When Determining if Credit Card Charges are "Debts" Within the Meaning of the FDCPA: You Have to Look Deeper
Credit Card debt is among the largest sources of personal debt in the United States. Lenders issue Credit Cards to both consumers as well as businesses. When an obligor on a credit card account defaults, a logical assumption would be that personal credit card obligations are “debts” within the meaning of the Fair Debt Collection Practice Act and business credit cards are not. However, debt collectors must closely scrutinize the actual charges on account as opposed to a Credit Card’s mere status as personal or business.
The Fair Debt Collection Practices Act (“FDCPA”) protects consumers from false, deceptive, or misleading practices in collection of debts. The Act permits consumers who have been subjected to unfair practices by third-party debt collectors to recover damages, attorney fees, and costs. 15 U.S.C. § 1692k(a). The purpose of the statute is "to eliminate abusive debt collection practices," and "to insure that those debt collectors who refrain from using [such] practices are not competitively disadvantaged." 15 U.S.C. § 1692(e).
The statute defines "debt" 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 . . . ." 15 U.S.C. § 1692(a)(5). The Act's legislative history explicitly provides: "This bill applies only to debts contracted by consumers for personal, family, or household purposes; it has no application to the collection of commercial accounts." S. Rep. No. 95-382, at 3 (1977).
When fashioning a collection strategy on a credit card account, a debt collector cannot assume that every personal credit card debt is covered under the FDCPA. Conversely, a debt collector cannot assume that every business credit card debt is not covered by the FDCPA. To properly identify the nature of the credit card debt, there must be a close examination of the charges incurred and documented on the monthly credit card statements. If the majority of the charges comprising the balance on a credit card are for business expenses, the debt was not incurred “primarily for personal, family or household purpose”, and thus not within the purview of the FDCPA. See In re Creditrust Corp., 283 B.R. 826 (U.S. Dist. Maryland 2003).
In some cases, the nature of the credit card transactions are not readily apparent from the information contained in the credit card statements. For example, cash advances listed on a credit card statement will not show how the funds were ultimately spent. Also, charges for airline tickets will not show if the travel was for a business or personal purpose. If embroiled with a pending FDCPA claim, a debtor must be subjected to additional discovery in order to determine the nature of the credit card transactions. Evidence showing that the charges were primarily for business purposes, even on a personal credit card account, will disallow FDCPA claims. For example in In rec Creditrust Corp an FDCPA claimant argued that various communications and inaccurate notations on his credit report violated the Act. The debts at issue were several credit card accounts, of which a personal MasterCard account was included. The court held that the FDCPA did not apply to the personal MasterCard account, as it was applied for contemporaneously with the business credit card accounts and that the accounts were used for a business-related purpose.
It is important to never assume the FDCPA does or does not apply to a specific debt. As stated above, a determination as to whether credit card debt is covered by the FDCPA requires more careful examination than a cursory review of the status of the credit card account in question. The same holds true for other types of debt, including telephone charges and real estate transactions. If there is doubt, each case must be examined individually as to whether the Act governs.