Spring 2007-04 Fair Debt Collection Practices Act not applicable to collection of own credits

newsletter header

Number 67
Spring 2007

Fair Debt Collection Practices Act not applicable to collection of own credits

As decided by the U.S. District Court for the District of Puerto Rico in Meléndez Torres v. American Express Corp., 2007 U.S. Dist. LEXIS 20623, the federal Fair Debt Collection Practices Act applies only to collection of someone else's credit.

The facts

Brendalee Meléndez Torres received a telephone call from someone who identified himself as working for American Express. The person informed Meléndez that her mother-in-law owed the credit card company $9,250.00, that Meléndez's name appeared in the debtor's credit application, and that therefore she was liable for the obligation. The caller added that Meléndez's credit would be adversely affected unless she paid by 3:00 p.m. of that day. Meléndez and her husband paid, and subsequently sued American Express for breaching the mandates of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692.

The law

The Fair Debt Collection Practices Act purports to eliminate abusive practices in the collection of consumer debts. It sets forth a number of rules and prohibited practices intended to promote fair debt collection. Debt collectors must conduct their business according thereto. It also grants certain rights to affected consumers, and prescribes penalties and remedies for violations of its mandates.

By its very terms, the law applies only to "debt collectors," which it defines 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 another." The last word in the quote is what moved the court to rule that the actual creditor-in this case American Express-is not subject to the restrictions of the law. The Fair Debt Collection Practices Act also excludes from liability a creditor's officers and employees collecting credits on its behalf. Exempted from coverage as well are affiliates of the creditor, if their principal business is not the collection of debts.

An exception to the own-credit rule is when the creditor uses a name other than its own in the collection process, which would indicate that a third person is engaged in the collection efforts.


The District Court ruled that the facts pleaded indicated that the person who called Meléndez worked for creditor American Express. Furthermore, nothing suggested that this person had given the impression that anyone other than American Express was involved in the collection.

The court did not accept Meléndez's argument that the caller could actually have been working for a collection agency, which she identified as "OSI Collection Services, Inc." If such were the case, said the judge, then it would be OSI who would be in violation of the Fair Debt Collection Practices Act, not American Express. "Creditors are not vicariously responsible for violations incurred by collection agencies hired by them, since concluding the contrary 'would be to eliminate the distinction Congress clearly intended to make between creditors and independent debt collectors.'"

The District Court dismissed the complaint against American Express.

© 2007 Goldman Antonetti & Cordova, LLC