Who is and is not covered by the Fair Debt Collection Practices Act (“FDPCA”) confuses consumers and attorneys alike. Looking at the text of the statute, this is understandable. 15 U.S.C. §1692a(6) is hardly a model of clarity. This is evidenced by the fact that the Supreme Court has weighed in twice in the last two years clarifying the scope of the act's coverage. See Obduskey v. McCarthy & Holthus, LLP and Henson v. Santander Consumer USA, Inc. Here are some general rules about who is and is not covered by the FDCPA:
Who is covered:
- Third-party Debt Collectors. This is probably the easiest one. So long as they received the debt after it was in default, third-party debt collectors are covered by and have to comply with the act.
- Debt Collection Attorneys. In 1986, the attorney exemption was eliminated from the FDCPA, which brought attorneys under the coverage of the act. In 1995, the Supreme Court decided in Heintz v. Jenkins that this extends to acts attorneys take in the course of litigation. So long as an attorney “regularly” collects or attempts to collect debts on behalf of clients, he or she will be considered a debt collection attorney. Note: in the past few years, there has been proposed legislation to amend the act to at least partially reinstitute the attorney exemption.
- Junk Debt Buyers. People or companies whose principal purpose is to purchase defaulted debts in order to collect upon them are considered “debt collectors” under the statute. This includes large debt buyers such as Portfolio Recovery Associates and Midland Funding along with smaller operations. The fact that these companies actually own the debt doesn't exempt them from coverage.
- Repo Men (sometimes). Companies whose only activities are to enforce security interests (i.e. repossess personal and real property) are only subject to section 1692f(6) of the act. This portion of the statute was the basis for the Obduskey decision in March, so it will be interesting to see how case law develops in light of its holding.
Who is not covered:
- Original Creditors. Original creditors and their employees typically are not covered by the act. I frequently hear from attorney's who are skittish to sue former clients for past-due fees. My usual response is that while suing former clients is dicey, the FDCPA isn't a reason for them to refrain. Note: an original creditor who pretends to be a third-party in order to collect does place itself under the auspices of the act.
- Mortgage Servicers. The biggest exception to coverage for third-party collectors is mortgage servicers. If a third-party obtains a debt prior to default, the FDCPA does not apply for purposes of that debt. Medical billing companies and property management companies also fall into this category.
- Financial Institutions Who Own the Debt. Companies who purchase debts or portfolios of debt are not covered by the act so long as collecting debts is not their principal purpose. In Henson, SCOTUS held that before a company has to comply with the act, it first has to fall under one of the two definitions: 1) regularly collecting debts for another, or 2) having its principal purpose be the collection of debts. Consequently, even though they frequently assume ownership of defaulted debts, major banks aren't considered debt collectors with respect to those debts.