Consumer Finance Litigation

Two recent federal court decisions involving claims under the Fair Debt Collection Practices Act ("FDCPA") highlight why FDCPA defendants should not overlook the most basic elements of an FDCPA claim in forming their defense. In both of these cases, the courts dismissed the plaintiffs' claims for failure to allege that the defendants were "debt collectors." See Hunt v. U.S. Bank, N.A., et al., 2013 WL 1398964 (C.D. Cal. Apr. 3, 2013); Izmirligil v. Bank of New York Mellon, et al., 2013 WL 1345370 (E.D.N.Y. Apr. 2, 2013). Both the Hunts and Izmirligil brought FDCPA claims against a number of entities involved in the origination and servicing of their respective mortgage loans. The Hunts alleged that the defendants violated the FDCPA by attempting to collect payments to which they were not entitled. Izmirligil alleged that the assignment of his mortgage was invalid and, therefore, the defendant who foreclosed his mortgage violated the FDCPA by misrepresenting that it had standing to do so. In both cases, the defendants moved to dismiss the FDCPA claims on the basis that the plaintiffs had failed to allege that the defendants were "debt collectors" as defined by the FDCPA. Both the Hunts and Izmirligil argued in their respective cases that they had sufficiently alleged the defendants' "debt collector" status by alleging that the subject debts were in default at the time they were purchased by the defendants. Section 1692a(6) defines "debt collector" as "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 who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." The FDCPA provides an exception to this definition in Section 1692a(6)(F)(iii) for persons collecting on a debt that "was not in default at the time it was obtained by such person." Both courts granted dismissal of the FDCPA claims on the basis of failure to allege "debt collector" status. The Hunt court explained that, by alleging that the debt was in default at the time it was purchased, the Hunts had merely alleged that the defendant did not qualify for the Section 1692a(6)(F)(iii) exemption. Because the Hunts had not alleged the statutory elements of a "debt collector" -- for instance, that the principal purpose of defendant's business is the collection of debts -- they had failed to state an FDCPA claim. The Izmirligil court similarly noted that Izmirligil had merely alleged that the defendants failed to qualify for the exemption, and further noted that the statutory exemption is not even relevant absent an allegation that a defendant is a "debt collector." Both Hunt and Izmirligil show that FDCPA plaintiffs cannot take the most basic elements of their claims for granted, and that defendants should scrutinize these when forming their defense of FDCPA claims. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.