UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580

December 22, 1993

Ms. Kimberlee Arbuckle
MIDLAND CREDIT MANAGEMENT
500 West First Street
Post Office Box #576
Hutchinson, Kansas 67504

Dear Ms. Arbuckle:

This responds to your letter dated December 2, 1993, inquiring whether Midland Credit Management, Inc. ("MCM") is a debt collector under the Fair Debt Collection Practices Act ("FDCPA" or "Act"). You report that MCM "purchases portfolios of delinquent accounts receivable for the purpose of profitable recovery, resale and cure. These accounts are owned solely by MCM . . ."

Section 803(6) of the FDCPA defines the term "debt collector" as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." In our view, a party that purchases delinquent accounts from the party to which the debts were originally owed and attempts to collect them from the consumer debtors fits clearly within that definition. The party is attempting to collect debts that were "owed or due another" and the fact that title to the accounts is passed to the collector in no way changes that fact.

In the leading case on point, involving a company whose business included the purchase of large volumes of checks that had been dishonored and subsequent collection of the checks from their makers (in the same manner as MCM buys defaulted accounts and thereafter attempts to collect from the account debtors), the court wrote persuasively that the purchaser is covered by the FDCPA. It gave short shrift to the fact that the party had actually purchased the checks in question:

By use of the language "owed or due another" Congress was attempting to exclude those entities that extend credit from the effects of the Act. Congress intended to protect borrowers from "third persons who regularly collect debts for others." (Italics by court; citation omitted). (The purchaser) is a third party collecting a debt originally owed to another. . . . It cannot escape the spirit of the Act by the technicality of purchasing the debt upon default so that title technically rests in itself.

Holmes v. Telecredit Service Corp., 736 F. Supp. 1289, 1293 (D. Del. 1990)

The only theory for exclusion of a party such as MCM from the "debt collector" definition (and thereby from coverage under the FDCPA) is that it is a "creditor."⁽¹⁾ Section 803(4) defines "creditor" as "any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or trans-fer of a debt in default solely for the purpose of facilitating collection of such debt for another." Since the accounts that MCM buys are delinquent when purchased and are being transferred for the purpose of collection, we believe that MCM is within the class that the "creditor" definition expressly "does not include."⁽²⁾ The words "for another" at the end of the clause excepting assignees from the definition of creditor in no way changes this result:

(T)he excluding factors in the exception are that the debts are the result of an assignment or transfer and that the debts were already in default at the time of assignment or transfer. With the phrase "for another" at the end of the exception, Congress merely intended that the debts should have originally belonged to another and that the creditor was therefore in effect a third-party or independent creditor. (Italics by court)

Kimber v. Federal Financial Corp., 668 F. Supp. 1480, 1485 (M.D.Ala. 1987). Accord, Holmes, supra, at 1293.

In sum, it is our view that a party that obtains consumer obligations in default for the purpose of collection is a "debt collector" under the FDCPA, even if that party actually purchases the accounts from the original creditor.

The views set forth in this informal staff opinion letter are not binding on the Commission.

Sincerely yours,

Clarke W. Brinckerhoff

1. Section 803(6)(A) only specifically exempts creditors' officers and employees. However, it "seems clear from the legislative history of the Act that Congress intended that this exclusion cover creditors themselves as well as their employees." Holmes v. Telecredit Service Corp., 736 F. Supp. 1289, 1291n.3 (D.Del. 1990), citing Kimber v. Federal Financial Corp., 668 F. Supp. 1480, 1484 (M.D.Ala. 1987).

2. See the comment on this subsection in our Staff Commentary on the Fair Debt Collection Practices Act. 53 Fed. Reg. 50097, 50101 (Dec. 13, 1988.)