The U.S. Court of Appeals for the Third Circuit held in Tepper v. Amos Fin., LLC, that debt buyers (i.e., entities collecting, on their own behalf, consumer debts they acquired when the debts were in default), can qualify as "debt collectors" under the Fair Debt Collection Practices Act (FDCPA). In doing so, the Third Circuit became the first appellate court to issue a precedential decision addressing the applicability of the U.S. Supreme Court's 2017 holding in Henson to the "principal purpose" definition of "debt collector" under § 1692a(6) of the FDCPA.

In Henson, the Supreme Court addressed the FDCPA's second definition of "debt collector (applicable to those that regularly collect "debts … owed or due another"), and held that an entity that acquires a debt after it goes into default is not a "debt collector" when it attempts to collect the debt on its own account. This repealed the "default test" that was previously applied in the Third Circuit, under which "an assignee of an obligation [wa]s not a 'debt collector' if the obligation [wa]s not in default at the time of the assignment (and conversely, may qualify "as a 'debt collector' if the obligation [wa]s already in default when it [was] assigned)."

The Third Circuit relied on the plain language of the statute, which it said "does not suggest that 'whether the owner originated the debt or came by it only through later purchase' determines if it is a debt collector." Rather, the Court explained, "[a]ll that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for 'another.'" The court did not, however, address whether an entity collecting on its own behalf can qualify as a debt collector under the "principal purpose" definition.

In Tepper, the underlying dispute involved attempts to collect mortgage debt purchased after default by appellant Amos Financial, LLC, which was "[n]ot a financial institution or lender, [but rather, a debt buyer, a company whose] sole business [was] purchasing debts entered into by third parties and attempting to collect them."

The mortgagors alleged that Amos's collection efforts violated various provisions of the FDCPA, and argued that it "qualified as a 'debt collector' because it purchased their loan when it was in default." The case proceeded to trial, but Henson was decided before a decision was rendered, and as a result, the district court ordered additional briefing on the issue of whether Amos qualified as a "debt collector." Thereafter, the district court found that Amos was a debt collector under the "principal purpose" definition, which - unlike the "regularly collects" definition, applies to the "collection of any debts" so long as that activity is the entity's "principal purpose". Amos appealed, arguing that the district court erred because it is a "creditor" and therefore, cannot be a "debt collector" under § 1692a(6).

The Third Circuit rejected Amos's argument under the plain text of the "principal purpose" definition, which, notably, Amos had omitted from its arguments. The court acknowledged that Henson's repeal of the default test affected "who fits the principal purpose" definition, but found it to be irrelevant where the entity that acquired the debt after default satisfies the plain language of the statute. Because it was irrefutable that Amos's "sole business [wa]s collecting debts it ha[d] purchased" and that "[i]t use[d] the mails and wires for its business[,]" the court concluded that it could "be no plainer that Amos" fell squarely within the definition of a "debt collector," an issue the court characterized as so obvious on its face that it was "akin to asking if Popeye is a sailor." (Clearly, the court added, he's "no cowboy.")

Ballard Spahr's Consumer Financial Services Group regularly advises clients on compliance with the FDCPA and state debt collection laws, and defends clients in FDCPA lawsuits and enforcement matters. The Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.


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