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June 13, 2001


The opinion of the court was delivered by: Pallmeyer, District Judge.


Plaintiff William D. Winterstein, individually and on behalf of all others similarly situated, has brought this action against Defendant CrossCheck under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (hereinafter "FDCPA"). Winterstein seeks a declaration that CrossCheck's form debt collection letter violates the FDCPA, and an award of damages for CrossCheck's violations of the FDCPA. CrossCheck now moves for summary judgment, arguing that CrossCheck is not a "debt collector" within the meaning of the FDCPA. In considering such a motion, the court draws every inference in the light most favorable to Winterstein and determines whether CrossCheck can demonstrate the absence of any issues of material fact requiring trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). After considering the evidence submitted by each party, the court concludes CrossCheck has not carried its burden and denies CrossCheck's motion.


Defendant CrossCheck is a computer information company that provides check authorization services. (Affidavit of John J. Kieley, IV, Vice President of Consumer Relations and Legal Affairs for CrossCheck ¶ 4, Ex. C to Defendant's Rule 56.1(a)(3) Statement [hereinafter "Def. Rule 56.1(a)(3) St."].)*fn1 Under its standard application/service agreement, CrossCheck contracts with retail merchants who receive and accept checks from their customers. (Id. ¶ 5.) When a customer presents a check to the merchant, the merchant contacts CrossCheck for authorization. (Kieley Dep., at 25-27, Ex. C to Plaintiffs Local Rule 56.1(b)(3)(B) Statement [hereinafter "Pl. Rule 56.1(b)(3)(B) St."]) CrossCheck then consults its comprehensive information base which estimates the probability that the check the customer is presenting will clear the bank.*fn2 (Kieley Aff. ¶ 6.) If CrossCheck's database shows that information relative to the check (including, for example, the face amount of the check, the date it was issued, and the magnetic ink character recognition numbers on the bottom of the check) falls within an "acceptable statistical range," CrossCheck issues the merchant an approval number for placement on the check.*fn3 (Kieley Dep., at 28.)

In the event a merchant accepts a check approved by CrossCheck and the check is dishonored, CrossCheck pays the merchant the face amount of the check. The application/service agreement sets forth a "Submission Time Frame," which requires the merchant to "mail any dishonored checks covered under [the] agreement and all additional paperwork to Check Center [CrossCheck] within 30 calendar days of the approval date." (Ex. A to Kieley Aff.) If a merchant wishes to be reimbursed for a dishonored check, the merchant is required to mail the dishonored check to CrossCheck after the merchant's bank returns the dishonored check to the merchant. (Kieley Dep., at 53.) Upon receipt of a dishonored check, CrossCheck creates a claim by entering the name and address of the check writer, as well as the magnetic ink character recognition number of the check, into the CrossCheck computer system. (Id., at 54.) CrossCheck then attempts to re-deposit the check. (Kieley Aff. ¶ 18.) While Kieley stated that he "believes" the checks CrossCheck attempts to re-deposit are endorsed over to CrossCheck (Kieley Dep., at 54), he was uncertain; and it is undisputed that the check involved in this case was not in fact endorsed over to CrossCheck. (Id. at 55.) Approximately forty percent of all dishonored checks resubmitted by CrossCheck clear when re-deposited by CrossCheck. (Kieley Aff. ¶ 19.)

Only if CrossCheck's attempt to re-deposit a dishonored check fails does CrossCheck take any further action to collect on a debt. (Id. ¶ 21.) Approximately seven percent of CrossCheck's employees are engaged in direct recovery or collection activities,*fn4 and around six percent of CrossCheck's total expenses are allocated to recovery or collection efforts. (Id. ¶¶ 1112.) The record does not indicate to what the remaining ninety-four percent of CrossCheck's expenses are devoted.

Firestone then mailed the dishonored check to CrossCheck, and CrossCheck, pursuant to the warranty provision of the Agreement, reimbursed Firestone for the amount of Winterstein's approved check, $93.72. (Id. ¶¶ 30-31.) On March 24, 2000, CrossCheck sent Winterstein a letter stating that CrossCheck had all right, title, and interest in the dishonored check and requested payment in the amount of $93.72. (Id. ¶ 32.) Winterstein asserts that the form of this letter violates Section 1692g of the FDCPA, which requires a debt collector to provide a consumer with notice that the consumer has thirty days to request, in writing, that the debt collector provide proof of the debt's validity to the consumer. Specifically, the letter from CrossCheck to Winterstein included statements that "IT IS IMPERATIVE THAT YOU GIVE THIS MATTER YOUR IMMEDIATE ATTENTION" and that CrossCheck is "LEGALLY ENTITLED" to the debt, language that Winterstein alleges overshadows the thirty-day validation notice required by the Act. CrossCheck believes that it is entitled to summary judgment because it does not qualify as a "debt collector" under the FDCPA.


The Fair Debt Collection Practices Act imposes civil liability only on "debt collectors." 15 U.S.C. § 1692k. The FDCPA defines debt collector generally as "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. § 1692a(6). The Act then lists numerous exceptions to this general definition. See id. § 1692a(6)(A)-(F). CrossCheck contends it is not a debt collector under several theories. The court addresses each argument below.

A. The Creditor Exception

CrossCheck first contends that it is a creditor within the Act and therefore excluded from the definition of debt collector. (Defendant's Memorandum of Law in Support of its Motion for Summary Judgment [hereinafter "Defendant's Memorandum"], at 3.) The FDCPA specifically excludes from the definition of debt collector "any officer or employee of a creditor while, in the name of the creditor, collecting debts for such creditor." 15 U.S.C. § 1692a(6)(A). The legislative history of the FDCPA establishes that the Section 1692a(6)(A) exclusion includes both creditors themselves and their employees. See Kimber v. Fed. Fin. Corp., 668 F. Supp. 1480, 1484 (M.D.Ala. 1987) (citing S.Rep. No. 95-382, 95th Cong. 1st Sess., reprinted in 1977 U.S.C.C.A.N. 1695, 1698). The FDCPA defines a creditor as "any person who offers or extends credit creating a debt or to whom a debt is owed," but the Act goes on to explain that the term creditor "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. § 1692a(4).

CrossCheck contends that it is a creditor within the meaning of the Act, but the court notes that the original debt here was owed to Firestone, not CrossCheck: Winterstein's check was negotiated by Firestone, and the check was initially deposited into Firestone's account at Financial Federal Trust and Savings Bank, as opposed to an account controlled by CrossCheck. (Kieley Dep., at 47-48.) Congress intended the FDCPA to protect borrowers from "third persons who regularly collect debts for others." S.Rep. No. 95-382, 95th Cong. 1st Sess., reprinted in 1977 U.S.C.C.A.N. 1695, 1697 (emphasis added). CrossCheck is a third party collecting a debt that was originally owed to Firestone. Although CrossCheck, like other check authorization services, "may facilitate the transactions of its subscribers, it is not in the business of extending credit." Holmes v. Telecredit Serv. Corp., 736 F. Supp. 1289, 1293 (Del. 1990). Holmes involved a check authorization service, Telecredit, that, like CrossCheck, used a computer database to advise its merchant subscribers on whether to accept or decline a consumer's check. 736 F. Supp. at 1290. Telecredit also entered into agreements with its subscribers to purchase checks authorized by Telecredit that later defaulted. Id. In a case challenging Telecredit's practices under FDCPA, the Holmes court concluded that Telecredit could not "escape the spirit of the [FDCPA] merely by the technicality of purchasing the debt upon default so that title technically rests in itself." 736 F. Supp. at 1293.

The assignee exception to the Act's definition of creditor found in ยง 1692a(4) specifically applies in this context. Id. Winterstein's check was not assigned to CrossCheck until after Winterstein stopped payment on the check. Therefore, CrossCheck is not a creditor within the ...

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