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Wadlington v. Credit Acceptance Corp.

Court of Appeals for the Sixth Circuit
1996 WL 71742, 76 F.3d 103 (1996)
ELI5:

Rule of Law:

An entity that acquires a consumer's debt before the debt is in default is a creditor, not a "debt collector," under the Fair Debt Collection Practices Act (FDCPA). While attorneys who regularly engage in consumer debt collection litigation are "debt collectors" under the Act, a non-debt collector entity cannot be held vicariously liable for its attorney's FDCPA violations.


Facts:

  • Plaintiffs Alan Wadlington and Tammy Berry, residents of Kent County, Michigan, purchased cars from Classic Car Company and signed retail installment sales contracts.
  • Each contract stated on its face that the dealer was immediately assigning the contract to Credit Acceptance Corporation (CAC).
  • The contracts were assigned to CAC pursuant to a pre-existing servicing agreement, and it is undisputed that the debts were not in default at the time of assignment.
  • The contracts contained a provision stating that the buyer could be sued in the county where CAC had its principal office.
  • Wadlington and Berry later defaulted on their payments.
  • Attorneys hired by CAC filed collection lawsuits against the plaintiffs in a court located in Southfield, Michigan, where CAC's office was located.
  • Southfield is not in Kent County, where the plaintiffs resided and signed the contracts.

Procedural Posture:

  • Credit Acceptance Corporation, through its attorneys, filed separate collection lawsuits against Alan Wadlington, Tammy Berry, and Chip Brunette in Michigan's 46th District Court (a trial court).
  • The plaintiffs filed motions for a change of venue, and the lawsuits were transferred by stipulation to a district court in Kent County.
  • The plaintiffs then filed this lawsuit against Credit Acceptance Corporation and its attorneys in the United States District Court for the Western District of Michigan.
  • The defendants moved for summary judgment on the plaintiffs' FDCPA claims.
  • The U.S. District Court granted summary judgment in favor of all defendants.
  • The plaintiffs (appellants) appealed the district court's decision to the United States Court of Appeals for the Sixth Circuit, with Credit Acceptance Corporation and its attorneys as appellees.

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Issue:

Does a company that acquires a consumer debt before it is in default qualify as a "debt collector" under the Fair Debt Collection Practices Act (FDCPA), and can it be held vicariously liable for the venue-filing violations of its attorneys who do qualify as debt collectors?


Opinions:

Majority - David A. Nelson

No. A company that acquires a debt before it goes into default is a creditor, not a "debt collector" under the FDCPA, and cannot be held vicariously liable for its attorneys' violations. The court determined that the FDCPA's definition of "debt collector" and its legislative history explicitly exclude creditors and assignees of debt, so long as the debt was not in default at the time of assignment. Because the plaintiffs' debts were current when assigned to Credit Acceptance, the company is a creditor, not a debt collector. Even if Credit Acceptance were merely servicing the debt for the original dealer, it would be exempt under § 1692a(6)(F)(iii), which excludes the collection of debts that were not in default when obtained. In contrast, following the Supreme Court's decision in Heintz v. Jenkins, the attorneys hired by Credit Acceptance do qualify as "debt collectors" because they engage in litigation to collect consumer debts. However, the FDCPA's liability provision, § 1692k, applies only to a "debt collector who fails to comply." The court declined to impose vicarious liability on Credit Acceptance, a non-debt collector, for the statutory violations of its attorneys.



Analysis:

This decision solidifies a critical safe harbor for financial institutions that purchase or service consumer debt, clarifying that an entity's status as a "creditor" versus a "debt collector" under the FDCPA is determined at the moment it acquires the debt. By shielding non-debt collector creditors from vicarious liability for the litigation-related FDCPA violations of their attorneys, the ruling places the compliance burden squarely on the law firms that file collection suits. This precedent limits the scope of liability for original creditors and pre-default assignees, forcing plaintiffs to pursue FDCPA claims directly against the attorneys whose actions violate the statute's specific provisions, such as those governing venue.

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