Holmes v. Telecredit Service Corp., Civ. A. No. 88-62 MMS.

• Decision Date: 04 May 1990
• Docket Number: Civ. A. No. 88-62 MMS.
• Citation: 736 F. Supp. 1289
• Parties: Stanley E. HOLMES, Plaintiff, v. TELECREDIT SERVICE CORPORATION, a Delaware Corporation, Defendant.
• Court: U.S. District Court — District of Delaware

736 F. Supp. 1289

Stanley E. HOLMES, Plaintiff, v. TELECREDIT SERVICE CORPORATION, a Delaware Corporation, Defendant.

Civ. A. No. 88-62 MMS.

United States District Court, D. Delaware.

May 4, 1990.

Sandra E. Messick, UAW Legal Services Plan, Newark, Del., for plaintiff.

Sherry Ruggiero, Tybout, Redfearn & Pell, Wilmington, Del., for defendant.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

Plaintiff Stanley E. Holmes brought this action in February 1988, seeking damages from defendant Telecredit Services Corp. ("Telecredit") for alleged violations of the Fair Debt Collection Practices Act, 15 U.S. C.A. §§ 1692 et seq. ("FDCPA" or "the Act"). The case was referred to Magistrate Sue L. Robinson in April 1988. On May 31, 1988 Telecredit moved for dismissal of the action under Federal Rule of Civil Procedure 12(b), arguing that it is not a "debt collector" within the meaning of section 1692a(6) of the Act and hence the FDCPA does not apply to its actions. On May 31, 1989 Magistrate Robinson found that Telecredit is a "debt collector" subject to the restrictions of the FDCPA, and recommended denial of defendant's motion. Report and Recommendation of the Magistrate (Dkt. 24). The Magistrate treated defendant's motion as a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1). Telecredit filed objections to the Magistrate's findings on the merits on June 15, 1989. (Dkt. 26). Plaintiff Holmes filed a response to defendant's objections on June 28, 1989. (Dkt. 27). The parties have since stipulated that on de novo review the Court should treat this matter as a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Stipulation of the Parties (Dkt. 28). Since both parties have submitted information beyond the pleadings for the court's consideration, Telecredit's motion will be treated as a motion for summary judgment under Rule 56.¹

The parties have had opportunity for further discovery and briefing, which is now completed. I agree with Magistrate Robinson that defendant Telecredit is a debt collector within the meaning of the FDCPA. In light of the changed procedural posture of this case since the time the Magistrate issued her report and recommendation, however, I will set forth my views on the merits of Telecredit's motion.

FACTS

Defendant Telecredit is a computerized check authorization and purchase service. Appendix to Defendant's Opening Brief at 2 (Dkt. 11A) (hereinafter cited as "DA-____").² Its subscribers are mainly retail establishments and banks. DA-2. When a consumer presents a check to one of defendant's subscribers, the subscriber contacts Telecredit. Telecredit consults its computerized check authorization file and advises the subscriber whether to accept or decline the check based upon the information in its records concerning the consumer's check writing history. DA-2.

In addition, Telecredit enters into agreements with its subscribers to purchase up to a certain sum any checks authorized by Telecredit that are returned unpaid by the maker's bank. DA-4-5 (form for check purchasing agreement). Once Telecredit purchases the instrument from its subscribers, it initiates collection proceedings on its own behalf. DA-2. Any sums recovered are payable to Telecredit. Exh. B, Defendant's Supplemental Brief (Dkt. 21) (money order from plaintiff payable to Telecredit).

In this case, plaintiff Holmes on August 21, 1987 presented a check in the amount of $315.00 to Union Park Pontiac, a Telecredit subscriber. Telecredit authorized the check, which was subsequently returned unpaid. Pursuant to its check purchasing agreement with Union Park Pontiac, Telecredit purchased the instrument and began collection efforts. Defendant's Opening Brief at 4 (Dkt. 11); DA-2. Telecredit's collection efforts apparently involved numerous contacts with plaintiff including letters sent demanding payment on or about October 15, October 26 and November 2, 1987. Amended Complaint ¶ 5 (Dkt. 7). Holmes eventually paid the debt, and the record of the dishonored check was removed from Telecredit's check authorization file. DA-2. Holmes then brought this suit alleging that Telecredit committed various violations of the FDCPA.

DISCUSSION

The Fair Debt Collection Practices Act imposes civil liability only on "debt collectors." 15 U.S.C.A. § 1692k (1982); In re Scrimpsher, 17 B.R. 999, 1011 (Bankr.N.D.N.Y.1982). Consequently, if Telecredit is not a "debt collector" within the meaning of the Act, the FDCPA is inapplicable to its actions and its motion for summary judgment must be granted. The FDCPA defines "debt collector" generally as:

(6) The term "debt collector" means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another....

15 U.S.C.A. § 1692a(6). The Act then lists numerous exceptions to the general definition. See id. § 1692a(6)(A)-(F). Telecredit argues it is not a debt collector because its activities do not come within the general definition of debt collector set forth above, or in the alternative, because one or more of the exceptions listed by the Act apply.

Telecredit first contends that as a check authorization service, it is not a "business the principal purpose of which is the collection of any debts, or which regularly collects or attempts to collect, directly or indirectly, debts...." Instead, it argues its primary function is "to provide services to retailers by authorizing or declining to authorize checks for purchase." Defendant's Opening Brief at 9 (Dkt. 11). Although "the primary persons intended to be covered by the Act are independent debt collectors," S.Rep. No. 95-382, 95th Cong., 1st Sess., reprinted in 1977 U.S. Code Cong. & Admin.News 1695, 1697, Congress did not limit the Act to those entities whose sole or principal purpose is debt collection. Instead, Congress extended coverage of the Act to entities that regularly collect or attempt to collect debts as well. For instance, a mortgage servicing company is not considered a debt collector when it acquires loans originated by others and not in default at the time acquired. However, to the extent the mortgage servicing company receives delinquent accounts for collection it is a debt collector with respect to those accounts. 8 K. Lapine & B. Bash, Banking Law. § 155.073 at XXX-XX-XX (1989); see also S.Rep. No. 95-382, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin.News 1695, 1698. The word "regularly" means "normally, usually, or customarily." 8 K. Lapine & B. Bash, supra, § 155.073 at XXX-XX-XX (citing FTC Interpretive Letter No. 00073, Jan. 3, 1978). The Act was not intended to cover an entity that collects a debt for another in an isolated instance, but it does apply to entities that collect debts for others in the regular course of business. S.Rep. No. 95-382, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin.News 1695, 1697-98.

From September of 1986 through September of 1989, Telecredit purchased 1,826,877 checks or drafts from its subscribers. Updated Answers to Interrogatories, Plaintiff's Supplemental Letter Memorandum (Nov. 6, 1989). This works out to an average of 608,959 checks purchased in each of those years. Consequently, the purchase and collection of Holmes' debt is not an "isolated instance," of collection not intended to be covered by the Act. S.Rep. No. 95-382, 95th Cong., 1st Sess., reprinted in 1977 U.S.Code Cong. & Admin.News 1695, 1697. Furthermore, check purchasing is a service provided as part and parcel of Telecredit's agreements with many of its subscribers. See Appendix to Plaintiff's Supplemental Brief at 17-44 (Dkt. 27) (various Telecredit from contracts). Clearly, Telecredit regularly attempts to collect on dishonored checks purchased from its subscribers.

Telecredit's next argument is that it is not a debt collector because it is not collecting or attempting to collect debts owed or due another. Telecredit argues that, since it does not begin collection efforts until after it has purchased the dishonored checks, it is collecting or attempting to collect its own receivables and not debts owed to others. In order to adequately consider this argument, the court must simultaneously consider Telecredit's related argument that, even if it meets the threshold definition of debt collector, it falls within the Act's exclusion for creditors.³ A creditor is defined by the Act as:

any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another.

15 U.S.C.A. § 1692a(4). Thus the court must determine whether Telecredit is a creditor, and if so, whether its activities with regard to Holmes' check fall under the exception for assignees.

The case law addressing whether entities collecting on debts to which they have title are "debt collectors" is sparse. In Alexander v. Moore & Associates, Inc., 553 F.Supp. 948 (D.Hawaii 1982), the court considered whether a service which guarantees for landlords the payment of tenants' security deposits ("RENTCHECK") could be a debt collector. In that case, the plaintiff refused to pay her landlords' claim for repairs and cleaning after she vacated her apartment. The landlords, subscribers of RENTCHECK, submitted their claims to the service. RENTCHECK paid the landlords, took assignment of the claims, and attempted to collect. Id. at 949. The plaintiff later sued RENTCHECK under the FDCPA. RENTCHECK argued that it owned the debt and therefore could not be a debt collector within the coverage of the Act. The court agreed and briefly reasoned:

Plaintiffs argue that RENTCHECK is a debt

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