In a split decision, the United States Court of Appeals for the Ninth Circuit recently held that a company that “buys and profits from consumer debts” can be liable under the Fair Debt Collection Practices Act (the “FDCPA”) even if it does not directly communicate with any consumers.  See McAdory v. M.N.S. & Assocs., LLC, 2020 WL 1128813 (9th Cir. Mar. 9, 2020).  In this case, the original creditor assigned the plaintiff-debtor’s debt to defendant.  Defendant then contracted with another entity (“MNS”), who attempted to collect the debt from plaintiff.  Plaintiff eventually brought this action against defendant and MNS alleging violations of the FDCPA.  According to plaintiff, defendant was a debt collector under the statute because it was a “business [whose] principal purpose . . . is the collection of any debts,” and therefore defendant was vicariously liable for MNS’s actions.  Defendant moved to dismiss, arguing that it never communicated with plaintiff and therefore could not have violated the FDCPA.  The District Court agreed and held that “[d]ebt purchasing companies like [defendant] who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts.”

On appeal, the Court reversed. Following the lead of the Third Circuit, it found that the FDCPA defines debt collectors in two ways:  (i)  a “business [whose] principal purpose . . . is the collection of any debts” and (ii) one “who regularly collect[ ] . . . debts owed or due another.”  See Barbato v. Greystone All., LLC, 916 F.3d 260 (3d Cir.), cert. denied sub nom. Crown Asset Mgmt. LLC v. Barbato, 140 S. Ct. 245 (2019).  Although the second definition is concerned with the defendant’s debt-collection actions, the first is concerned with “whether debt collection is incidental to the business’s objectives or whether it is the business’s dominant, or principal, objective.”  In this case, the Court found that the complaint properly alleged that defendant was a debt collector under the first definition because the principal purpose of its business is the collection of debts.  Accordingly, defendant could not avoid liability simply by referring the actual interactions with consumers to a third party.  “‘Collection’ by its very definition may be indirect, and that is the type of collection in which [the defendant] engages: it buys consumer debt and hires debt collectors to collect on it.”  In dissent, one judge argued that there should be no liability for defendant because “the FDCPA does not contain any textual basis for vicarious liability of one ‘debt collector’ for the acts of another ‘debt collector,’ even were [defendant] validly to be classified as a ‘debt collector.’”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Anthony Lombardo at alombardo@riker.com.