In McKinney v. Cadleway Prop., Inc. (7th Cir. 2008) __ F.3d. __, the Court of Appeals for the Seventh Circuit defined the extent to which an assignee purchasing a debt in default becomes subject to the FDCPA. The Court of Appeals held that “the purchaser of a debt in default is a debt collector for purposes of the FDCPA even though it owns the debt and is collecting for itself.” The Court of Appeals noted that the FDCPA does not define “default”, but found that the debt’s two-year old delinquency qualified:
The Second Circuit has observed in this context that delinquency and default are two distinct concepts. See Alibrandi v. Fin. Outsourcing Serv., Inc. 333 F.3d. 82, 86 (2d Cir. 2003) (“Courts have repeatedly distinguished between a debt that is in default and a debt that is merely outstanding, emphasizing that only after some period of time does an outstanding debt go into default”). The court held in Alibrandi that because the FDCPA does not define default, the default terms of the debt transaction itself should control.
The Court of Appeals next had to determine whether the collection letter at issue violated the FDCPA. The debtor “testified that the letter was not confusing to her“. (Emphasis in original). The only portion of the letter the debtor found confusing was part relating to the total amount owing, and which was identical to the Court of Appeals’ own ‘safe harbor’ language in Miller v. McCalla, et. al. (7th Cir. 2000) 214 F.3d. 872, 876. The Court of Appeals held that such generalities as the debtor not understanding “the entire letter” were insufficient to avoid summary judgment.
[NOTE: As to whether a debt is in default at the time of assignment, the McKinney Court did not address FTC Staff Opinion Letters. The FTC opines that the determination of whether an account is in default at the time of assignment turns on the language of the instrument creating the obligation and, in the absence of any controlling language, on the creditor’s guidelines. De Mayo, FTC Staff Opinion Letter (May 1, 2000, revised May 23, 2002). But, a creditor can not have two criteria: one for accelerating the balance and one for determining FDCPA applicability. De Mayo, FTC Staff Opinion Letter (May 1, 2000, revised May 23, 2002)]