CHAD SCHLOSSER and FRANCES SCHLOSSER v. Fairbanks Capital Corporation

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 01-3487
C HAD S CHLOSSER and F RANCES S CHLOSSER ,
Plaintiffs-Appellants,
v.
F AIRBANKS C APITAL C ORPORATION ,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Central District of Illinois.
No. 2:01 C 2121—Michael P. McCuskey, Judge.
____________
A RGUED F EBRUARY 11, 2002—D ECIDED M ARCH 20, 2003
____________
Before R IPPLE , D IANE P. W OOD , and W ILLIAMS , Circuit
Judges.
W ILLIAMS , Circuit Judge. Fairbanks Capital Corp.
acquired 12,800 allegedly delinquent high-interest mort-
gages from ContiMortgage, including one owed by the
plaintiffs, Chad and Frances Schlosser. Identifying itself
as a debt collector, Fairbanks sent the Schlossers a letter
asserting that the debt was in default. Fairbanks was
mistaken; the Schlossers were not in default. The Schlos-
sers filed suit claiming that Fairbanks’s letter failed to
notify them of their right to contest the debt, as required
by the Fair Debt Collection Practices Act (FDCPA), 15

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2 No. 01-3487
U.S.C. § 1692g(a). Fairbanks’s mistake, as it turned out,
worked to its advantage: the district court concluded that,
because the debt was not actually in default when Fair-
banks acquired it, Fairbanks was not a debt collector
within the meaning of the FDCPA. The court granted
Fairbanks’s motion to dismiss, and the Schlossers appeal.
We disagree with the district court’s interpretation of the
FDCPA and therefore reverse.
I. BACKGROUND
Fairbanks purchased the Schlossers’ mortgage from
ContiMortgage as part of Fairbanks’s acquisition of 128,000
subprime mortgages, 10% of which were identified as in
default. According to ContiMortgage’s records, the Schlos-
sers’ mortgage was delinquent at the time of the transfer,
and Fairbanks treated it as such. It sent a letter to the
Schlossers, identifying itself as a debt collector, notifying
the Schlossers that they were in default, and attempting
to collect:
DEMAND LETTER—YOU COULD LOSE YOUR
HOME! . . .
This letter constitutes formal notice of default
under the terms of the Note and Deed of Trust or
Mortgage because of failure to make payments
required. . . .
This letter is a formal demand to pay the amounts
due. In the event that these sums are not paid to
Fairbanks Capital Corp. “Fairbanks” within 30
days of this letter the entire unpaid balance, to-
gether with accrued interest, legal fees and ex-
penses, WILL BE ACCELERATED and foreclo-
sure proceedings will be instituted. . . .
You have the right to bring a court action if you
claim that the loan is not in default or if you be-

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No. 01-3487 3
lieve that you have any other defense to the acceler-
ation and sale. . . .
This letter is from a debt collector and is an at-
tempt to collect a debt. Any information obtained
will be used for that purpose.
When the Schlossers tried to make their regular monthly
payment to Fairbanks, Fairbanks refused, again asserting
that the loan was in default, and instead instituted fore-
closure proceedings. The Schlossers sent letters insisting
that they weren’t in default and eventually Fairbanks
caused the foreclosure action to be dismissed.
The Schlossers filed suit against Fairbanks for violation
of the FDCPA, claiming (on behalf of themselves and a
class of similar debtors) that Fairbanks’s letter did not
notify them of their right to contest the debt in writ-
ing, which would have required Fairbanks to verify the
debt before continuing collection activity. See 15 U.S.C.
§ 1692g(a)(4). They also asserted an individual claim
under the Illinois Consumer Fraud Act, 815 Ill. Comp. Stat.
505/2. The district court granted Fairbanks’s motion to
dismiss the FDCPA claim, denied as moot the Schlossers’
motion for class certification, and declined to take sup-
plemental jurisdiction over the state law claim. The
Schlossers appeal.
II. ANALYSIS
As the district court recognized, the FDCPA distin-
guishes between “debt collectors” and “creditors.” Credi-
tors, “who generally are restrained by the desire to protect
their good will when collecting past due accounts,” S. Rep.
95-382, at 2 (1977), reprinted in 1977 U.S.C.C.A.N. 1695,
1696, are not covered by the Act. Instead, the Act is
aimed at debt collectors, who may have “no future contact
with the consumer and often are unconcerned with the

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4 No. 01-3487
consumer’s opinion of them.” See id. In general, a creditor
is broadly defined as one who “offers or extends credit
creating a debt or to whom a debt is owed,” 15 U.S.C.
§ 1692a(4), whereas a debt collector is one who attempts
to collect debts “owed or due or asserted to be owed or
due another.” Id. § 1692a(6).
For purposes of applying the Act to a particular debt,
these two categories—debt collectors and creditors—are
mutually exclusive. However, for debts that do not origi-
nate with the one attempting collection, but are acquired
from another, the collection activity related to that debt
could logically fall into either category. If 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 collec-
tion, it is acting more like a debt collector. To distinguish
between these two possibilities, the Act uses the status
of the debt at the time of the assignment:
(6) The term “debt collector” means any person
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 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 (emphasis added). In other words, the
Act treats assignees as debt collectors if the debt sought
to be collected was in default when acquired by the as-
signee, and as creditors if it was not. See Bailey v. Sec. Nat’l
Serving Corp., 154 F.3d 384, 387 (7th Cir. 1998); Whittaker
v. Ameritech Corp., 129 F.3d 952, 958 (7th Cir. 1998); see
also Pollice v. Nat’l Tax Funding, L.P., 225 F.3d 379, 403-04

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No. 01-3487 5
(3d Cir. 2000); 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).
Fairbanks argues (and the district court held) that
under the plain language of the statutory definition, it is
not a debt collector because the Schlossers’ loan was
not actually in default when Fairbanks acquired it. Fair-
banks relies on Bailey, in which we held that a mortgage
servicing company was not a debt collector under the
FDCPA when it attempted to collect on a forbearance
agreement acquired from HUD. See 154 F.3d at 388.
Payments on that agreement were current, but the orig-
inal mortgage, which was replaced by the forbearance
agreement, had been in default. Id. We held that “[c]om-
mon sense and the plain meaning” of the statute dictated
application of the exclusion in § 1692a(6)(F)(iii) because
the defendant was not attempting to collect on the orig-
inal note, but rather the forbearance agreement, which
was not in default at the time it was acquired. Id. at 387-88.
Although, as in Bailey, the debt in this case was not
actually in default, Fairbanks acquired it as a debt in
default, and its collection activities were based on that
understanding. As applied to these circumstances, the
meaning of § 1692a(6)(F)(iii) is less obvious than it was
in Bailey, which did not address the question posed by
this case: do Fairbanks’s mistaken assertions and collec-
tion activity have any relevance to the application of
the exclusion, or does it depend only on the actual status
of the loan when it was acquired? We have found no
opinions addressing this question, which we review
de novo, assuming for purposes of the motion to dismiss
that the allegations of the complaint are true. See
Marshall-Mosby v. Corporate Receivables, Inc., 205 F.3d
323, 326 (7th Cir. 2000).
Fairbanks’s interpretation, which exempts its collection
activities from the statute if the debt was not actually in

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6 No. 01-3487
default when acquired, produces results that are odd in
light of the conduct regulated by the statute. For ex-
ample, § 1692g, upon which the Schlossers’ suit is based,
requires debt collectors to notify the debtor that she may
contest the debt in writing, and that if she does, the
collector will obtain verification of the debt. 15 U.S.C.
§ 1692g(a). This validation provision is aimed at pre-
venting collection efforts based on mistaken informa-
tion. See S. Rep. No. 95-382, at 4 (1977), reprinted in 1977
U.S.C.C.A.N. 1695, 1699. Yet Fairbanks’s interpretation
makes its mistake about the status of the loan irrelevant.
So those like Fairbanks that obtain a mix of loans, only
some of which are in default, would be subject to the
FDCPA if they fail to provide the required notice of the
mechanism for correcting mistakes when they attempt to
collect a loan they assert is in default—but only as to
those loans about which they are not mistaken. And the
same would be true for professional debt collectors in the
business of acquiring defaulted loans for collection; debtors
correctly asserted as being in default when the loan was
acquired could challenge the failure to provide notices
aimed at correcting mistakes, while those mistakenly
identified as in default would have no recourse under the
statute. We cannot believe that Congress intended such
implausible results, and therefore, even if Fairbanks’s
reading is the most straightforward, it is not necessarily
the correct one:
Usually when a statutory provision is clear on its
face the court stops there, in order to preserve
language as an effective medium of communica-
tion from legislatures to courts. If judges won’t
defer to clear statutory language, legislators will
have difficulty imparting a stable meaning to the
statutes they enact. But if the clear language, when
read in the context of the statute as a whole or of
the commercial or other real-world (as opposed to

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No. 01-3487 7
law-world or word-world) activity that the statute
is regulating, points to an unreasonable result,
courts do not consider themselves bound by “plain
meaning,” but have recourse to other interpretive
tools in an effort to make sense of the statute.
Krzalic v. Republic Title Co., 314 F.3d 875, 879-80 (7th
Cir. 2002) (citing Public Citizen v. U.S. Dep’t of Justice, 491
U.S. 440, 453-55 (1989); Green v. Bock Laundry Mach. Co.,
490 U.S. 504, 527 (1989) (Scalia, J., concurring); AM Int’l,
Inc. v. Graphic Mgmt. Assocs., Inc., 44 F.3d 572, 577 (7th
Cir. 1995)); see also United States v. X-Citement Video, Inc.,
513 U.S. 64, 69-70 (1994); Foufas v. Dru, 319 F.3d 284, 287
(7th Cir. 2003).
We think the language of § 1692a(6)(F)(iii) is suscep-
tible to an alternative interpretation, one that avoids
these odd results and is more consistent with the rest of
the statute. Fairbanks’s interpretation narrowly focuses
on the limitation in subparagraph (iii) regarding the de-
fault status of the debt. See 15 U.S.C. § 1692a(6)(F)(iii)
(“concerns a debt which was not in default”). But the
antecedent of that limitation is “such activity,” which in
turn refers to “collecting or attempting to collect any
debt owed or due or asserted to be owed or due.” See id.
§ 1692a(6)(F). This suggests that the relevant status is that
of the debt or asserted debt that is the subject of the
collection activity, particularly when read along with the
statute’s definition of “debt” as an “obligation or alleged
obligation,” see id. § 1692a(5), which (along with other
definitions in the Act, see, e.g., id. § 1692a(3) (defining “con-
sumer” as one “obligated or allegedly obligated to pay
any debt”)) extends the reach of the statute to collection
activities without regard to whether the debt sought to
be collected is actually owed. See Schroyer v. Frankel,
197 F.3d 1170, 1178 (6th Cir. 1999) (“[T]he FDCPA holds
‘debt collectors liable for various abusive, deceptive, and
unfair debt collection practices regardless of whether the

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8 No. 01-3487
debt is valid.’ ”) (quoting McCartney v. First City Bank, 970
F.2d 45 (5th Cir. 1992)); see also Baker v. G. C. Servs. Corp.,
677 F.2d 775, 777 (9th Cir. 1982).
Focusing on the status of the obligation asserted by
the assignee is reasonable in light of the conduct regu-
lated by the statute. For those who acquire debts orig-
inated 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 collection
practices, effectively the same as that between the origina-
tor and the debtor. If the loan is in default, no ongoing
relationship is likely and the only activity will be collec-
tion. But if the parties to the assignment are mistaken
about the true status, that status will not determine the
nature of the activities directed at the consumer. It makes
little sense, in terms of the conduct sought to be regu-
lated, to exempt an assignee from the application of the
FDCPA based on a status it is unaware of and that is
contrary to its assertions to the debtor. The assignee
would have little incentive to acquire accurate informa-
tion about the status of the loan because, in the context
of the mistake in this case, its ignorance leaves it free
from the statute’s requirements.
It is of course conceivable that Congress intended a
bright-line rule based on the actual status of the debt at
the time of assignment without regard to the assignee’s
knowledge or assertions about the debt, even if such a
rule would be under-inclusive. But another provision of
the statute suggests otherwise; according to the parallel
exclusion for assignees from the statute’s definition of
“creditors” (read together with the definition of debt in
§ 1692a(5)), the purpose of the acquisition matters:

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No. 01-3487 9
1 If the mistake in this case went the other way, and Fairbanks
purchased the loan for the purpose of servicing and treated it
as such, but it turned out to actually be in default, then under
§ 1692a(4) it would be classified as a creditor and therefore
outside the scope of the Act.
such term [creditor] does not include any person
to the extent that he receives an assignment or
transfer of [an obligation or alleged obligation] in
default solely for the purpose of facilitating col-
lection of such debt for another.
See 15 U.S.C. § 1692a(4). Under this definition, Fairbanks
is not a creditor because it received an assignment of
“an alleged obligation in default” solely for the purpose
of facilitating collection (or so we could reasonably infer
from the allegations of the complaint). If this view of
§ 1692a(4) is correct, then Fairbanks cannot be right that
it is not a debt collector. The structure of the Act suggests
that it must be one or the other. 1
Fairbanks, relying exclusively on its textual argument
based on § 1692a(6)(F)(iii), does not attempt to recon-
cile its interpretation with the definition of creditor in
§ 1692a(4), nor does it present any evidence that Congress
intended an interpretation that creates the implausible
results we described earlier. See Green, 490 U.S. at 527
(Scalia, J., concurring) (rejecting interpretation based on
plain meaning because “counsel have not provided, nor
have we discovered, a shred of evidence that anyone
has ever proposed or assumed such a bizarre disposition”).
We therefore reject Fairbanks’s interpretation and hold
that, based on the allegations of the complaint, the ex-
clusion in § 1692a(6)(F)(iii) does not apply because Fair-
banks attempted to collect on a debt that it asserted to
be in default and because that asserted default existed
when Fairbanks acquired the debt.

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10 No. 01-3487
III. CONCLUSION
The judgment of the district court is R EVERSED and the
case is R EMANDED for further proceedings.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-20-03

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