Ninth Circuit Overturns Lower Court’s Ruling, Says Debt Buyer Meets FDCPA’s Definition of Debt Collector

The Ninth Circuit Court of Appeals has reversed a lower court’s dismissal of a lawsuit and determined that a company that purchases and profits from consumer debts meets the definition of “debt collector” under the Fair Debt Collection Practices Act, even if it does not directly interact with individuals and outsources the actual debt collection work to another company.

A copy of the ruling in the case of McAdory v. M.N.S. Associates and DNF Associates can be accessed by clicking here.

The plaintiff obtained a retail credit card and stopped making payments on the debt. The debt was purchased by DNF Associates, which placed the account with a collection agency. The collection agency sent a letter to the plaintiff, which she did not respond to because she did not recognize DNF’s name. Four months later, the plaintiff received a voicemail from the collection agency and returned that call. During the call, the plaintiff spoke with a representative of M.N.S., who allegedly implied he was a lawyer and that the plaintiff was going to be sued if she did not make a payment on the debt. The plaintiff agreed to pay the debt during a subsequent phone call, but M.N.S. allegedly withdrew funds from the plaintiff’s account before the authorized payment date.

The plaintiff filed suit against the agency and DNF. DNF was granted a motion to dismiss, arguing it did not meet the definition of “debt collector” under the FDCPA.

Because this case was ultimately decided at the dismissal stage, the Ninth Circuit said it has to accept as true all well-pleaded factual allegations in the original complaint and construe them in the light most favorable to the plaintiff. In this case, the complaint alleged that the defendant’s principal purpose was “to buy consumer debts in order to collect on them, and that is how DNF generated most of all of its income.”

Looking at the FDCPA’s definition of debt collector — (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) “[any person] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another” — the Appeals Court highlighted that Congress’s intent in enacting the FDCPA was to eliminate abusive, deceptive, and unfair collection practices. And that would be “entirely circumvented” if the FDCPA did not apply to entities like the defendant, the Ninth Circuit said in its ruling.

“Our interpretation of the principal purpose prong furthers the statute’s purpose and puts DNF and other similar debt buyers on level footing with other debt collectors regulated by the FDCPA.”

The Ninth Circuit relied heavily on a similar ruling from the Third Circuit Court of Appeals in Barbato v. Crown Asset Management, Greystone Alliance, LLC, and Turning Point Capital Inc.

In a dissenting opinion, Judge Carlos Bea disagreed with his colleagues, arguing that DNF is being held liable for the acts of M.N.S., which is not prescribed in the FDCPA.

“Why one businessman should be liable for the acts of another businessman in the same business just because they are in the same business is a mystery to me,” he wrote. “If each is a ‘debt collector,’ each is subject to the duties owed by a debt collector to consumers. But why is there vicarious liability for another business’s acts absent facts which establish common law respondeat superior?”

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