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Clark v. Pinnacle Credit Services

March 24, 2010


The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge


This matter is before the court on Defendant MetaBank's (MetaBank), Defendant Card Acquisition, LLC's (Card Acquisition), Defendant Pinnacle Credit Services, LLC's (Pinnacle), and Defendant FMS Investment Corp.'s (FMS) motions to dismiss. For the reasons stated below, we deny the motions to dismiss.


Plaintiff Frances Scott Clark (Clark) alleges that Pinnacle is a company that purchases or claims to purchase charged-off consumer debts, and then collects or attempts to collect the purchased debt from consumers using the mail and telephone system. Clark alleges that FMS is a collection agent that uses the mail and telephone system to collect debts originally owed to others. Clark contends that Pinnacle and FMS are debt collectors as defined under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq..

Clark also alleges that Card Acquisition devised and implemented a refinancing program (Refinancing Program) marketed to owners of charged-off debts such as Pinnacle. More specifically, Clark contends that on Card Acquisition's website (Website), Card Acquisition claims to provide the owners of charged-off debts "'alternative recovery strategies'" by either purchasing charged-off accounts for cash or evaluating charged-off accounts and arranging to transfer certain amounts to the Affirm Credit Card (Affirm Card). (SA Compl. Par. 24). Clark claims that the Website indicates that Card Acquisition's goal is to maximize overall recovery rates and complement existing collection strategies. In addition, Clark alleges that on the Website, Card Acquisition offers to either acquire charged-off accounts for cash as the accounts are converted to credit cards, or to allow the owners of charged-off debts to "participate in the cash flow from the credit cards as these accounts mature and generate cash flow." (SA Compl. Par. 24). According to Clark, the Website also states that Card Acquisition provides "'the consumer with a positive way to resolve prior debts though the Affirm Credit Card Program where the debtor can transfer his or her non-performing account balance to a newly issued credit card.'" (SA Compl. Par. 23). Clark alleges that the Website indicates that "'Affirm Card' is a trademark of Card Acquisition." (SA Compl. Par. 23). In addition, Clark alleges that MetaBank is a company that "regularly collects or attempts to collect, directly or indirectly, consumer debts originally owed or due or asserted to be owed or due to others, through the [R]efinancing [P]rogram." (SA Compl. Par 17). Clark states that MetaBank and Card Acquisition use the mail and telephone system in connection with the Refinancing Program. According to Clark, MetaBank is the issuer of the Affirm Card. Clark contends that, with respect to her debt, MetaBank and Card Acquisition are not creditors, but are instead debt collectors under the FDCPA.

Clark alleges that the Refinancing Program targeted consumers whose debt had been purchased by Pinnacle. Clark claims that "most or all of the debts that were the subject of the refinancing program were beyond the applicable statute of limitations, unprovable, barred by the statute of frauds, or otherwise legally unenforceable." (SA Compl. Par. 32). Clark states that, in targeting consumers whose debt has been purchased by Pinnacle, FMS sent details of the Refinancing Program and the terms of the Affirm Card (Mailing) through the mail on behalf of Pinnacle and MetaBank. Clark alleges that each of the Defendants was aware of and approved the contents of the Mailing. Clark also alleges that the Mailing instructed debtors to call a number assigned to FMS to apply for the Affirm Card and discuss a settlement amount relating to the debt. (Settlement Amount). According to Clark, under the terms of the Refinancing Program, the Settlement Amount negotiated between FMS and a debtor became the debtor's initial line of credit and that such amount was transferred to the debtor's new Affirm Card.

Clark states that she received the Mailing in connection with an alleged debt that she had incurred for personal, family, or household purposes on a credit card issued by HSBC or its subsidiary, Orchard Bank, which was purportedly in default. Clark alleges that the Mailing was not in compliance with the FDCPA. Clark claims that "if consumers were given a complete disclosure of the terms of the credit, they might find and prefer alternative products." (SA Compl. Par. 67). Clark also contends that "the failure to disclose [the Retained Amount] was means to attract consumers who would otherwise be unreceptive to the [Refinancing Program]." (SA Compl. Par. 67). Clark alleges that Defendants violated the FDCPA's requirements that no false, misleading, deceptive, or unfair means be used to collect any consumer debt, found at 15 U.S.C. § 1692e and 15 U.S.C. § 1692f. In support of her FDCPA claim, Clark contends that Defendants violated the Truth in Lending Act (TILA), 15 U.S.C. § 1601 et seq., which regulates the advertising of credit products, and Regulation Z (Reg Z), 12 C.F.R. § 226.1 et seq., TILA's implementing regulation. See 12 C.F.R. pt. 226.1(a) (2000)(stating that "Regulation Z, is issued by the Board of Governors of the Federal Reserve System to implement the federal Truth in Lending Act, which is contained in title I of the Consumer Credit Protection Act, as amended (15 U.S.C. [§] 1601 et seq.)"). Defendants have each filed a motion to dismiss.


In ruling on a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) (Rule 12(b)(6)), a court must "accept as true all of the allegations contained in a complaint" and make reasonable inferences in favor of the plaintiff. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (U.S. 2009)(stating that the tenet is "inapplicable to legal conclusions"); Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). To defeat a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal, 129 S.Ct. at 1949 (internal quotations omitted)(quoting in part Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Under Iqbal, "[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'" Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 556); Hecker v. Deere & Co., 569 F.3d 708, 710-11 (7th Cir. 2009).


I. Applicability of the FDCPA to MetaBank

MetaBank argues that the FDCPA does not apply to it. The purpose of the FDCPA is to "eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. § 1692(e)(). Thus, the FDCPA applies only to debt collectors, and does not apply to creditors. Ruth v. Triumph P'ships,577 F.3d 790, 796 (7th Cir. 2009). MetaBank has argued in its motion to dismiss that Clark's complaint does not sufficiently allege that MetaBank is a "debt collector" under the FDCPA, and that therefore Clark's FDCPA claim against MetaBank should be dismissed.

The FDCPA defines a debt collector 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. . . . The term does not include . . . (F) any person collecting or attempting to collect any debt owed or asserted to be owed or due another to the extent such activity . . . (iii) concerns a debt which was not in default at the time it was obtained by such person." 15 U.S.C. § 1692a(6). In contrast, the FDCPA defines a creditor as "any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in defaultsolely for the purpose of facilitating collection of such debt for another." 15 U.S.C. § 1692a(4). Under the FDCPA, "these two categories-debt collectors and creditors-are mutually exclusive." Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003)(noting that "the Act treats assignees as debt collectors if the debt sought to be collected was in default when acquired by the assignee, and as creditors if it was not)(emphasis added)(citations omitted)). In determining whether a defendant is a debt collector or a creditor under the FDCPA, the court's sole inquiry is "whether the debt was in default at the time it was acquired"by the defendant. Ruth 577 F.3d at 796-97 (emphasis added)(citing McKinney v. Cadleway Properties, 548 F.3d 496, 501 (7th Cir. 2008), and Schlosser, 323 F.3d at 538-39). At this stage of the proceedings, the court accepts as true all of the allegations contained in a complaint, except for legal conclusions, for the purposes of ruling on a 12(b)(6) motion to dismiss. Clark alleges that all four Defendants were "acting in concert" and "devised an implemented a refinancing program for the purpose of collecting delinquent debts." (SA Compl. Par. 29). Clark also alleges that MetaBank "regularly collects or attempts to collect, directly or indirectly, consumer debts originally owed or due or asserted to be owed or due to others, through the Refinancing Program." (SA Compl. Par. 17).In addition, Clark alleges that ...

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