In Yang v. DTS Financial Group (U.S.D.C. No. 07-CV1731JLS (WMc)), Judge Sammartino of the U.S.D.C. for the Southern District of California opined on whether a ‘for profit’ credit counseling service fell outside the FDCPA. On an FRCP 12(b)(6) motion, Judge Sammartino held that the plaintiffs had pleaded adequate facts to surve the Motion. The plaintiff had pleaded:
Before May 1, 2006, plaintiffs became concerned about their debt burden because they could only make minimum payments on certain obligations. (Compl. ¶ 27.) They discovered defendant’s website, which advertised a “Debt Settlement Strategy” by which debtors would pay defendant instead of creditors and defendant would negotiate a fractional repayment of the debt. (Id. ¶ 33.) During a telephone call, defendant explained to plaintiffs that they would pay a monthly amount to defendant upon acceptance into defendant’s program. (Id. ¶ 41.) Some of this money would eventually be used to pay plaintiffs’ creditors. (Id. ¶ 42.) During the program, plaintiffs would neither pay their debts nor communicate with their creditors. (Id. ¶¶ 38, 40.) After entering defendant’s program, plaintiffs were sued by several creditors. (Id. ¶ 64.) Defendant then recommended that plaintiffs file for bankruptcy or hire an attorney. (Id.) Plaintiffs repeatedly allege that defendant is a for profit organization providing credit counseling and assisting in debt liquidation by distributing consumer payments to creditors. (FAC ¶¶ 2, 17, 45-46.) Plaintiffs also allege that defendant uses the mail and interstate commerce to collect debts, or, in the alternative, regularly collects debts owed another. (Id. ¶ 16.) Plaintiffs further allege that, in the ordinary course of business, defendant engages in “debt collection” as defined by state law. (Id. ¶ 18.)
Judge Sammartino rejected the defendants argument that it fell outside regulation of the FDCPA and the Rosenthal Act:
The Court rejects defendant’s argument for two reasons. First, plaintiffs have carefully pled around a specific exception to the FDCPA’s definition of “debt collector” in a way that plausibly brings defendant’s activities within the purview of the statute. 18 U.S.C. § 1692a(6)(E) explains that “debt collector” does not include “any nonprofit organization which, at the request of consumers, performs bona fide consumer credit counseling and assists consumers in the liquidation of their debts by receiving payments from such consumers and distributing such amounts to creditors” (emphasis added). Here, plaintiffs allege that defendant performs the same functions described in § 1692a(6)(E), but as “a for profit organization”. (Compl. ¶ 46 (emphasis added).) If Congress had wanted to exclude categorically all consumer credit counseling services from FDCPA liability, it could have omitted the word “nonprofit” from § 1692a(6)(E). See Sayyed v. Wolpoff & Abramson, 485 F.3d 226, 230 (4th Cir. 2007) (“[i]f Congress had wished to exempt [certain conduct] from the definition of ‘debt collector,’ it could easily have drafted a seventh exception to this effect”); Knight v. Schulman, 102 F. Supp. 2d 867, 876 (N.D. Ohio 1999) (same).