Texas Commercial Law Firm

Most mortgagees and servicers pay little attention to the Fair Debt Collection Practices Act (the "FDCPA" or the "Act") on the assumption that it does not apply to them. In fact, the FDCPA contains specific exclusions for creditors who originate loans and for mortgage servicing companies. As to purchased loans, however, hanging your hat on the servicing exclusion may be a mistake. This article discusses the applicability of the FDCPA to mortgagees, what steps should be taken to comply with the FDCPA and potential damages for non-compliance.

When Is One Attempting To Collect A Debt Not A Debt Collector?

The FDCPA imposes civil liability only upon "debt collectors," defined as:

any person... 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.

15 U.S.C. §1692a(6). Specifically excluded from the "debt collector" definition are any officer or employee of a creditor collecting debts of such creditor in the creditor's name. 15 U.S.C. §1692(a)(6)(A). Oldroyd v. Associates Consumer Discount Co., 864 f.Supp. 237 (D.C.E.D. Penn., 1994).

Lenders attempting to collect defaulted loans originated by them are not covered by the FDCPA because they extended credit and are therefore defined as "creditors" under the FDCPA. 15 U.S.C. §1692(a)(4). Likewise, the FDCPA does not apply to those collecting defaulted loans which were not in default when acquired because they also fit "creditor" definition.

One who acquited a debt after it goes into default, on the other hand, may fall into the "debt collector" category. Fischer v. Unipac Service Corp., 519 N.W.2d 793 (Iowa, 1994).

The FDCPA is somewhat murky as to when one acquiring a loan in default is a debt collector and subject to its provisions. The Act excludes from the definition of Creditor, "any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt by another." 15 U.S.C. §1692a(6). Additionally, the definition of "Debt Collector" specifically excludes "any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity ... (iii) concerns a debt that was not in default [emphasis added] at the time it was obtained by such person. 15 U.S.C. §1692a(4)

These provisions would appear to mean that one who received a debt in default, may be a debt collector to the extent he is (1) regularly engaged in the business of debt collection, and (2) is attempting to collect the debt on behalf of another. If this were the correct reading of the statute, then a mortgagee who acquires a debt in default would not be a debt collector to the extent they collect the debt for themselves rather than for another. Unfortunately, a review of cases interpreting the FDCPA on this issue lead to the conclusion that any lender who purchases loans in default may fall within the definition of "debt collector" under the FDCPA.