Judge Thomas Ambro.

Companies that purchase debts from debt collectors are debt collectors themselves, a federal appeals court has ruled, and are subject to enforcement of the Fair Debt Collection Practices Act.

The U.S. Court of Appeals for the Third Circuit’s precedential ruling brings a new level of accountability to entities that make a business out of collecting defaulted debts.

Judge Thomas Ambro opened the court’s opinion in the spirit of the character Wimpy from the Popeye cartoon: “Many would gladly pay Tuesday for a hamburger today. Of course, not all of those who fall into debt make payments timely, and debt collection has become a professional trade.”

He continued by noting that the FDCPA “does not apply, however, to all entities who collect debts; only those whose principal purpose is the collection of any debts, and those who regularly collect debts owed another are subject to its proscriptions. Those entities whose principal business is to collect the defaulted debts they purchase seek to avoid the act’s reach. We believe such an entity is what it is—a debt collector. If so, the act applies.”

The ruling results from a lawsuit filed by James and Allison Tepper against Amos Financial, the company that pursued the couple’s defaulted home mortgage, according to the court.

The case involved the closure of the bank through which the Teppers obtained the loan. The Teppers, who had received monthly statements from the bank on their loan, attempted to make a mortgage payment to the bank’s appointed receiver, the Federal Deposit Insurance Corp., but were unsuccessful, and they waited to receive a statement from the loan’s new servicer, according to the decision.

After a time, the loan went into default, and was picked up by Amos. The Teppers contacted Nareg Korogluyan, an Amos officer, who denied them access to any loan statements and warned the company could not stop foreclosure, Ambro said.

The court said Amos’ attorney then sent the Teppers an email attempting to collect the debt, but at a higher amount. The Teppers then filed suit, alleging violations of the FDCPA.

In addition to holding that Amos was a debt collector under the act, U.S. District Judge J. Curtis Joyner of the Eastern District of Pennsylvania ruled that: Amos’ foreclosure notice and email were incomplete and misleading because they failed to disclose sufficient details about the amount and character of the debt; the company’s calculation of the loan amount at an increased interest rate, without following the credit agreement’s required procedures, violated the statute; and Korogluyan’s statements that Amos owned the Teppers’ home, and that they could not stop the foreclosure, constituted “false representations and deceptive means to collect on the loan,” according to the decision.

Amos argued that it was a creditor and could not simultaneously be a debt collector. Ambro said that since it also met the definition of a debt collector, it was not immune from the FDCPA’s debtor protections.

“In sum, Amos may be one tough gazookus when it attempts to collect the defaulted debts it has purchased, but when its conduct crosses the lines prescribed by the FDCPA, it opens itself up to the act’s penalties,” Ambro said. “The district court held that Amos’s debt-collection attempts with the Teppers crossed those lines, and it must face the statute’s penalties for its bad behavior.”

The plaintiffs’ attorney, John J. Jacko III, said “What is comforting for the Teppers—and other homeowner consumers like them—is knowing that the courts will interpret the FDCPA to protect them from the type of debt collector “bad behavior” that “cross[] the lines” as was plainly at issue in this case. Perhaps other debt collectors will learn from this decision that they must a) both read and abide by the loan documents that they purchase, and b) treat the borrowers with whom they interact with dignity and respect, rather than project being a ‘tough gazookus’ in any way that so rightfully troubled the Third Circuit in this instance.”

The defense attorney, Erik Helbing, said he was in the process of reviewing the decision.