Court Hands Victory to Consumers Over ‘Debt Buyers’

Public Citizen News / May-June 2020

By Rhoda Feng

This article appeared in the May/June 2020 edition of Public Citizen News. Download the full edition here.

In a recent case, Public Citizen helped secure a victory for a consumer in a lawsuit brought under the Fair Debt Collection Practices Act (FDCPA) against a debt buyer.

The defendant in the case is a company called DNF Associates. DNF is a debt buyer that makes its profits by buying defaulted consumer debts from creditors for pennies on the dollar and then using a network of contractors to collect on those debts. In 2017, DNF bought a debt allegedly owed by resident Jillian McAdory to a store in Oregon. It then hired at least two companies to try to collect that debt.

The second company, M.N.S. & Associates, engaged in a pattern of deceptive and misleading conduct in its interactions with McAdory, including withdrawing funds from her bank account before the agreed-upon payment date. She then sued both DNF and M.N.S. for violations of the Fair Debt Collection Practices Act (FDCPA) in federal district court in Oregon.

The FDCPA, enacted by Congress in 1977, allows consumers to sue “debt collectors” for a range of deceptive and misleading conduct. In the district court, DNF argued it could not be sued under the FDCPA, because the statutory definition of “debt collector” applies only to entities that directly interact with consumers and have a “principal purpose” of “the collection of any debts.” The district court agreed, reasoning that because DNF hired another company to collect debts for it, it could not have a “principal purpose” of debt collection, and dismissed McAdory’s claims against DNF.

Public Citizen represented McAdory in her appeal of that decision to the U.S. Court of Appeals for the Ninth Circuit. We argued that the “principal purpose” requirement does not require companies to directly interact with consumers. Rather, a company, like DNF, whose main business goal is debt collection meets the principal purpose requirement.

The court of appeals agreed. In March, the Ninth Circuit issued a decision in favor of McAdory, holding that debt buyers like DNF that use third-party companies to contact consumers can be held liable for violations of the FDCPA as “debt collectors.”

“This decision is a victory for consumers,” said Adam Pulver, the lead Public Citizen attorney on the case. “The court made clear that companies whose lifeblood is debt collection cannot evade liability for abusive tactics by contracting with other people to directly contact consumers. As the Ninth Circuit acknowledged, consumers that have been subject to abusive tactics can pursue relief against both contractors who send consumers misleading mail or who lie to consumers about purported debt, as well as debt buyers who direct the activities of those contractors.”