978-1285770178 Case Printout Case CPC-24-08 Part 1

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F.T.C. v. Check Investors, Inc.

502 F.3d 159

United States Court of Appeals,

Third Circuit.

Elizabeth M. Sussman; Charles T. Hutchins.

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

Appellants No. 3957.

FEDERAL TRADE COMMISSION

CHECK INVESTORS, INC.; Check Enforcement; Jaredco, Inc.; Barry S.

C.A.3 (N.J.),2007

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

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.

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.

state.

Check Investors used both dunning letters and phone 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

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 have any intentions of working this matter out with you voluntarily. You

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. FN4

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

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

Investors FN5 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

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.

FN5. Barry Sussman’s wife, Elisabeth Sussman, was also named as a

injunctive provisions and the asset freeze of the TRO.

FN6. 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 FTC Act.

Both parties thereafter filed cross-motions for summary judgment. The district

it had purchased outright from the original payees. According to Check Investors,

it was therefore acting 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

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 prohibitions that Act places on debt collectors’ efforts to

collect debts. Finally, the court held that Check Investors made material

Hutchins (No. 05-3558), and Check Investors (No. 05-3957) appealed the court’s

ruling.FN7

FN7. Check Investors has filed a brief in support of its appeal and has joined in

the brief filed by Hutchins.

III. THE FAIR DEBT COLLECTION PRACTICES ACT

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

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

Id. Congress also recognized that “[a]busive debt collection 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. § 1692a. 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

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 attempt to collect any debt,” 15 U.S.C. §

1692f.

Within each broad category of prohibited conduct, the FDCPA includes examples

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 practices precludes a debt collector from adding any charge to

IV. THE FEDERAL TRADE COMMISSION ACT

[1] Link to KeyCite Notes 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

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

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.

to 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

FN8. 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 F.3d 205, 208 (3d Cir.2001).

FN9. Check Investors makes its own arguments in its appeal and has adopted

the arguments Hutchins makes in his appeal.

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 household

purposes, whether or not such obligation has been reduced to judgment.

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

household purposes.”

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 (10th

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

1325).

[3] Link to KeyCite Notes Although we have not yet addressed this precise issue,

we have held that a transaction’s status as a “debt” under the 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

in Zimmerman v. HBO Affiliate 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