A copy of the opinion in Tepper v. Amos Fin., LLC is available here: Link to Opinion.
The borrowers, a husband and wife, had a home equity line of credit with a bank secured by a mortgage on their home. They made timely payments until receiving notice that the bank was closing. The bank was taken over by the FDIC and the loan was eventually sold to a debt buyer. While the home was under the receivership of the FDIC, the borrowers did not receive monthly statements but attempted to periodically pay the FDIC, which did not cash or return the borrowers’ attempted payments.
Debt Buyer Admitted Being a “Debt Collector”
The debt buyer acquired the defaulted loan from the FDIC, which notified the borrowers of the transfer and began to collect the loan. In its collections efforts, the debt buyer sent three letters that contained different balances owing apparently because different interest rates were being assessed. Ultimately, the debt buyer filed a foreclosure action.
The borrowers contacted the debt buyer to resolve the matter and requested statements which the debt buyer allegedly refused to provide. The debt buyer’s representative who spoke with the borrowers also said the home now belonged to the debt buyer and that the borrowers could do nothing about it. Subsequently, an attorney for the debt buyer sent a demand to the borrowers demanding an even higher amount than had been asked for in the prior letters.
The borrowers filed suit alleging violations of the FDCPA, arguing that as a “debt collector” under the act, the debt buyer was in violation by not being registered as a foreign business in Pennsylvania when it threatened and filed the foreclosure suit. Of importance, the debt buyer did not contest its status as a debt collector at the pre-trial proceedings.
After a one-day bench trial and post-trial briefing, the lower court found the debt buyer to be a debt collector and held that the loan transaction was a “debt” as defined by the FDCPA. Thus, the court held that the debt buyer was liable under the FDCPA and the debt buyer appealed, arguing it was not a debt collector.
A Debt Buyer is a Debt Collector if Its”Principal Purpose” is Collection of Debt
The Court examined Henson vs. Santander, the U.S. Supreme Court opinion of last year considering similar issues in the context of a bank that purchased defaulted debts which it in turn collected. The Third Circuit noted that the FDCPA contains two definitions of a debt collector and at issue here is whether the purchaser of a defaulted debt whose “business [is] the principal purpose of which is the collection of any debts,” was not decided by the Supreme Court in Henson.
On appeal, the debt buyer argued that the terms “creditor” and “debt collector” are mutually exclusive under the FDCPA and that it could not be both. The Court disagreed and noted that the debt buyer had not disputed, but rather admitted that its sole business was collecting debts it had purchased. The Court acknowledged a prior Third Circuit opinion, Check Investors, 502 F.3 at 173, holding the two terms to be mutually exclusive. However, the Court dismissed any obligation to sort out the intent of that statement and used colorful language for holding that the debt buyer’s conduct makes it clear the debt buyer is a debt collector: “Asking if [the debt buyer] is a debt collector is thus akin to asking if Popeye is a sailor. He’s no cowboy.”
However, the Third Circuit conceded that its prior analysis of the definition of “debt collector,” deeming one a debt collector merely because it acquired a loan in a defaulted status, was not valid post-Henson.
The Court concluded by stating that “[the debt buyer] may be one tough gazookus when it attempts to collect the defaulted debts it has purchased, but when its conduct crosses the lines prescribed by the FDCPA, it opens itself up to the Act’s penalties.” (From the song I’m Popeye the Sailor Man: “I’m one tough Gazookus / Which hates all Palookas / Wot ain’t on the up and square / I biffs ’em and buffs ’em / An’ always out-roughs ’em / an’ none of ’em gits no-where.”)