In a decision filed on October 3, 2016, a United States District Court Judge in Minnesota has ruled that a company licensed to do business as a debt collector, servicing a debt that is not yet in default, is not a “debt collector” under the Fair Debt Collection Practices Act (FDCPA).

The case is Diaz v. Viking Client Services, (Case No. 16-cv-336 U.S. District Court, District of Minnesota). A copy of the Memorandum and Order can be found here.


On November 20, 2015 Plaintiff Rosendo Diaz (Diaz) rented a car from Avis Budget Group, Inc. (Avis). The rental agreement Diaz signed required him to return the car “in the same condition [he] received it in . . . .” Diaz was responsible “for all loss of or damage to the car regardless of cause, or who, or what caused it.” Diaz agreed to pay any “administrative fee” associated with damage to the car, a “violation of the agreement,” or attempts to collect on past due amounts. The agreement stated: 

If you do not pay all amounts due to us under this agreement upon demand, . . . including . . . for loss of or damage to the car . . . you agree to pay a late charge of 1 1/2% per month on the past due balance or the highest rate permitted by applicable law . . . .

Diaz returned the car on November 23, 2015 and claimed that it was “free of any damage or defect.” However, according to Diaz, after he returned the vehicle “Avis charged him for damage he allegedly caused to the vehicle . . . .”

Avis uses Sedgwick Claims Management Services, Inc. (Sedgwick) to collect debts related to damaged vehicles. Sedgwick then engaged Viking Client Services (Viking) to collect on Diaz’s alleged debt.

Diaz alleged that Viking is a “consumer and commercial debt collection agency”, licensed to do business as such in Minnesota.

On December 29, 2015, Diaz received a letter from Viking stating that Diaz owed $721.27 for damage to the vehicle he rented in November. In relevant part, that letter stated:

Viking provides claims administration services for Avis. … The vehicle you rented from Avis was damaged on 12/08/15 while in your possession. Per your rental contract, you are responsible for the costs associated with the damage regardless of fault.”

It went on to state that the damages amounted to $607.72, the loss of use charge was $13.55, and also assessed a $100 “administrative fee.” The letter provided Diaz with information about how to pay the amount he allegedly owed and how to contact Viking with any questions. The words “debt” and “default” were not used in the letter and Viking did not identify itself as a debt collector.

There is no evidence, nor even any allegation by the plaintiff, that at any time before this letter was sent to Diaz, Avis, Sedgwick, or Viking made any demand that he pay for the alleged damage.

Diaz filed this action against Viking under the FDCPA asserting that the December 29 Letter was “false, deceptive, misleading, unfair, and unconscionable,” and did not contain the required “mini-Miranda warning.”

Diaz also believes Viking sent substantially similar letters to others under similar circumstances and sought to bring the matter as a class action.

Viking moved to dismiss, arguing that Diaz failed to state a claim because Viking was not a “debt collector” and Diaz’s debt was not “in default.”

The Court’s Decision

The motion to dismiss was heard by the Honorable Susan Richard Nelson, United States District Judge. Judge Nelson agreed with the Viking and dismissed the complaint without prejudice.

Judge Nelson wrote:

“The parties’ arguments center on whether Viking is a “debt collector” subject to the FDCPA. That question in turn requires assessing whether the debt at issue was “in default” or treated as if it were.

A “debt collector” is “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). However, explicitly excluded from the definition of “debt collector” is “any person collecting or attempting to collect any debt . . . to the extent such activity . . . 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) (emphasis added).

Whether an entity is subject to the FDCPA as a debt collector depends on the default status of the debt at the time it was obtained. A person who obtained the debt at issue when the debt was not in default cannot be liable as a debt collector under the FDCPA.”). Additionally, a defendant is not a debt collector if the defendant is servicing, rather than collecting, the plaintiff’s debt.

The FDCPA does not specifically address when a debt is in default, or acquired as such, but case law provides some guidance. Generally, a debt does not go into default at its inception or immediately after payment first becomes due.

Here, Diaz conflates the act of incurring a debt (i.e., violating the Rental Agreement) with a debt being in default. Returning a damaged vehicle might violate the Rental Agreement and create an obligation to pay (i.e., a debt), but that is a distinct consideration from whether that debt is in default. This distinction is clear in the terms of the Rental Agreement. Before imposing any “penalty” for nonpayment (i.e., treating the debt as in default), Viking had to first notify Diaz of the claim. There is no evidence, or even an allegation, that Avis, Sedgwick, or Viking ever notified Diaz of the claim before the December 29 Letter. Under these circumstances, Diaz could not simultaneously incur the alleged debt and have that debt be in default.

Thus, the Court holds that Viking did not acquire Diaz’s alleged debt in default.”

Similarly, Judge Nelson also determined that Viking never treated Diaz’s debt as if it were in default.

Judge Nelson wrote:

“An entity is a debt collector under the FDCPA if it treats the debt it acquired as if it were in default.

Factors to consider when deciding whether a debt was treated as in default include:

The number of times a creditor has requested payment, the time that has elapsed since the first request, the urgency of the language used in those requests, the debtor’s knowledge that she has been referred to a third party, the creditor’s internal policies, any representations made by or on behalf of the creditor . . . about how it collects debts, and apparent attempts by the creditor or third party to circumvent the FDCPA’s consumer protections.

The fact that Viking is a licensed debt collector is not dispositive of whether, in this instance, it acted in that capacity. The December 29 Letter explicitly stated that Viking’s role was that of a claims administrator. In that capacity, Viking informed Diaz of the claim that he returned the vehicle damaged and the amount he was obligated to pay as a result.

In short, even taking Diaz’s allegations in the most favorable light to him, he has not plausibly alleged that Viking treated his debt as if it were in default. Viking sent a single letter to Diaz, approximately one month after he returned the vehicle. That letter, for the first time, notified Diaz of Viking’s claim that he damaged the vehicle and owed approximately $700. The letter did not contain the words “debt” or “default,” nor did it employ any of the aggressive, urgent language typically found in dunning letters. Viking did not identify itself as a “debt collector,” but instead made clear that it was providing claims administration services for Avis. Before the December 29 Letter, Diaz received no communications whatsoever from Avis, Sedgwick, or Viking about the claim. Nor did he receive any further communications about the claim after he disputed it.”

insideARM Perspective

This is a very interesting case for ARM entities doing any type of servicing of pre-default accounts.  The FDCPA exception in the definition of a “debt collector” for a person working on debt “not in default” is clear and murky at the same time. This opinion provides excellent reasoning and sheds light on the subject.

This exception is most often utilized by ARM companies providing pre-charge-off, “first party” services. In fact, that exception is the underlying basis for the Federal Trade Commission’s May 23, 2002 “DeMayo” Opinion letter on first party servicing. (See our August 10, 2015 article on the DeMayo opinion.)

This exception is also often utilized in the healthcare receivables arena with ARM companies functioning as Extended Business Offices for healthcare providers. That work is also often performed in a “first party” capacity.

However, in this case the work performed by Viking was done, not in a first party capacity, but in the Viking name.  This is a very positive case for the ARM industry.

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