In 2017, Supreme Court Justice Neil Gorsuch authored his first opinion in the landmark case, Henson v. Santander Consumer USA, Inc., holding that companies who purchase debt of a creditor and then attempt to collect on the debt are not considered "debt collectors" pursuant to the Fair Debt Collection Practices Act (FDCPA) and, thus, are not subject to private rights of action pursuant to the Act. Since Henson, debt buyers have frequently cited Henson in their efforts to seek dismissal in civil cases alleging FDCPA violations. However, the Third Circuit recently held in Barbato v. Greystone Alliance, LLC, et al. that debt buyers are not provided blanket protection under the Act, particularly when the debt buyers utilize a third party to collect on the purchased debt.
Defendant, Crown Asset Management purchased Plaintiff, Mary Barbuto's charged-off GE Capital credit card balance then referred the debt to Turning Point Capital, Inc. for collection. After referral of the account, Turning Point sent a collection letter to Barbuto and also called Barbuto and left voicemail messages. Barbuto subsequently filed suit against Crown and Greystone Alliance, LLC (who purchased Turning Point) alleging FDCPA violations. Crown filed a motion for summary judgment on the basis that since it purchased the debt, it was not a "debt collector" and, thus, was immune from civil liability under the FDCPA. The Middle District of Pennsylvania denied Crown's motion, holding that it was, in fact, acting as a "debt collector" since (1) it acquired debts, like Barbato's debt, when they were in default and (2) its "principal purpose" was the collection of any debts. Crown subsequently appealed the denial to the Third Circuit.
The Third Circuit affirmed the District Court's denial of Crown's summary judgment motion holding that Crown satisfies the FDCPA's meaning of "debt collector." Significantly, the Court emphasized that the FDCPA provides "two paths" to establishing an entity's status as a "debt collector," defined as any person who: 1) uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of debts; or 2) regularly collects or attempts to collect, directly or indirectly, debts owed or asserted to be owed or due another. 15 U.S.C. § 1692a(6). Although the Court conceded that Henson provided immunity to debt buyers under the "regularly collects" definition of "debt collector", the Third Circuit expressly declined to apply Henson in situations where a debt buyer would satisfy the "principal purpose" definition. Using this distinction, the Third Circuit held that, unlike Santander in Henson, Crown is a "debt collector" under the FDCPA since its "only business is the purchasing of debts for the purpose of collecting on those debts and, as Crown candidly acknowledged at oral argument, without the collection of those debts, Crown would cease to exist."
Comment: The Third Circuit's holding in Barbato is a cautionary tale for those entities that are in the debt buying business who refer the purchased accounts to third parties for collection. Although Henson has provided some protection to debt buyers, the Third Circuit's decision made it clear that this protection is not all-encompassing. In fact, the Third Circuit's decision broadens the definition of debt collector since it now includes entities that do not actually collect the debts or engage in collection activity.
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Jennifer R. Williams