularly buys debts and attempts to collect them. The JDB buys thousands. A corporation acquires other corportations and regularly attempts to collect debts in default. A corporation may only acquire a few hundred defaulted loans but they have a regular policy to attempt to collect them.

I think that the exception to "creditor" housed in 803(4) makes a creditor a debt collector if they receive a debt in default and then try to collect.

I got to tell ya, case law and FTC opinions are sparce dealing with this subject and I have not found one case or opinion dealing with acquisitions where the new creditor has tried to collect upon a acquired defaulted debt.

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OR did they purchase all of the accounts owned by Creditor #1? If they purchased all of the accounts, it stands to reason that some of them might be in default. BUT, they didn't purchase only defaulted debts solely for purpose of collecting those debts. In addition, they are collecting for themselves. They're not collecting for the previous company.

It was an acqusition so I would assume they bought the house, the door, and the doormat.

If you've had a chance to read the FTC opinion, then maybe you'll understand my argument that owning the debt because you bought it does not change the fact that it was another's debt and that you would be collecting for another.

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I see your point, but it could depend upon the details. In Kimber, the court stated:

"For the above reasons, the court must therefore conclude that, even though FFC collects debts for itself, it is still a debt collector within the meaning of §§ 1692a(4) and 1692a(6) of the Act, because the corporation regularly collects debts and debt collection is its principal purpose, and because the debts the corporation collects were already in default when they were assigned to the corporation and thus the corporation falls within the assignee exception to the definition of creditor."

FFC was already a debt collector. The extension of credit was not the purpose of the company.

The same applies to the Brinkerhoff-Arbuckle letter. Midland does not extend credit. Midland's only reason for existence is debt collection whether for others or for itself by the way of purchased debts.

If the main purpose of Creditor #2 in your case is to extend credit, Kimber and the Brinkerhoff letter may not be applicable.

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They are applicable for the point about a entity who bought a debt and thinks that they are collecting for themselves when they are still collecting for another. This was the main argument in the Kimber case where FCC claimed that they were an excluded creditor:

FFC's second argument is that it is an excluded creditor within § 1692a(4)'s definition because it is a person "to whom a debt is owed"

Kimber counters that FFC is not a creditor, because it falls within the `assignee exception' to the definition of creditor— that is, it is a person who received "an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another." Kimber argues that FFC falls within this exception because when the company received her debt, the debt was already in default. The corporation re-counters that it does not fall within the assignee exception because the exception applies only when the purpose of the debt assignment is to collect the debt "for another." FFC's two arguments therefore both whittle down to the contention that the Act's coverage is limited to instances where a person is collecting a debt "for another," which FFC says it is not doing.

The FDCPA definitions of "creditor" and "debt collector" are two entirely different definitions and the two should not be mingled. An entity may be defined as a debt collector under either 803(6) because they primarily or regularly collect debts for another or under 803(4) because they receive an assignment of a debt already in default.

An creditor who does not primarily or regularly collect debts cannot be defined as a debt collector under 803(6). They can, however be defined as a debt collector under the 803(4) exclusion when they attempt to collect a debt they receive through assignment if the debt was in default.

I know the statute does not specifically state this but under 803(4) the Kimber court said this:

The court is convinced that the answer lies instead in a closer analysis of the Act itself, in particular the definition of creditor found in § 1692a(4). The first part of § 1692a(4) defines the universe of creditors as either those who originate a debt or those to whom a debt is owed; in either case, the creditors are not collecting the debts for others. The second part of § 1692a(4), the assignee exception, then purports to exclude from this universe those persons who collect assigned or transferred debts that are already in default when assigned or transferred. To say that this exception applies only to those who collect debts for others would be to render the exception superfluous and meaningless; those who collect debts for others are not in the original definitional universe, and there is therefore no need to exclude them. Rather, the excluding factors in the exception are that the debts are the result of an assignment or transfer and that the debts were already in default at the time of assignment or transfer. With the phrase "for another" at the end of the exception, Congress merely intended that the debts should have originally belonged to another and that the creditor was therefore in effect a third-party or independent creditor.

So, this court decided that by collecting on a debt in default that FCC was excluded from the definition of being "creditor" which means that FCC was a debt collector.

The deciding factors here then, were 1) that collecting an assigned debt was collecting for another and 2) that collecting a debt already in default excempts creditor status...not whether FCC primarily or regularly collected debts.

Edited by Downto0
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