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Passive Debt Buyers Plausibly Qualify as “Debt Collectors” under the Fair Debt Collection Practices Passive Debt Buyers Plausibly Qualify as “Debt Collectors” under the Fair Debt Collection Practices

Passive Debt Buyers Plausibly Qualify as “Debt Collectors” under the Fair Debt Collection Practices Act

On March 9, 2020, the Ninth Circuit joined the Third Circuit in holding that passive debt buyers may qualify as “debt collectors” under the Fair Debt Collection Practices Act (FDCPA) even in the absence of any direct contact with the debtor. The complaint alleged the following facts: McAdory owed a debt to Kay Jewelers; after default, Kay Jewelers sold the debt to DNF Associates, LLC; McAdory eventually returned a call from a representative of M.N.S. & Associates, LLC, who told McAdory it was collecting an unpaid debt; and McAdory agreed to pay the debt but M.N.S. prematurely withdrew the funds before the agreed-upon date. McAdory sued both DNF (the debt buyer) and M.N.S. (the debt collection company) for eight violations of the FDCPA. The District Court dismissed the claims against DNF. The key question was whether the first statutory definition of “debt collector”—a business whose “principal purpose ... is the collection of any debts”—included “debt purchasing companies like DNF who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased.” The second statutory definition (a person “who regularly collects or attempts to collect ... debts owed or due or asserted to be owed or due another”) was not at issue. The District Court answered “No.”
The Ninth Circuit reversed and remanded for further proceedings, citing the Third District’s decision in Barbato v. Greystone All., LLC for the conclusion that the word “collection” in the principal purpose definition refers to “what is collected,” not “the act of collecting” debt. Thus, the Third Circuit and Ninth Circuit reasoned, the analysis of whether a passive debt buyer is a debt collector does not end with whether the business has actively tried to collect a debt directly with the debtor but, instead, asks whether the company’s principal business requires collection of a debt at all and whether that passive buyer “benefits from” the collection. Because the complaint alleged DNF was a debt collector and DNF benefited from M.N.S.’s debt collection activities, the complaint sufficiently alleged debt collector liability against DNF for purposes of a motion to dismiss. The Ninth Circuit was careful, however, to note that the mere fact DNF is a debt collector under the statute does not mandate liability against DNF for the third-party collector’s (M.N.S.) activities; that determination of vicarious liability remained to be determined at the District Court. 
The case is McAdory v. M.N.S. & Associates, LLC, 2020 WL 1128813 (9th Cir. 2020) Link to Decision.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.
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