Archives for June 2017

FDCPA Doesn’t Apply To Defaulted Debt Buyer- SCOTUS

With its rhythmic, alliterative opening line (“disruptive dinnertime calls, downright deceipt…”), Judge Gorsuch’s debut Supreme Court opinion in Henson v. Santander Consumer USA, Inc., 582 U.S. ___ (2017), tackles the decidedly unsexy Fair Debt Collection Act (FDCPA or the Act) – scourge of the creditor and cash cow to enterprising plaintiffs who love the strict liability Act for its penalties and attorneys’ fees provisions.

The plaintiffs sued the defendant, who purchased an auto finance company’s debt, in a Maryland federal court complaining of strong-armed collection tactics that violate the FDCPA. The district court dismissed the plaintiffs’ claims on defendants’ 12(b)(6) motion finding the defendant wasn’t a debt collector under the Act and the Fourth Circuit Appeals Court affirmed.

The case question: Is a company that buys defaulted debt from another more like a debt collector under the FDCPA (in which case the Act applies) or a debt originator (in which it doesn’t)?

The Answer: the latter. The debt buyer trying to collect on its own behalf is not a debt collector under the Act.


The FDCPA allows private lawsuits, statutory penalties and attorneys’ fees against wayward debt collectors.

A debt collector under the Act is anyone who “regularly collects or attempts to collect…debts owed or due…another.” 15 U.S.C. s. 1692a(6).

The Court started its analysis by offering as the archetypal debt collector – the repo man. Everyone agrees the repo man’s business is collecting another’s debts. For the repo man’s polar opposite, the Court pointed to a loan originator as clearly not a debt collector. The defendant fell somewhere in the middle. The question was whether it more like a repo man or a debt originator.

The plaintiffs claimed that since FDCPA Section 1692 uses the past-tense “owed,” the Act applies to purchased debt. After all, according to plaintiffs, they owed a debt to the original auto finance company – clearly “another” entity. As a result, defendants were trying to collect a debt owed “another” – the finance company who sold plaintiffs’ debt.

For its part, the defendant asserted that because it only sought to collect its own debts, it wasn’t an FDCPA debt collector.

The Court agreed with the defendant and rejected plaintiff’s argument as textual hairsplitting. By its plain terms, the Act aims to protect consumers from abusive tactics of “third party collection agents working for a debt owner – not on a debt owner seeking to collect debts for itself.” (p. 3)

For support, the Court noted that various FDCPA sections distinguish between debt originators, debt owners and debt collectors. See ss. 1692a(4), 1692a(6). The Act also differentiates between “original” and “current” creditors. s. 1692g(a)(5). Yet the Act is silent on any differences between originators and current debt owners in its debt collector definition.

And while someone can’t simultaneously be a creditor and debt collector, the Act doesn’t prevent a debt buyer like defendant from being a creditor where it tries to collect that debt on its own account. (p. 8).

The Court also rejected plaintiffs’ policy argument – that applying the FDCPA to defendant would further the Act’s goal of debt collectors treating consumers well. Plaintiffs continued that had Congress realized how the debt buying business would mushroom, it would have treated defaulted debt buyers the same as independent debt collectors when drafting the Act. (p. 9).

The Court viewed this as “quite a lot of speculation” and left it up to Congress to modify the Act if and when it decides to treat debt buyers as debt collectors.

Take-aways: Debt buyers who try to collect on their own account are not debt collectors under the FDCPA.

It remains to be seen whether Congress expands the Act’s coverage to defaulted debt purchasers like the Henson defendant. Hopefully not.

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Discovery Rule Can’t Save Trustee’s Fraud Suit – No ‘Continuing’ Violation Where Insurance Rep Misstates Premium Amount – IL Court

Gensberg v. Guardian, 2017 IL App (1st) 153443-U, examines the discovery rule in the context of common law and consumer fraud as well as when the “continuing wrong” doctrine can extend a statute of limitations.

Plaintiffs bought life insurance from agent in 1991 based in part on the agent’s representation that premiums would “vanish” in 2003 (for a description of vanishing premiums scenario, see here).  When the premium bills didn’t stop in 2003, plaintiff complained and the agent informed it that premiums would cease in 2006.

Plaintiff complained again in 2006 when it continued receiving premium bills.  This time, the agent informed plaintiff the premium end date would be 2013. It was also in this 2006 conversation that the agent, for the first time, informed plaintiff that whether premiums would vanish is dependent on the policy dividend interest rate remaining constant.

When the premiums still hadn’t stopped by 2013, plaintiff had seen (or heard enough) and sued the next year.  In its common law and consumer fraud counts, plaintiff alleged it was defrauded by the insurance agent and lured into paying premiums for multiple years as a result of the agent’s misstatements.

The Court dismissed the plaintiffs’ suit on the grounds that plaintiff’s fraud claims were time barred under the five-year and three-year statutes of limitation for common law and statutory fraud.

Held: Dismissal Affirmed.


The statute of limitations for common law fraud and consumer fraud is five years and three years, respectively. 735 ILCS 5/13-205, 805 ILCS 505/10a(e). Here, plaintiff sued in 2014.  So normally, its fraud claims had to have accrued in 2009 (common law fraud) and 2011 (consumer fraud) at the earliest for the claims to be timely.  But the plaintiff claimed it didn’t learn it was injured until 2013 under the discovery rule.

The discovery rule, which can forestall the start of the limitations period, posits that the statute doesn’t begin to run until a party knows or reasonably should know (1) of an injury and that (2) the injury was wrongfully caused. ‘Wrongfully caused’ under the discovery rule means there is enough facts for a reasonable person would be put on inquiry notice that he/she may have a cause of action. The party relying on the discovery rule to file suit after a statute of limitations runs has the burden of proving the date of discovery. (¶ 23)

The plaintiff alleged that it wasn’t until 2013 that it first learned that defendant misrepresented the vanishing date for the insurance premiums.
The Court rejected this argument based on the allegations of the plaintiff’s complaint. It held that the plaintiff knew or should have known it was injured no later than 2006 when the agent failed to adhere to his second promised deadline (the first was in 2003 – the original premium end date) for premiums to cease.

Plaintiff stated it complained to the insurance agent in 2003 and again in 2006 that it shouldn’t be continuing to get billed.  The court found that the agent’s failure to comply with multiple promised deadlines for premiums to stop should have put plaintiff on notice that he was injured in 2003 at the earliest and 2006 at the latest. Since plaintiff didn’t sue until 2014 – eight years later – both fraud claims were filed too late.

Grasping at a proverbial straw, the plaintiff argued its suit was saved by the “continuing violation” rule.  This rule can revive a time-barred claim where a tort involves repeated harmful behavior.  In such a case, the statute of limitations doesn’t run until (1) the date of the last injury or (2) when the harmful acts stop. But, where there is a single overt act which happens to spawn repetitive damages, the limitations period is measured from the date of the overt act. (¶ 26).

The court in this case found there was but a single harmful event – the agent’s failure to disclose, until 2006, that whether premiums would ultimately vanish was contingent on dividend interest rates remaining static. As a result, plaintiff knew or should have known it was harmed in 2006 and could not take advantage of the continuing violation rule to lengthen its time to sue.


1/ Fraud claims are subject to a five-year (common law fraud) and three-year (consumer fraud) limitations period;

2/ The discovery rule can extend the time to sue but will not apply where a reasonable person is put on inquiry notice that he may have suffered an actionable wrong;

3/  “Continuing wrong” doctrine doesn’t govern where there is a single harmful event that has ongoing ramifications. The plaintiff’s time to sue will be measured from the date of the tortious occurrence and not from when damages happen to end.