The central purpose of the Fair Debt Collection Practices Act (“FDCPA”) is to protect consumers, with personal debt, from unscrupulous collection practices, as recited in 15 U.S.C. § 1692. While business debts are not protected by the FDCPA, in an attempt to avoid the same, businesses and their owners often try to construe their debts as personal, when in actuality the substance of the debt is commercial.
The FDCPA specifically limits its remedies to consumer plaintiffs whose debts have arisen from primarily personal, family, or household transactions. As such, any debts that stem from a business purpose are not subject to the protections of the FDCPA. Despite this, business owners may try to obtain the protections of the FDCPA by arguing that they fit a very loose definition of the term “consumer.” Such arguments do not gain traction, however, as it is the substance of the transactions that led to the debt obligation, and not the individual who incurred such obligation, that counts for FDCPA purposes. See Perk v. Worden, 475 F. Supp. 2d 565 (E.D. Va. 2007). Even if a business owner is selling consumer goods and involved in consumer commerce, unless that business owner can say that the debt was incurred for his or her own personal or household use, his argument that the FDCPA applies to him does not have any merit.
In addition to the substance of a given transaction, the timing of when a debt is incurred is also instructive with regards to whether the FDCPA applies. In Miller v. McCalla, et al., 214 F.3d 872 (7th Cir. 2000), the court held that the moment when the debt is incurred is the relevant time for determining its nature. This line of reasoning is supported in that the FDCPA regulates the debt collection tactics employed against personal borrowers on the theory that they are likely to be unsophisticated about debt collection and thus prey to unscrupulous collection methods. As the Miller Court so emphatically stated, “businessmen don’t need the warnings.” Accordingly, litigators should be quick to catch FDCPA claims that can be preliminary knocked out in a motion to dismiss or motion for summary judgment.
Litigators at the Law Offices of Jonathan Gelber, PLLC, were successful in defending this very FDCPA argument by a corporation and its owner, in which the opposing parties brought a $2.7 million dollar counterclaim that alleged FDCPA and other state consumer law violations. Our corporate client enforced a debt upon another business owner who sold consumer goods. The court found that the business debtor’s obligation, even though originally from consumer goods, was not, and could not become, a debt that was incurred for personal, family, or household purposes under the statute. Rather, according to the court, what mattered was that the debt, at the time that it was incurred, was, substantively, for business purposes only; furthermore, even if the owner individually paid the debt, it could not at any time come under the scope of the FDCPA. The FDCPA remains to be a cause of action for consumers only, and litigators, particularly in commercial collections, should be able to see right through misplaced FDCPA claims.