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Appeals Court Rules Debt Buyers Meet Definition of Collectors Under FDCPA

A long time ago, McDonald’s would offer a special on Wednesdays: 79-cent cheeseburgers. Now, I wasn’t a huge fan of cheeseburgers, but I do love a good hamburger, so I went into a McDonald’s on one Wednesday and attempted to save myself 20 cents by ordering a cheeseburger, but without the cheese. The employee working the cash register would not sell me a cheeseburger without cheese. Her argument was that honoring my request made the cheeseburger a hamburger and if I wanted a hamburger, I had to pay 99 cents because that’s what hamburgers cost. I tried arguing that I was saving McDonald’s a piece cheese and ultimately doing them a favor. No dice. I tried arguing that the customer is always right. No dice. I ended up giving up and paying the extra 20 cents.

Nearly 20 years later, I can still remember me asking her the existential question of once a piece of cheese is put on a hamburger, turning it into a cheeseburger, whether it’s possible for that cheeseburger to ever go back to being a hamburger again. She didn’t have an answer for me.

I relate that story because a ruling just issued by the Court of Appeals for the Third Circuit opines on the question – at what point does an entity become a debt collector? And can a debt collector ever go back to just being a debt buyer again? What ties this ruling together nicely with my little story is that the judge who wrote the opinion in this case — Judge Thomas Ambro — opens his opinion with a quote from Wimpy, the character from the Popeye cartoon series. Wimpy’s favorite line, for those who don’t remember it, was, “I will gladly pay you on Tuesday for a hamburger today.”

The case, Tepper v. Amos Financial, involves a husband and wife with a home equity loan. The bank holding the loan went into receivership and was closed. The plaintiffs tried making a payment to the receiver, but the check was never returned nor cashed. A few months later, the receiver declared the loan to be in default and sold it to the defendant. The receiver notified the plaintiffs about the default and the loan’s sale and the defendant initiated foreclosure proceedings against the plaintiffs. The plaintiffs sued, arguing that the defendant violated the Fair Debt Collection Practices Act and a District Court judge agreed, ruling that under Henson v. Santander, the defendant met the definition of debt collector under the FDCPA, and violated the statute by making incomplete and misleading statements about the debt and by making false representations that the plaintiffs could not stop the foreclosure proceedings.

The defendant appealed the decision to the Third Circuit, who affirmed the lower court’s decision and ruled that the defendant — a debt buyer — should be considered a debt collector under the FDCPA because its principal purpose is the collection of debts.

A copy of the Appeals Court ruling can be accessed by clicking here.

“The Court decided correctly in light of Henson’s repeal of the ‘default’ test,” Judge Ambro wrote in his opinion. “Whether an entity acquired the debts it collects after they became defaulted does not resolve whether that entity is a debt collector. Instead, we follow the plain text of the statute: an entity whose principal purpose of business is the collection of any debts is a debt collector regardless whether the entity owns the debts it collects.”



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