                                                                                                                           Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-6-2007

FTC v. Check Investors Inc
Precedential or Non-Precedential: Precedential

Docket No. 05-3558




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                                                 PRECEDENTIAL

           UNITED STATES COURT OF APPEALS
                FOR THE THIRD CIRCUIT

                          Nos: 05-3558/3957

               FEDERAL TRADE COMMISSION

                                     v.

  CHECK INVESTORS, INC.; CHECK ENFORCEMENT;
       JAREDCO, INC.; BARRY S. SUSSMAN;
  ELIZABETH M. SUSSMAN; CHARLES T. HUTCHINS

                         Charles T. Hutchins,

                                   Appellant No. 05-3558



                          Case No: 05-3957

               FEDERAL TRADE COMMISSION

                                     v.

  CHECK INVESTORS, INC.; CHECK ENFORCEMENT;
       JAREDCO, INC.; BARRY S. SUSSMAN;
  ELIZABETH M. SUSSMAN; CHARLES T. HUTCHINS


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                                     1
           Check Investors, Inc., Check Enforcement,
                  Jaredco, Inc., Barry S. Sussman

                                   Appellants No. 3957

          Appeal from the United States District Court
                 for the District of New Jersey
                    (Civ. No. 03-cv-02115)
             District Judge: Hon. John W. Bissell

                                Argued
                            October 4, 2006

  Before: McKEE, AMBRO, NYGAARD, Circuit Judges,


                (Opinion filed: September 6, 2007 )

CHARLES T. HUTCHINS, ESQ. (Argued)
KBR LOGCAP III HQ
APO AE 09342
Pro se

STEPHEN ROBERT LaCHEEN, ESQ. (Argued)
ANNE M. DIXON, ESQ.
1429 Walnut Street
Suite 1301
Philadelphia, PA 19106
Attorneys for Appellants, Check Investors, Inc.,
Check Enforcement, Inc., Jaredco, Inc., and
Barry Sussman
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                                    2
WILLIAM BLUMENTHAL, ESQ.
General Counsel, Federal Trade Commission
JOHN F. DALY, ESQ.
Deputy General Counsel for Litigation, Federal Trade
Commission
LAWRENCE DeMILLE-WAGMAN, ESQ. (Argued)
Attorney, Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Attorneys for Appellee

                                   OPINION

McKEE, Circuit Judge.

        Check Investors, Inc., Check Enforcement, Inc., Jaredco,

Inc., Barry Sussman (hereinafter collectively “Check

Investors”)1 and Charles T. Hutchins2 appeal the district court’s

grant of injunctive relief and $10.2 million in fines in this action



        1
       Barry Sussman is or was the Vice-President of Check
Investors, Inc., and the President of Check Enforcement, Inc.,
and Jaredco, Inc.
        2
       Charles T. Hutchins is or was general counsel to
Check Investors, Jaredco and Check Enforcers.
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                                      3
that the Federal Trade Commission initiated against them. The

FTC claimed that their debt collection practices violated the

Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §§ 41

et seq., and various provisions of the Fair Debt Collection

Practices Act (“FDCPA”), 15 U.S.C. §§ 1692 et seq. For the

reasons that follow, we will affirm.

                               I. FACTS3

        Check Investors is in the business of purchasing large

numbers of checks written on accounts with insufficient funds

(“NSF checks”). The payors of those checks typically wrote

them in connection with retail transactions and purchases.

Check Investors purchased over 2.2 million NSF checks having

an estimated face value of approximately $348 million. The

checks were purchased from companies such as Telecheck, Inc.,



        3
            The facts are not in dispute.
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                                   4
Certegy, Inc., and Cross Check, Inc. (collectively “Telecheck”).

        Telecheck is in the business of guaranteeing checks

tendered to pay for consumer transactions. When checks are

dishonored, Telecheck pays the merchant/payee the full face

value of the check, thereby making the merchant whole. The

merchant therefore has no need to attempt to collect the check

from the payor/customer.            In return for the payment, the

merchant assigns all of its rights and benefits to Telecheck, and

Telecheck then attempts to collect on the defaulted check to

reimburse itself for its payment.

        Telecheck first attempts to collect by making three

electronic re-presentments of an NSF check to the financial

institution the instrument was drawn on.           If unsuccessful,

Telecheck then sends the payor notices and attempts to contact

him/her by telephone.              This process may continue for

approximately sixty to ninety days.           If these efforts fail,
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                                     5
Telecheck hires a debt collector, who makes further attempts to

collect on the check from the payor. If the debt collector is not

able to collect after six months to a year, Telecheck contracts

with a second debt collector. Both the first and second debt

collectors work on a contingency basis, and, if successful, will

receive one-third of the payment received. If the second debt

collector is also unsuccessful, Telecheck sells the rights it

acquired from the original merchant to Check Investors, and

Check Investors initiates additional collection efforts.

        Initially, Check Investors collected NSF checks on behalf

of large retail clients. However, by 2002 it was purchasing NSF

checks from check guarantee companies such as Telecheck for

pennies on the dollar and collecting on its own behalf as part of

the process we have just described.

        According to the Federal Trade Commission, Check

Investors was the brainchild of Barry Sussman.             After
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                                   6
graduating from law school (and after serving time in prison for

attempting to collect debts by posing as an FBI agent), Sussman

theorized that if a debt collection business collected only debts

it actually owned based on purchasing NSF checks, it would not

be subject to the FDCPA, and would therefore be free to use

collection techniques prohibited by the FDCPA such as

harassment and deception.

        In collecting checks, Check Investors routinely added a

fee of $125 or $130 to the face amount of each check; an

amount that exceeded the legal limit for such fees under the

laws of most states. Check Investors would then aggressively

dun the defaulting payors without disclosing either the original

face amount of the check, or that the amount it was demanding

in “satisfaction” of the check included a fee that was higher than

permitted under the laws of the applicable state.

        Check Investors used both dunning letters and phone
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                                   7
calls to collect debts. However, its primary modus operandi

was to accuse consumers of being criminals or crooks, and

threatening them with arrest and criminal or civil prosecution.

The collectors it employed were provided with a script that

directed them to begin calls by advising consumers that a

“criminal complaint recommendation” was pending, and that

the consumer would be arrested and prosecuted if he/she did not

pay the amount demanded in full. Collectors were allowed to

personalize the approach they used, but the approach always

focused on threats of prosecution. By way of example, one of

Check Investor’s collectors left the following message on a

consumer’s answering machine:

        This message is for the criminal check writer,
        Stephanie       . If you think that you could rip
        these merchants off with your hot checks and hide
        behind your telephone, I guess you’ll just have to
        explain to the judge why you stole from this
        merchant, from [name of merchant], with your
        fraudulent check. At this moment, we do not
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                                   8
        have any intentions of working this matter out
        with you voluntarily. You may need to turn
        yourself in to the local county sheriff’s office.

Another consumer was told that if she did not pay, her children

would “watch their mother being taken away in handcuffs,” and

they would “be bringing their mommy care packages in prison.”

        Check Investors also threatened consumers by sending

a form collection letter that purported to be from defendant

Hutchins, who as noted, see n.2, supra, is an attorney. The

letter informed the recipient that Hutchins had been retained by

a client who was considering taking criminal or civil action.

Hutchins did not actually send the letters or sign them, he had

no idea about the number of letters that were sent out purporting

to be from him, and he made no inquiry about the status of any

of the debts underlying the letters that were sent.4


        4
            Hutchins claims that he established numerous
                                                   (continued...)
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                                   9
        Check Investors’ threats of prosecution were made

without regard to the amount of the underlying obligation.

Employees of Check Investors told one consumer who allegedly

wrote an NSF check for $14.70 that she would be “sitting in

jail” unless she immediately paid $144.70 (the amount of the

original check plus Check Investors’ additional fee of $130).

Faced with the threat, the consumer paid the full amount

demanded.

        Check Investors’ threats of prosecution were all false. It

never notified law enforcement authorities, nor did it take any

steps to initiate civil suit against any consumer.        Indeed,

perhaps because of the small face amount of many of the debts



        4
         (...continued)
procedures to screen out innocent victims of fraud, identity
theft, checks listed in bankruptcy, stop-payment checks and
disputed checks to ensure that Check Investor’s recovery
actions related only to NFS checks.
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                                   10
it was collecting, Hutchins conceded that it would have been a

“ridiculous proposition” to file suit.

        Check Investors’ tactics apparently knew no limits. It

routinely contacted family members of obligors. In one case,

Check Investors’ repeatedly called a 64-year old mother

regarding her son’s debt; fearing that her son would be arrested

and carted off to jail, she paid the amount of the demand.

Another technique that Check Investors employed can best be

described as “saturation phoning.” One consumer stated that

Check Investors’ collectors called him 17 times in 10 minutes.

Collectors also used abusive language, referring to consumers

as “deadbeats,” “retards,” “thieves,” and “idiots.” The tactics

often yielded results. Between January 1, 2000, and January 6,

2003, Check Investor’s collection efforts netted $10.2 million

from more than 42,000 consumers.

          II. DISTRICT COURT PROCEEDINGS
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                                   11
        On May 12, 2003, the Federal Trade Commission filed

a seven-count complaint in the United States District Court for

the District of New Jersey against Check Investors5 and

Hutchins alleging that they had violated Section 5(a) of the FTC

Act, 15 U.S.C. § 45(a), and various provisions the FDCPA, in

their attempts to collect from consumers who had written NSF

checks.      More specifically, the FTC alleged that Check

Investors was a “debt collector,” collecting “debts”, within the

meaning of the FDCPA. The complaint further alleged that, in

the course of collecting debts, Check Investors had violated,

inter alia, 15 U.S.C. § 1692d (by using abusive language, and

calling consumers repeatedly); § 1692e (by falsely representing

that communications came from an attorney, by falsely


        5
         Barry Sussman’s wife, Elisabeth Sussman, was also
named as a defendant. However, on October 5, 2004, the
district court entered a Stipulation and Order settling all
claims against her.
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                                   12
representing that the consumer would be arrested or imprisoned

or had committed a crime, and by falsely threatening legal

action); and § 1692f (by adding impermissible charges to the

face amounts of the debts it was collecting). The complaint also

alleged that many of the acts that violated the FDCPA also

violated the FTC Act.              The FTC sought to enjoin Check

Investors’ conduct and obtain restitution for injured consumers,

including a refund of the money Check Investors had collected

using these techniques.

        The district court issued a temporary restraining order

enjoining Check Investors from engaging in the conduct alleged

in the FTC’s complaint, and the court also froze most of Check

Investors’ assets.6 On August 14, 2003, the district court


        6
        Check Investors did not deny the tactics that FTC
alleged. Rather, it insisted that the NSF obligations it was
attempting to collect were not subject to the FDCPA or the
                                                   (continued...)
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                                      13
entered a preliminary injunction against Check Investors, which

continued the injunctive provisions and the asset freeze of the

TRO.

        Both parties thereafter filed cross-motions for summary

judgment. The district court granted the FTC’s motion and

denied Check Investors’ motion. Check Investors did not

dispute that it engaged in any of the conduct alleged in the

FTC’s complaint, and there was therefore no genuine issue of

material fact about its collection tactics. Rather,     Check

Investors opposed the FTC’s motion for summary judgment

(and supported its own motion for summary judgment) by

arguing that the FDCPA did not apply because it was collecting

NSF checks that it had purchased outright from the original

payees. According to Check Investors, it was therefore acting


        6
      (...continued)
FTC Act.
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                                   14
as a creditor collecting its own obligations rather than as debt

collector collecting obligations owed to a third party.

        Check Investors also argued that the payors on the NSF

checks it had purchased had violated state laws pertaining to

presenting “bad checks” and by committing fraud. Accordingly,

in Check Investors view, the payors should be considered

criminals or tortfeasers, not consumers, and they were therefore

not entitled to the consumer protection of the FDCPA.

        The district court rejected these arguments, in part

because Check Investors presented no evidence to show that all

the payors in question had the intent required for criminal or

civil liability when they wrote the checks. The court also held

that persons who write NSF checks are entitled to the FDCPA’s

protections in any event. The district court thus held that Check

Investors was a “debt collector” collecting “debts” within the

meaning of the FDCPA, and that it was therefore subject to the
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                                   15
prohibitions that Act places on debt collectors’ efforts to collect

debts.       Finally, the court held that Check Investors made

material misrepresentations in the course of its collections, and

that these misrepresentations also violated the FTC Act.

         The district court permanently enjoined Check Investors

from engaging in any debt collection activities or selling any of

the debts that consumers purportedly owed to it. The court

concluded that all defendants were jointly and severally liable

to the FTC for restitution in the amount of $10,204,445.00.

Thereafter, Hutchins (No. 05-3558), and Check Investors (No.

05-3957) appealed the court’s ruling.7

   III. THE FAIR DEBT COLLECTION PRACTICES

ACT

         “The FDCPA was enacted in 1977 as an amendment to


         7
       Check Investors has filed a brief in support of its
appeal and has joined in the brief filed by Hutchins.
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                                   16
the Consumer Credit Protection Act ‘to protect consumers from

a host of unfair, harassing, and deceptive collection practices

without imposing unnecessary restrictions on ethical debt

collectors.’” Staub v. Harris, 626 F.2d 275, 276-77 (3d Cir.

1980) (quoting Consumer Credit Protection Act, S. Rep. No.

95-382, at 1-2 (1977), reprinted in 1977 U.S.C.C.A.N. 1695,

1696).     “The primary goal of the FDCPA is to protect

consumers from abusive, deceptive, and unfair debt collection

practices, including threats of violence, use of obscene

language, certain contacts with acquaintances of the consumer,

late night phone calls, and simulated legal process.” Bass v.

Stolper, Koritzinsky, Brewster & Neider, S.C., 111 F.3d 1322,

1324 (7th Cir. 1997) (citation omitted). “A basic tenet of the Act

is that all consumers, even those who have mismanaged their

financial affairs resulting in default on their debt, deserve the

right to be treated in a reasonable and civil manner.” Id.
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                                   17
(citation omitted).

        Although Check Investors uses broad strokes to paint all

of the payors of its NSF checks as deadbeats, criminals and/or

tortfeasors, Congress’s findings in enacting the FDCPA are to

the contrary. The relevant Senate report noted, inter alia, that

        [o]ne of the most frequent fallacies concerning
        debt collection legislation is the contention that
        the primary beneficiaries are “deadbeats.” In fact,
        however, there is universal agreement among
        scholars, law enforcement officials, and even debt
        collectors that the number of persons who
        willfully refuse to pay debts is minuscule.

S. Rep. No. 93-382, at 2 (1977), reprinted in 1977 U.S.C.C.A.N.

at 1696. Rather, Congress recognized that “the vast majority of

consumers who obtain credit fully intend to repay their debts.

When default occurs, it is nearly always due to an unforeseen

event such as unemployment, overextension, serious illness or

marital difficulties or divorce.”

Id. Congress also recognized that “[a]busive debt collection
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                                   18
practices contribute to the number of personal bankruptcies, to

marital instability, to the loss of jobs, and to invasions of

individual privacy.” 15 U.S.C. § 1692(a). Thus, Congress

concluded that “[t]he issue is not one of uncollected debts, but

rather whether or not consumers must lose their civil rights and

be terrorized and abused by unethical debt collectors.” H.R.

Rep. No. 95-131, at 3 (1977).

        “In the most general terms, the FDCPA prohibits a debt

collector from using certain enumerated collection methods . .

. to collect a ‘debt’ from a consumer.” Bass, 111 F.3d at 1324.

The FDCPA prohibits debt collectors from, inter alia, engaging

in any conduct “the natural consequence of which is to harass,

oppress, or abuse any person,” 15 U.S.C. § 1692d; from using

“any false, deceptive, or misleading representations or means in

connection with the collection of any debt,” 15 U.S.C. § 1692e;

or from using “unfair or unconscionable means to collect or
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                                   19
attempt to collect any debt,” 15 U.S.C. § 1692f.

        Within each broad category of prohibited conduct, the

FDCPA includes examples of specific practices that are

prohibited.      Those prohibited practices could have been

modeled on the various tactics Check Investors employed to

collect the NSF checks it purchased.       For example, the

prohibition on harassing, oppressive or abusive practices

precludes a debt collector from using abusive language, 15

U.S.C. § 1692d(2), or from repeatedly calling a consumer, 15

U.S.C. § 1692d(3). The prohibition on false, deceptive or

misleading representations precludes a debt collector from

falsely representing that a dunning letter was sent by an

attorney, 15 U.S.C. § 1692e(3), from falsely representing that

nonpayment will result in arrest or imprisonment, 15 U.S.C. §

1692e(4), or that a consumer committed a crime, 15 U.S.C. §

1692e(7).       The prohibition on unfair or unconscionable
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                                   20
practices precludes a debt collector from adding any charge to

the underlying debt unless that charge is authorized by law or

the agreement creating the debt. 15 U.S.C. § 1692f(1).

        The FDCPA allows consumers to sue an offending

creditor for actual damages, attorney’s fees and costs, as well as

statutory damages up to $1,000 . 15 U.S.C. § 1692k(a). The

FDCPA also provides the FTC with enforcement authority. 15

U.S.C. § 1692l(a).

    IV. THE FEDERAL TRADE COMMISSION ACT

        Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), prohibits,

inter alia, “unfair or deceptive acts or practices in or affecting

commerce.” Section 13(b), 15 U.S.C. § 53(b), provides that “in

proper cases the Commission may seek, and after proper proof,

the [district] court may issue, a permanent injunction.” “The

deceptive acts or practices forbidden by the [FTC] Act include

those used in the collection of debts.” Trans World Accounts,
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                                   21
Inc. v. FTC, 594 F.2d 212, 214 (9th Cir. 1979). Trans World

was a debt collection agency that sent out a series of five or six

dunning letters, in a format that closely resembled Western

Union Telegrams, that threatened immediate legal action against

the debtors if payment was not made within a specified period.

Id. In reality, however, it took Trans World about ninety days

from the receipt of the first letter to even consider whether legal

action should be taken against any individual debtor. Id.

        The FTC issued an administrative complaint charging

Trans World with the commission of unfair and deceptive

practices in violation of Section 5 of the FTC Act. Id. The

complaint alleged that the letters misrepresented the imminence

of legal action, and that they were deceptive in format because

they were made to look like Western Union telegrams. Id. An

administrative law judge entered a decision sustaining the

allegations of the complaint, and Trans World appealed to the
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                                   22
FTC. Id. The FTC adopted, in large measure, the findings and

conclusions of the ALJ and entered an order prohibiting the

practices used in the collection process. Id. On Trans World’s

petition for review, the Court of Appeals for the Ninth Circuit

found, inter alia, that there was substantial evidence supporting

the finding of deception in the use of the letter format that

closely resembled telegrams, which letters threatened legal

action when no action was contemplated. Id. at 215.

        In Floersheim v. FTC, 411 F.2d 874 (9th Cir. 1969), the

seller of forms used to help creditors collect debts petitioned for

review of a cease and desist order of the FTC. The court held

that the evidence supported the FTC’s finding that the seller’s

forms, which were mailed from the seller’s Washington, D.C.,

office even though the seller lived in and sold the forms from

Los Angeles, California, which repeated the words,

“Washington, D.C.,” and used an elaborate type style so as to
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                                   23
simulate legal documents, were deceptive in exploiting the

assumption of many low income debtors that anything that

official-looking coming from Washington, D.C., had been sent

by the federal government.

                          V. DISCUSSION

        Neither Check Investors nor Hutchins disputes the FTC’s

claim that they employed harassing and abusive tactics to

collect NSF checks or that they collected amounts in excess of

the amounts allowed by law. Rather, as noted earlier, they

argue that the FDCPA and the FTC Act do not apply to them

because they were not collecting “debts,” the people who wrote

the NSF checks were not “consumers,” and they were not “debt

collectors,” as those terms are defined in the FDCPA.8 Each


        8
       These are purely legal questions over which we have
plenary review. Centerpoint Properties v. Montgomery Ward
Holding Corp. (In re Montgomery Ward Holding Corp.), 268
                                               (continued...)
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                                   24
argument is discussed separately below.9

   A. Are the NSF Checks “Debts” Under the FDCPA?

        “A threshold requirement for application of the FDCPA

is that the prohibited practices are used in an attempt to collect

a ‘debt.’” Zimmerman v. HBO Affiliate Group, 834 F.2d 1163,

1167 (3d Cir. 1987). Congress incorporated a broad definition

of both “debt” and “debt collector” into the FDCPA in order to

achieve its remedial purpose. 15 U.S.C. §§ 1692a(5), 1692a(6).

        The FDCPA defines a “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 to the
        transaction are primarily for personal, family, or


        8
       (...continued)
F.3d 205, 208 (3d Cir. 2001).
        9
        Check Investors makes its own arguments in its
appeal and has adopted the arguments Hutchins makes in his
appeal.
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                                   25
        household purposes, whether or not such
        obligation has been reduced to judgment.

15 U.S.C. § 1692a(5) (emphasis added).

        Appellants claim that the FDCPA does not apply to them

because the NSF checks they purchased were not “debts” within

the meaning of the FDCPA. They begin by noting that all 50

states criminalize the act of writing a check knowing that it will

be dishonored; and that the law of many states creates a

presumption of knowledge and/or willfulness when a check is

written on insufficient funds and not paid within a certain period

after it has been dishonored, or after the payor receives notice

that it has been dishonored. Appellants also stress that since

writing a fraudulent check gives rise to tort liability, and since

they only attempted to collect NSF checks after a presumption

of knowledge or willfulness arose under state law, their NSF

checks were not “debts” within the meaning of the FDCPA


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                                   26
because they did not arise out of a consumer “transaction.”

Rather, according to Appellants, their NSF checks arose out of

criminal or tortious conduct.10

        Four Courts of Appeals have rejected this argument. and

held that payment with a NSF check creates a “debt” as defined

in the FDCPA. See Bass, 111 F.3d at 1322; Duffy v. Landberg,

133 F.3d 1120 (8th Cir. 1998); Charles v. Lundgren & Assocs.,

119 F.3d 739 (9th Cir. 1997); Snow v. Riddle, 143 F.3d 1350

(10 Cir. 1998).

        The Court of Appeals for the Seventh Circuit was first to

reject this argument in Bass, and its analysis has been followed

by three other courts of appeals. In Bass, the court explained:



        10
         However, Check Investors and Hutchins do not
dispute the fact that the obligors they attempted to collect
from used the checks in question to obtain “money, property,
insurance, or services primarily for personal, family, or
household purposes.”
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                                   27
        [T]he plain language of the Act defines “debt”
        quite broadly as “any obligation to pay arising out
        of a [consumer] transaction.” In examining this
        definition, we first focus on the clear and absolute
        language in the phrase, “any obligation to pay.”
        Such absolute language may not be alternatively
        read to reference only a limited set of obligations
        as appellants suggest. As long as the transaction
        creates an obligation to pay, a debt is created. We
        harbor no doubt that a check evidences the
        drawer’s obligation to pay for the purchases
        made with the check, and should the check be
        dishonored, the payment obligation remains.

111 F.3d at 1325 (citations omitted) (emphasis added); see also

Duffy, 133 F.3d at 1123 (“Since a check written by a consumer

in a transaction for goods or services evidences the ‘drawer’s

obligation to pay’ and this obligation remains even if the check

is dishonored, abusive collection practices related to the

dishonored check are prohibited by the FDCPA.”) (quoting

Bass, 111 F.3d at 1325).

        Although we have not yet addressed this precise issue,

we have held that a transaction’s status as a “debt” under the
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                                   28
FDCPA must be determined at the time that the obligation first

arose. See Pollice v. National Tax Funding, L.P., 225 F.3d 379,

400 (3d Cir. 2000). In Pollice, we held that water and sewer

obligations constituted a “debt” based on their status when they

first arose, and they remained a “debt” after assignment to a

collection agency. Thus, our view of a “debt” under the

FDCPA is consistent with the four courts of appeals that have

held that an NSF check is a “debt.”

        Nonetheless, Check Investors and Hutchins attempt to

circumvent the impact of our analysis in Pollice by relying on

our earlier decision in Zimmerman v. HBO Affiliates Group, 834

F.2d 1163 (3d Cir. 1987). In Zimmerman, we held that the

FDCPA did not apply to attempts by cable television companies

to collect money from people who allegedly stole cable

television signals by installing illegal antennas. Id. at 1167-69.

Check Investors and Hutchins now argue that since the payors
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                                   29
on its NSF checks were also subject to criminal or tort liability,

Zimmerman compels the conclusion that the FDCPA does not

apply to their collection efforts. We disagree.

        In Zimmerman, we explained that the FDCPA was

enacted to protect people who have “contracted for goods or

services and [are] unable to pay for them,” and that it was not

intended to “protect against a perceived problem with the use of

abusive practices in collecting tort settlements from alleged

tortfeasors through threats of legal action.” Id. at 1168. We

also explained this in Pollice, 225 F.3d at 401 n.24, by noting:

“[c]learly, there was no ‘debt’ in Zimmerman because the

obligations arose out of a theft rather than a ‘transaction.’”

        Check Investors and Hutchins argue that the payors on

their NSF checks are similarly situated to the “consumers” who

stole cable television signals in Zimmerman, and that, like those

“consumers,” the payors here are not entitled to the protection
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embodied in the FDCPA because they are criminals and

tortfeasors rather than “consumers.” They argue that, as in

Zimmerman, no “debt” was created by executing the NSF

checks here because there was no “transaction,” as that term is

commonly understood and as it is used in the FDCPA.

        As the court explained in Bass when rejecting identical

arguments there:

        Appellants misstate the law when they categorize
        all dishonored checks as criminal and tortious.
        Both under the common law of fraud, a specific
        intent crime, and under most criminal statutes
        which specifically address dishonored checks,
        liability attaches only if the drawer either knew or
        intended that the check be dishonored at the time
        the check was drawn. A bank may refuse
        payment on a check for a variety of reasons
        lacking in the necessary fraudulent intent:
        administrative holds on the account of which the
        drawer is unaware, bank error, and the drawer’s
        reliance on deposited checks that themselves are
        dishonored, to name a few. Even when the
        drawer is at fault for the dishonor, the requisite
        intent may be absent – for example, when the
        drawer makes a simple miscalculation or has a
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        subsequent emergency need for funds.

        We recognize that by the time a dishonored check
        has been turned over to a third party collector, the
        issuer has typically received notice of dishonor
        yet has still refused to pay. Nevertheless, an
        issuer whose intention not to pay the check arises
        only at some point after it is issued has still not,
        in most jurisdictions, committed a fraudulent or
        criminal act. The requisite knowledge or intent
        that the check be dishonored must arise at the
        time the check is written. We therefore must
        reject appellants’ argument that all dishonored
        checks are fraudulent and thus not covered by the
        [FDCPA].

111 F.3d at 1329 (emphasis in original) (footnote omitted).

        Moreover, even if some of the payors of NSF checks had

engaged in fraud at the time of the transaction, the court held in

Bass that there is no “fraud exception” in the FDCPA. Given

the explicit and unambiguous text of the FDCPA, we agree.

        In Bass, a debt collector argued that the FDCPA should

not apply to debts it was collecting because it was attempting to

collect an NSF check that was presumed to be fraudulent under
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Wisconsin law. 111 F.3d at 1329. The court of appeals rejected

that argument because the presumption that the check writer

engaged in fraud was rebuttable under Wisconsin law, and

because the debt collector had not made the showing required

to establish fraudulent intent under state law. Id. In rejecting

the defendants’ argument, the court commented that, even if the

requisite intent had been established, the court would be

reluctant to “create a fraud exception where none exists in the

[FDCPA’s] text.” Id. at 1329-30. The court explained:

        A review of the legislative history reveals that
        Congress considered the entire field of defaulting
        debtors, stating its belief that most debtors fully
        intended to repay their debts. “Most” is not “all,”
        however, yet Congress still chose not to exempt
        debt collectors from following the Act if they
        could prove that the consumer intended his check
        to be dishonored or accepted credit from a
        merchant intending default. No section of the Act
        requires an inquiry into worthiness of the debtor,
        or purports to protect only “deserving” debtors.
        To the contrary, Congress has clearly indicated its
        belief that no consumer deserves to be abused in
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               the collection process. Moreover, we think that
               such a fraud exception would violate the spirit of
               the Act. The Act’s singular focus is on curbing
               abusive and deceptive collection practices, not
               abusive and deceptive consumer payment
               practices. We are not unaware that in some cases
               . . . the absence of a fraud exception will allow
               consumers who intend to pass worthless checks to
               invoke the protections of the FDCPA. . . . Absent
               an explicit showing that Congress intended a
               fraud exception to the Act, the wrong occasioned
               by debtor fraud is more appropriately redressed
               under the statutory and common law remedies
               already in place, not by a judicially-created
               exception that selectively gives a green light to
               the very abuses proscribed by the Act.

       Id. at 1330.

               The court thereafter amplified this discussion in Keele v.

       Wexler, 149 F.3d 589 (7th Cir. 1998).          There, the court

       explained:

We touched upon a similar request in Bass without formally deciding the
issue, but did express at length “our discomfort with the proposition that the
courts should create a fraud exception where none exists in the Act’s text.”
Unfortunately for the [debt collector], this “discomfort” has not subsided since
Bass, and it is time we put to rest any lingering doubts as to the nonexistence
of a fraud exception to the FDCPA.
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                                          34
Id. at 595 (citation omitted). The court’s analysis continued:

        [T]he FDCPA’s legislative history reflects that
        Congress acknowledged there may be a “number
        of persons who willfully refuse to pay just debts,”
        but apparently “believe[d] that the serious and
        widespread abuses” of debt collectors outweighed
        the necessity to carve out an exception for these
        so called “deadbeats.” If the Act was designed to
        protect those who willfully refused to pay their
        debts, it makes little sense why consumers who
        write checks, knowing they will be dishonored,
        should not enjoy the same protections.

Id. at 596 (citations omitted).

        We agree that, given the legislative history of the

FDCPA, its structure and text, we could not craft the kind of

fraud exception that underlies the arguments of Check Investors

without amending the statute.

  B. The Payors of the NSF Checks are “Consumers”
under the FDCPA.

        As noted earlier, “[t]he FDCPA was enacted in 1997 as

an amendment to the Consumer Credit Protection Act to protect
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consumers from a host of unfair, harassing, and deceptive

collection practices without imposing unnecessary restrictions

on ethical debt collectors.” Staub, 626 F.2d at 276-77 (citation

and internal quotations omitted). Check Investors and Hutchins

argue that the payors of the NSF checks are not “consumers”

and therefore are not protected by the FDCPA.                 More

specifically, they argue that

        [a]n individual’s conduct, when taken as a whole,
        determines whether he or she qualifies as a
        consumer for FDCPA purposes. An individual
        who issues a NSF check or a closed account
        check, in exchange for money, goods, services or
        insurance, and who subsequently fails to make
        restitution within the criminal code statutory
        period established by the state legislature, is not
        a FDCPA consumer because the individual has
        not acted like a consumer.

However, the argument ignores that the FTC’s cause of action

is controlled by the FDCPA. That governing statute defines

“consumer” as “any natural person obligated or allegedly


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obligated to pay any debt.” 15 U.S.C. § 1692a(3) (emphasis

added). Even if we accept the claim that these payors are

criminals and tortfeasors, those labels would advance neither

our inquiry, nor Appellants’ position, because “any” is all

inclusive and does not exclude criminals or tortfeasors. Rather,

it unambiguously includes them.         As noted above in our

discussion of the analysis in Bass and Keele, it is clear that

Congress realized that some people who write “bad checks” do

so knowingly and willfully and that their conduct is fraudulent.

It is just as clear that Congress enacted a definition of

“consumer” that did not exclude such persons from the

protections they would otherwise be afforded under the

FDCPA. Yet, Appellants’ argument requires that we ignore the

phrase: “any natural person,” that Congress used to define

“consumer.”

        Just as the obligations underlying the NSF checks are
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                                   37
“debts” that the payor remains obligated to pay, see Duffy, 133

F.3d at 1123 (“[A] check written by a consumer in a transaction

for goods or services evidences the “drawer’s obligation to pay”

and this obligation remains even if the check is dishonored. . .

.”), the payors of those checks are “consumers” within the

meaning of the FDCPA.

C. Appellants are “Debt Collectors” and not “Creditors”
                  Under the FDCPA.

        “The FDCPA’s provisions generally apply only to debt

collectors.” Pollice, 225 F.3d at 403 (citation and internal

quotations omitted). “Creditors – as opposed to debt collectors

– generally are not subject to the FDCPA.” Id. (citation and

internal quotations omitted).       A “debt collector” is broadly

defined as one who attempts to collect debts “owed or due or

asserted to be owed or due another,” 15 U.S.C. § 1692a(6). A

“creditor” is one who “offers or extends to offer credit creating


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a debt or to whom a debt is owed.” 15 U.S.C. § 1692(a)(4).

        The district court held that Check Investors and

Hutchins11 are “debt collectors” as defined by the FDCPA

because Check Investors obtained the “debts,” i.e., the NSF

checks, after they were in default.12 It relied on our decision in

Pollice v. National Tax Funding, L.P., supra. There, National

Tax Funding (“NTF”) purchased homeowner’s water and sewer

obligations from a municipality and sought to collect on those


        11
          Attorneys who regularly engage in debt collection or
debt collection litigation are covered by the FDCPA, and their
litigation activities must comply with the requirements of the
FDCPA. Heintz v. Jenkins, 514 U.S. 291, 292 (1995).
        12
         Hutchins contends that because a check is an
unconditional promise to pay, a check can never be in default.
We disagree. “Default” is “the omission or failure to perform
a legal or contractual duty; esp., the failure to pay a debt
when due.” Blacks Law Dictionary 449 (8th ed. 2004).
Because the checks Check Investors purchased from
Telecheck had already been dishonored, they were in default
when purchased. Holmes v. Telecredit Service Corp., 735 F.
Supp. 1289, 1293 (D. Del. 1990).
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obligations for its own benefit. We held that water and sewer

obligations are “debts” within the meaning of the FDCPA. We

also held that NTF was a “debt collector” and that the district

court should not have dismissed FDCPA claims against it. We

explained:

        Courts have indicated that an assignee of an
        obligation is not a “debt collector” if the
        obligation is not in default at the time of
        assignment; conversely, an assignee may be
        deemed a “debt collector” if the obligation is
        already in default when it is assigned. . . . Here,
        there is no dispute that the various claims
        assigned to NTF were in default prior to their
        assignment to NTF. Further, there is no question
        that the “principal purpose” of NTF’s business is
        the “collection of any debts,” namely defaulted
        obligations which it purchases from
        municipalities.

225 F.3d at 403-404 (citations omitted). This is equally true of

Hutchins and Check Investors. Nevertheless, they contend that

the district court’s holding that they are “debt collectors” was



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error because they are actually “creditors”13 collecting debts

actually owed to them, as opposed to “debt collectors”

collecting obligations owed to someone else. The FDCPA

defines “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 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) (emphasis added). Appellants contend

that because Check Investors bought the NSF checks from

Telecheck, Check Investors is the actual owner of those checks

and is therefore not collecting “debts of another,” as a debt

collector would.        Rather, according to Appellants, Check

Investors is actually the entity “to whom a debt is owed.” They


        13
         The district court held that Check Investors and
Hutchins were “debt collectors” as defined in the FDCPA. It
did not address their claim that they were “creditors.”
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claim further that because Check Investors is owed the debt, it

did not “receive[] an assignment or transfer” of the NSF checks

“solely for the purpose of” collecting the debt for Telecheck.

Thus, Appellants argue that Check Investors satisfies the

statutory definition of a “creditor,” and, therefore, they are not

subject to the provisions of the FDCPA. Although the argument

is rather clever, it is wrong. It would elevate form over

substance and weave a technical loophole into the fabric of the

FDCPA big enough to devour all of the protections Congress

intended in enacting that legislation.

        Admittedly, Check Investors appears at first blush to

satisfy the statutory definition of a creditor. As the Court of

Appeals for the Seventh Circuit noted in Schlosser v. Fairbanks

Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003), “for debts that

do not originate with the one attempting collection, but are

acquired from another, the collection activity related to that debt
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could logically fall into either category.”

However, as to a specific debt, one cannot be both a “creditor”

and a “debt collector,” as defined in the FDCPA, because those

terms are mutually exclusive.           As the court explained in

Schlosser, “[i]f the one who acquired the debt continues to

service it, it is acting much like the original creditor that created

the debt. On the other hand, if it simply acquires the debt for

collection, it is acting more like a debt collector.” Id. Thus, in

determining if one is a “creditor” or a “debt collector,” courts

have focused on the status of the debt at the time it was

acquired. 15 U.S.C. § 1692a controls that inquiry. That

provision provides in relevant part:

        (6) The term “debt collector” means 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
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        term does not include –
        (F) any person collecting or attempting to collect
        any debt owed or due 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)(F)(iii).           In Pollice, we relied on this

provision of the FDCPA to hold that one attempting to collect

a debt is a “debt collector” under the FDCPA if the debt in

question was in default when acquired.              Conversely, we

concluded that § 1692a means that an entity is a creditor if the

debt it is attempting to collect was not in default when it was

acquired.     225 F.3d at 403-04.         Other courts agree.    See

Schlosser, 323 F.3d at 536; Bailey v. Security Nat’l Servicing

Corp., 154 F.3d 384, 387 (7th Cir. 1998); Whitaker v. Ameritech

Corp., 129 F.3d 952, 958 (7th Cir. 1997); Wadlington v. Credit

Acceptance Corp., 76 F.3d 103, 106-07 (6th Cir. 1996); Perry

v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir. 1985).


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         Admittedly, focusing on the status of the debt when it

was acquired overlooks the fact that the person engaging in the

collection activity may actually be owed the debt and is,

therefore, at least nominally a creditor. Nevertheless, pursuant

to § 1692a, Congress has unambiguously directed our focus to

the time the debt was acquired in determining whether one is

acting as a creditor or debt collector under the FDCPA. The

legislative history explains the wisdom of that provision. The

term “debt collector,” subject to the exclusions discussed below,

was intended to cover all third persons who regularly collect

debts.    “The primary persons intended to be covered are

independent debt collectors.” S. Rep. No. 95-382, at 2, 1997

U.S.C.A.A. at 1697. The Senate Committee explained that the

FDCPA was limited to third-party collectors of past due debts

because, unlike creditors, “who generally are restrained by the

desire to protect their good will when collecting past due
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accounts,” independent collectors are likely to have “no future

contact with the consumer and often are unconcerned with the

consumer’s opinion of them.” Id. at 1696.

        Thus, as the court explained in Schlosser:

        Focusing on the status of the obligation asserted
        by the assignee is reasonable in light of the
        conduct regulated by the statute. For those who
        acquire debts originated by others, the distinction
        drawn by the statute – whether the loan was in
        default at the time of the assignment – makes
        sense as an indication of whether the activity
        directed at the consumer will be servicing or
        collection. If the loan is current when it is
        acquired, the relationship between the assignee
        and the debtor is, for purposes of regulating
        communications and collections practices,
        effectively the same as that between originator
        and the debtor. If the loan is in default, no
        ongoing relationship is likely and the only
        activity will be collection.

323 F.3d at 538.

        Here, Check Investors acquired the defaulted checks only

for collection purposes. Indeed, it is in business to do just that:


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acquire seriously defaulted debt, the age of which allows Check

Investors to acquire it for a few pennies on the dollar. The low

cost of acquisition allows for substantial profit if the checks are

subsequently collected.14 This is particularly true given the size

of the “fees” that Check Investors adds on to each check.

        The fact that the NSF checks were purchased and owned

outright by Check Investors, rather than Check Investors merely

receiving an assignment of the rights of the original payee is

therefore irrelevant for purposes of determining whether Check

Investors was acting as a debt collector or creditor. Check

Investors clearly had no intention of servicing the debt. Check

Investors and Hutchins do not dispute the FTC’s claim that they



        14
         This is particularly true given the size of the “fees”
that Check Investors adds to each check. Their tactics then
allow them a remarkable measure of success even though
prior debt collection efforts have failed. The result is a very
profitable enterprise.
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employed harassing and abusive tactics to collect the debts they

acquired and added “collection fees” that exceeded limitations

imposed by state laws. No merchant worried about goodwill or

the future of his/her business would have engaged in the kind of

conduct that was the daily fare of the collectors at Check

Investors.       Neither Check Investors nor Hutchinson intended

any future contact with the payees of the NSF checks they

acquired, and their collection practices reflected as much. The

collectors working there resorted to whatever harassment

appeared likely to succeed; the only limit appears to have been

a given tactic’s likelihood of bearing fruit by yielding a profit.

If the future of Appellants’ business was in any way dependent

upon their goodwill, they would not have dreamed of

unleashing their collectors in this manner.     Not only do we

conclude that Appellants are “debt collectors” rather than

“creditors,” we believe that their course of conduct exemplifies
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                                   48
why Congress enacted the FDCPA and the wisdom of doing so.

It also shows why Congress has directed us to focus on whether

a debt was in default when acquired to determine the status of

“creditor” vs. “debt collector.”

           D. The Federal Trade Commission Act.

        As noted earlier, Hutchins and Check Investors do not

dispute the FTC’s claim that their collection practices

constituted unfair and deceptive practices under the FTC Act.

Instead, they argue that the payors of their NSF checks were not

“consumers.” “[T]he deceptive acts or practices forbidden by

the [FTC Act] include those used in the collection of debts.”

Trans World Accounts, Inc. v. FTC, 594 F.2d 212, 214 (9th Cir.

1979). Accordingly, we must also reject the argument that the

payors of the NSF checks were not “consumers” under the FTC

Act.

        Nevertheless, Check Investors argues that
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        [t]his is not a case where consumers are being
        solicited to buy time-shares in non-existent
        condos or swamp land in Florida, and that the
        district court erred in determining that the Check
        Investors’ practices were, in fact, deceptive as to
        a consumer.

Selling time shares for swamp land in Florida is but one kind of

deceptive business practice. The collection techniques involved

here are another. Moreover, Check Investors offered nothing in

the district court to challenge the FTC’s allegations that its

collection practices included material misrepresentations in

violation of the FTC Act. Accordingly, we will not consider

that argument, raised for the first time on appeal, absent a

compelling circumstance requiring us to consider it. Srien v.

Frankford Trust Co., 323 F.3d 214, 224 n.8 (3d Cir. 2003).

Check Investors does not allege the existence of any compelling

circumstance, and we can think of none. Thus, we will not

consider its argument that the district court erred in finding that


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its practices were deceptive to a consumer.

                         VI. CONCLUSION

         For all of the above reasons, we will affirm the district

court.




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