In Ward v. Npas, Inc., No. 3:19-cv-00484, 2020 U.S. Dist. LEXIS 132461 (M.D. Tenn. July 27, 2020), Judge Trauger ruled in favor of a medical debt servicer, who relied on the FDCPA’s exemption for debts not in default at the time of the assignment in order to prevent application of the FDCPA.  The District Court adopted the Second Circuit’s approach as to when debts are in “default”.

[E]xpressly excluded from this definition is “any person collecting or attempting to collect any debt . . . which was not in default at the time it was obtained by such person.” 15 U.S.C. § 1692a(6)(F)(iii). In other words, even assuming that the defendant meets every other element of the definition of a debt collector, no liability can be incurred if the debt in question was not “in default” at the time the defendant “obtained” it. See Montgomery, 346 F.3d at 699 (“Huntington Bank also does not qualify as a debt collector because it falls within the provision of § 1692a(6)(F)(iii), a ‘person collecting or attempting to collect any debt owed or due . . . to the extent such activity . . . concerns a debt which was not in default at  the time it was obtained by such person.'”). “Thus, under § 1692a(6)(F)(iii), the classification of debt collector depends upon the status of a debt, rather than the type of collection activities used.” Alibrandi v. Fin. Outsourcing Servs., Inc., 333 F.3d 82, 86 (2d Cir. 2003); see also Henson v. Santander Consumer USA, Inc., 817 F.3d 131, 136 (4th Cir. 2016) (“[A] person collecting nondefaulted debts on behalf of others is not a debt collector.”), aff’d, 137 S. Ct. 1718 (2017). Given the critical importance of the term “in default,” it would be logical to presume that Congress would have defined it in the statute. Logic notwithstanding, Congress has never defined the term, leaving that task to the courts. The Supreme Court has not addressed the issue, nor has the Sixth Circuit had the opportunity to weigh in, other than to state that the definition of a debt “in default” includes one that is “treated . . . as if it were in default at the time of acquisition.” Bridge v. Ocwen Fed. Bank, FSB, 681 F.3d 355, 362 (6th Cir. 2012). In attempting to define the term, courts have almost universally rejected a definition that would mean a debt is “in default immediately after it first becomes due,” recognizing that “this approach is at odds with how the term is generally understood.” Alibrandi, 333 F.3d at 86; see id. (“In applying the FDCPA, courts have repeatedly distinguished between a debt that is in default and a debt that is merely outstanding, emphasizing that [*18]  only after some period of time does an outstanding debt go into default. . . .”); accord Wagoner v. NPAS, Inc., No. 3:18-CV-520 DRL-MGG, 2020 WL 1987528, at *5 (N.D. Ind. Apr. 27, 2020) (“By its plain language, the FDCPA had more in mind than just a ripe debt when it described a debt ‘in default.’ In this statute, a debt in default cannot then mean merely the money owed or the obligation to pay financial commitments alone. The words walking hand-in-hand with ‘default’ in this exception winnow the optional definitions to the failure to pay a debt when due in reference to a legal or contractual duty. A debt will not go into default until after it has become owed and due.”). The Second Circuit also recognized that considering a debt to be “in default” immediately after it becomes due would have “the paradoxical effect of immediately exposing debtors to the sort of adverse measures, such as acceleration, repossession, increased interest rates, and negative reports to credit bureaus, from which the [FDCPA] intended to afford debtors a measure of protection,” and, therefore, that it would be “ill-advised to adopt an approach that precipitously visits these consequences upon debtors.” Id. at 87. Instead, the Second Circuit suggested that, at least until Congress itself defined the term, “the interests of debtors, creditors, collectors, and debt service providers will best be served by affording creditors and debtors considerable leeway contractually to define their own periods of default, according to their respective circumstances and business interests.” Id. at 87 n.5. Other courts have similarly concluded that, where a contract between the originating creditor and the consumer delineates when the account will be deemed defaulted, or where some other applicable statute or regulation fixes the precise moment of default, courts have generally held that such agreements or legal provisions dictate when an account is “in default” for FDCPA purposes. Church v. Accretive Health, Inc., No. CV 14-0057-WS-B, 2015 WL 7572338, at *8 (S.D. Ala. Nov. 24, 2015), aff’d, 654 F. App’x 990 (11th Cir. 2016); see also De Dios v. Int’l Realty & Invs., 641 F.3d 1071, 1074 (9th Cir. 2011) (‘Although the [FDCPA] does not define ‘in default,’ courts interpreting § 1692a(6)(F)(iii) look to any underlying contracts and applicable law governing the debt at issue.”). . . . In Wagoner, after a lengthy analysis, the court concluded that the most logical course was to apply the plain meaning of “default” (“omission or failure to perform a legal or contractual duty; esp., the failure to pay a debt when due,” id. at *7 (quoting Black’s Law Dictionary (11th ed. 2019)), but with due deference to the terms of any applicable contract and consideration of any “other relevant circumstances,” id. The court noted that there was “little reason . . . to be so wary of contract terms when there isn’t evidence that practices were instituted to evade the FDCPA” and that, “[a]fter all, to determine whether a person has failed to pay a debt when due, one must look to the contract (or relevant statute) to make that determination. . . . The definition of ‘default’ contemplates this very thing.” Id. In sum, the court in Wagoner concluded: Consistent with its broad remedial purpose, the FDCPA builds in flexibility on when a specific debt will prove in default for the host of circumstances it was meant to redress. By its plain language, a debt will go beyond one owed or due and go into default when a statute, contract, or other relevant circumstance bearing on the debt’s legal or asserted status says it does. Default means the failure to perform a legal or contractual duty, particularly the failure to pay a debt when due. Congress blazed a clear trail—the court need only follow the torchbearing language faithfully. Id. at *9. Fully persuaded that the opinion provides the most cogent and comprehensive analysis of the topic to date, and, indeed, analyzes the issue with reference to this same defendant, this court will adopt Wagoner’s approach.

The District Court concluded that the medical debts were not in “default” at the time of the assignment so as to trigger the FDCPA.

The plaintiff is erecting paper castles and storming them with paper horses. As set forth above, even though Ward failed to pay her account while NPAS was handling it, pursuant to the Conditions of Admission agreement, Stonecrest would not deem or treat the account as “delinquent, past due or in default” until NPAS’s efforts to obtain payment had been unsuccessful and it returned the account to Stonecrest. Ward’s accounts clearly were not in default—or past due or delinquent—when NPAS obtained them, and NPAS was still working the accounts when it made the telephone calls. See 15 U.S.C. § 1692a(6)(F)(iii) (excluding from the definition of debt collector “any person collecting or attempting to collect any debt . . . which was not [*29]  in default at the time it was obtained by such person”). Thus, the fact that the due dates set forth in the billing statements had expired at the time of the phone calls did not serve in this case to convert NPAS into a debt collector.4 Equally bafflingly, the plaintiff asserts that there is “no evidence of record that NPAS, Inc. was operating as an ‘EBO Servicer’ as defined in the Conditions of Admission agreements when it left any of the three voicemails.” (Doc. No. 51, at 9.) Again, this argument ignores the undisputed fact that NPAS had already identified itself in the billing statements as “the company managing [the plaintiff’s] account for [Stonecrest]” (see, e.g., Doc. No. 49-4, at 2), which was not dissimilar from the definition of “EBO Servicer” provided in the Conditions of Admission agreements: “a third party Business Associate or affiliated entity [utilized] as an extended business office . . . for medical account billing and servicing” (e.g., Doc. No. 49-2, at 3). In addition, it ignores the plaintiff’s consent, in the Conditions of Admission agreement, to “telephone calls for financial communications” from Stonecrest as well as any EBO Servicer. Further, although the plaintiff also consented to telephone calls from the medical provider’s “collection agents,” it is undisputed that NPAS returned Account No. 511667555 to Stonecrest on or around January 1, 2019, approximately a week after the second telephone call, and it returned Account No. 511917962 to Stonecrest on or around March 22, 2019, approximately a week after the single voicemail message left in connection with that account. The Conditions of Admission agreements state that, only once the EBO Servicer returned the account to Stonecrest would Stonecrest have the option of determining the account to be delinquent, past due or in default. (E.g., Dc. No. 49-2, at 3.) And again, there are simply no other indicia in the record suggesting that NPAS or Stonecrest, up until that time, had treated either debt as delinquent or in default.