South-Western Legal Studies in Business

Purchasers of Debt Who Act as Debt Collectors Are Subject to the Fair Debt Collection Practices Act
Description Appeals court held that a company that bought numerous mortgages, most of which were in default, became subject to the Fair Debt Collection Practices Act because the company acted as a debt collector, not as a mortgage service company. Therefore it could be liable for failure to notify mortgagees of their rights under the law.
Topic Consumer Protection
Key Words Mortgage; Default; Fair Debt Collection Practices Act; Class Action
C A S E   S U M M A R Y
Facts Fairbanks Capital acquired 12,800 mostly delinquent mortgages from a mortgage company, including a mortgage owned by the Schlossers. Identifying itself as a debt collector, Fairbanks sent the Schlossers a letter asserting that their mortgage was in default. In fact, the Schlossers were not in default and sued Fairbanks for failure to notify the debtors of their right to contest the debt as required by the Fair Debt Collections Practices Act (FDCPA). The district court held that since the Schlossers were not in default, there was no debt to collect, so the FDCPA did not apply. The Schlossers appealed.
Decision

Reversed. An acquirer of debt that continues to service it is acting much like the original creditor that created the debt, so that the FDCPA does not apply. On the other hand, if it simply acquires the debt for collection, it is acting more like a debt collector, and the FDCPA does apply. Since Fairbanks acted as a debt collector, the fact that it was mistaken about the status of the Schlossers’ debt does not matter; Fairbanks failed to advise them of their rights under the FDCPA to contest the alleged default.

Citation Schlosser v. Fairbanks Capital Corp., 323 F.3d 534 (7th Cir., 2003)

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