In Palacio v. Med. Fin. Sols., No. 21 CV 1288, 2022 U.S. Dist. LEXIS 105459, at *11-15 (N.D. Ill. June 14, 2022), Judge Shah dismissed an FDCPA claim because the debt was not in default at the time of the assignment.
An entity can act as both a creditor and a debt collector, but for the purposes of a particular debt, the categories are mutually exclusive. See Schlosser, 323 F.3d at 536. The issue here is whether Palacio’s debt was in default when Medical Financial Solutions obtained it. See § 1692a(6)(F)(iii). If it was, then defendant was acting as a debt collector vis-à-vis Palacio. If it wasn’t, defendant falls into the § 1692a(6)(F)(iii) exclusion above and was acting as a creditor (i.e., wasn’t governed by the Act). See Schlosser, 323 F.3d at 536; Ruth, 577 F.3d at 796 (party’s status under the Act “turns on whether the debt was in default at the time it was acquired”). The Act doesn’t define “default,” and the court of appeals hasn’t interpreted it. But the general consensus from other courts is that there is no bright-line definition of default, with one exception not relevant here. Whether a debt has defaulted is instead determined on a case-by-case basis. See Alibrandi v. Fin. Outsourcing Servs., Inc., 333 F.3d 82, 87 n.5 (2d Cir. 2003); De Dios v. Int’l Realty & Investments, 641 F.3d 1071, 1074-75 (9th Cir. 2011); Church v. Accretive Health, Inc., 2015 U.S. Dist. LEXIS 158476, 2015 WL 7572338, at *8-9 (S.D. Ala. Nov. 24, 2015); Prince v. NCO Fin. Servs., Inc., 346 F. Supp. 2d 744, 747 (E.D. Pa. 2004). The main way to determine whether a debt was in default is to look to contractual agreements between the debtor and money-collecting entity. See Alibrandi, 333 F.3d at 87 n.5; De Dios, 641 F.3d at 1074-75; Wagoner v. NPAS, Inc., 456 F. Supp. 3d 1030, 1041 (N.D. Ind. 2020); cf. Bailey v. Sec. Nat’l Serv. Corp., 154 F.3d 384, 387-88 (7th Cir. 1998). A second way is by relying on the definition of default in federal statutes and regulations that govern similar types of loans. For student-loan collections, for instance, some courts have imported the definition of “default” from the Federal Family Educational Loan Program (after 270 days of delinquency, 34 C.F.R. § 682.200(b)). Alibrandi, 333 F.3d at 87. Federal regulations provide different definitions of default for other types of loans: farm loans (30 days, 7 C.F.R. § 762.141(a)), loans from FDIC institutions to their employees (90 days, 12. C.F.R. § 336.3(c)), and other types of student loans (270 days, 34 C.F.R. § 685.102(b)). Alibrandi, 333 F.3d at 87. But there is no similar federal regulation for the debt at issue here and the parties haven’t provided the contract between Palacio and Amita. Defendant instead asserts that Palacio’s loan was not in default when defendant acquired it. ¶ 16 (citing [20-2] ¶ 17). Palacio attempts to dispute this by pointing to the deadlines on the financial statements Amita sent her, but this is unresponsive.9 [27] ¶ 16. An overdue payment is not necessarily a debt in default. Alibrandi, 333 F.3d at 86-87 (an outstanding debt becomes a debt in default “only after some period of time”).10 Because plaintiff failed to properly controvert defendant’s statement and no record evidence contradicts it, I accept for purposes of summary judgment that Palacio’s account was not in default when it was transferred. Plaintiff says this finding doesn’t end the inquiry. She argues that defendant’s status as a licensed collection agency in Illinois means it qualifies as a debt collector under the Act. See at 4-5. But the definition of “collection agency” under state law is different from the definition of “debt collector” under federal law. In Illinois, a “collection agency” is “any person who, in the ordinary course of business, regularly, on behalf of himself or herself or others, engages in the collection of a debt.” 225 ILCS 425/2. That means an entity that acquires debt before default is still a collection agency, so long as it later collects. Under federal law, though, that entity would not be considered a “debt collector” because the debt was not in default when acquired. An entity’s Illinois registration is not proof of its federal status as a debt collector. Finally, plaintiff argues that the payment statements themselves (those from Amita and from defendant) show defendant was acting as a debt collector. She emphasizes two features. First, the statements from Amita had payment deadlines and said “prompt payment” was expected. at 1 (citing [1-1]). Plaintiff says that her failure to meet those deadlines means she was in default, so all subsequent correspondence from defendant was about debt in default. [26] at 5. But as I explain above, an overdue payment is not necessarily a debt in default and wasn’t in this case. Second, plaintiff argues that because Amita’s statements didn’t mention defendant’s name, defendant could not have been involved with the account “from its inception,” in contrast to defendant’s claim. See at 4. Failure to mention defendant’s name says nothing about defendant’s involvement, though. And even if defendant weren’t involved in plaintiff’s account from the beginning, defendant could still have acquired the debt pre-default. In sum, it doesn’t matter that defendant is a licensed collection agency or that Amita’s statements set payment deadlines and asked for “prompt payment.” Plaintiff’s debt was not in default when defendant acquired it, and under the Act, that is enough to conclude that defendant was not acting as a debt collector in relation to plaintiff.