Miller v. McCalla

Decision Date26 July 2000
Docket NumberNo. 99-3263,99-3263
Citation214 F.3d 872
Parties(7th Cir. 2000) Kevin Miller, Plaintiff-Appellant, v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., and Echevarria, McCalla, Raymer, Barrett, and Frappier, Defendants-Appellees
CourtU.S. Court of Appeals — Seventh Circuit

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 5563--Elaine E. Bucklo, Judge. [Copyrighted Material Omitted] Before Posner, Chief Judge, and Ripple and Rovner, Circuit Judges. Posner, Chief Judge.

This is a suit under the Fair Debt Collection Practices Act, 15 U.S.C. sec.sec. 1692 et seq., against two related law firms engaged in debt collection. The plaintiff (the debtor) claims that the defendants violated the Act by failing to state "the amount of the debt" in the dunning letter of which he complains. See sec. 1692g(a)(1). They reply that they did state the amount and that anyway the letter is outside the scope of the Act because they were trying to collect a business debt rather than a consumer debt, and the Act is limited to the collection of consumer debts. sec. 1692a(5); First Gibraltar Bank, FSB v. Smith, 62 F.3d 133 (5th Cir. 1995). The district court granted summary judgment for the defendants on the latter ground, and let us start there.

The plaintiff bought a house in Atlanta in 1992, and took out a mortgage. He lived in the house until 1995, when he accepted a job in Chicago; from then on, he rented the house. He received the dunning letter from one of the defendant law firms on behalf of the mortgagee in 1997. By this time, renting the property to strangers, the plaintiff was making a business use of the property and so the mortgage loan was financing a business rather than a consumer debt. But the plaintiff argues that the relevant time for determining the nature of the debt is when the debt first arises, not when collection efforts begin. The defendants riposte that since the Act under which the plaintiff is suing, unlike the Truth in Lending Act, governs debt collection, the relevant time is when the attempt at collection is made. Oddly, there are no reported appellate decisions on the issue, though it was assumed in Bloom v. I.C. System, Inc., 972 F.2d 1067, 1068-69 (9th Cir. 1992), that the relevant time is when the loan is made, not when collection is attempted.

The language of the statute favors this interpretation. "Debt" is defined as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes." sec. 1692a(5). The defendants don't deny that the plaintiff is a "consumer," even though he is in the "business" of renting his house (they can't deny this, because "the term 'consumer' means any natural person obligated or allegedly obligated to pay any debt," sec. 1692a(3)), and the antecedent of the first "which" in the clause "in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family, or household purposes" is, as a matter of grammar anyway, the transaction out of which the obligation to repay arose, not the obligation itself; and that transaction was the purchase of a house for a personal use, namely living in it. Grammar needn't trump sense; the purpose of statutory interpretation is to make sense out of statutes not written by grammarians. But we cannot say that it is senseless to base the debt collector's obligation on the character of the debt when it arose rather than when it is to be collected. The original creditor is more likely to know whether the debt was personal or commercial at its incipience than either the creditor or the debt collector is to know what current use the debtor is making of the loan (in this case, the plaintiff is using the loan, in effect, to generate income from the house that secures the loan).

Against this the defendants argue that the plaintiff's interpretation creates a loophole. Suppose the plaintiff had bought the house to use as an office, and later converted it to personal use; on the plaintiff's interpretation of the Act the debt collector would not have to give him the statutory warnings. But this makes perfect sense. The Act 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. See S. Rep. No. 382, 95th Cong., 1st Sess. 2 (1977); Keele v. Wexler, 149 F.3d 589, 594 (7th Cir. 1998); McCartney v. First City Bank, 970 F.2d 45, 47 (5th Cir. 1992). Businessmen don't need the warnings. A businessman who converts a business purchase to personal use does not by virtue of that conversion lose his commercial sophistication and so acquire a need for statutory protection. And we agree with the plaintiff's concession that if a borrower for a personal use were to assign the loan that financed that use to a business, the debt would then arise out of the assignment, rather than out of the original loan, and so the Act would be inapplicable--rightly so since the recipient of the dunning letter would be a businessman, not a consumer.

So the Act is applicable and we move to the question whether the defendants violated the statutory duty to state the amount of the loan. 15 U.S.C. sec. 1692g(a)(1). The dunning letter said that the "unpaid principal balance" of the loan (emphasis added) was $178,844.65, but added that "this amount does not include accrued but unpaid interest, unpaid late charges, escrow advances or other charges for preservation and protection of the lender's interest in the property, as authorized by your loan agreement. The amount to reinstate or pay off your loan changes daily. You may call our office for complete reinstatement and payoff figures." An 800 number is given.

The statement does not comply with the Act (again we can find no case on the question). The unpaid principal balance is not the debt; it is only a part of the debt; the Act requires statement of the debt. The requirement is not satisfied by listing a phone number....

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