Texas Commercial Law Firm

The first case found to reference the issue of whether a lender attempting to collect a loan purchased after default is a debt collector under the FDCPA did not address the issue directly. Kizer v. Finance America Credit Corp., 454 F.Supp. 937 (D.C.Miss. 1978). Kizer holds implicitly, however, that one who receives an assignment of a loan in default fits the FDCPA definition of debt collector. In Kizer, the creditor was found not to be a debt collector because the loan was not in default when they obtained it. ID. at 939.

The Fifth Circuit also implied that one need only obtain a debt already in default to qualify as a debt collector. Perry v. Stewart Title Company, 756 F.2d 1197 (5th Cir. 1985) rehearing granted in part, 761 F.2d 237. In determining that FNMA was not a debt collector, the Fifth Circuit noted that the debt did not go into default until two months after it was acquired by FNMA.

The first and only case found to squarely address the issue of whether one who acquires a loan in default is a debt collector, regardless of whether they attempt to collect the loan on behalf of another is Kimber v. Federal Financial Corporation, 668 F.Supp. 1480 (M.D.Ala. 1987). Kimber involved a class action lawsuit brought against Federal Financial Corporation, ("FFC") for various violations of the FDCPA including failing to give the required notices and suing on debts barred by limitations.

FFC was formed for the sole purpose of purchasing and attempting to collect approximately 8,000 accounts receivable of a bankrupt corporation. Many of the accounts were apparently in default when FFC purchased them. The plaintiff's account in this action was found by the Court to have been seriously delinquent when purchased with the others by FFC. More than five years after FFC initially tried to collect the account, they referred it to their attorney for collection. He sued Kimber and approximately 200 other debtors at the same time. Kimber asserted violations on behalf of herself and a class of similarly situated plaintiffs under the FDCPA for failing to provide the required notices and because the attorney sued to collect a debt barred from enforcement by limitations.

FFC asserted that it could not be held liable under the FDCPA because it was not a debt collector. It argued that to be a debt collector, in addition to receiving an account after it was in default, it would also need to attempt to collect the debt on behalf of another. Since it was attempting to collect the debt for itself, it argued it did not meet the two requirements it believed were specified in the FDCPA.

The Court in Kimber began its analysis by noting that "whether the Act's coverage is limited to instances where a person is collecting a debt for another may not be determined solely from the face of the statute; the statute is far from a model of drafting clarity." ID. at 1484. The Court questioned what was meant by "assignment" as that term was used in the FDCPA and how it would be possible to have a debt assigned to someone to collect on behalf of another.

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