Third Circuit Holds Purchaser of Defaulted Debt Could Be a Debt Collector Under the FDCPA

The United States Court of Appeals for the Third Circuit recently affirmed a lower court decision and held that an entity who purchases a defaulted debt and engages in any business the principal purpose of which is the collection of any debts can be a debt collector under the Fair Debt Collection Practices Act (“FDCPA”).  See Barbato v. Greystone Alliance, LLC, 2019 WL 847920 (3d Cir. Feb. 22, 2019).  Defendant regularly purchases defaulted debt and either refers it to another debt collector for collection or hires a law firm to collect on it.  Defendant “principally derives revenue from liquidating the consumer debt it has acquired.”  In 2013, one of the third parties retained by defendant contacted plaintiff in an attempt to collect a debt defendant had purchased.  Plaintiff then brought this action under the FDCPA against defendant, among others. 

The FDCPA defines a debt collector as one who (i) engages “in any business the principal purpose of which is the collection of any debts” or (ii) regularly collects debts “owed or due another.”  15 USC 1692a.  In 2017, while this action was pending, the United State Supreme Court found that the second debt collector definition excludes those who purchase defaulted debts and attempt to collect on their own behalf.  See Henson v. Santander Consumer USA Inc., 137 S.Ct. 1718 (2017).  Although the Supreme Court did not address whether these defaulted debt purchasers could be liable under the first definition, defendant filed a motion for reconsideration with the District Court seeking an order dismissing it from the action and arguing that the Henson decision applied to both definitions of a debt collector.  The District Court denied the motion but certified the decision for interlocutory appeal. 

On appeal, the Third Circuit affirmed, finding that defendant “overstates the effect of Henson” and that “the Supreme Court went out of its way in Henson to say that it was not opining on whether debt buyers could also qualify as debt collectors under that prong of § 1692a(6).”  The Court proceeded to find that a purchaser of defaulted debt could be a debt collector if it engages “in any business the principal purpose of which is the collection of any debts,” even if it outsources the collection work to others:  “The existence of a middleman does not change the essential nature—the ‘principal purpose’—of Crown’s business.”  Accordingly, the Court found that defendant was a debt collector and remanded the matter for a determination on whether it could be found vicariously liable for the third party’s actions here.

For a copy of the decision, please contact Michael O’Donnell at, Michael Crowley at, or Dylan Goetsch at