7th Cir. Holds No FDCPA Claim Where Consumer Failed to Prove Credit Card Transactions Were for ‘Consumer’ Purposes

Editor's Note: This article was originally published on the Maurice Wutscher blog and is republished here with permission.

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The U.S. Court of Appeals for the Seventh Circuit recently affirmed judgment in favor of two debt collectors and against a debtor for his claims arising under the federal Fair Debt Collection Practices Act (FDCPA) and the Wisconsin Consumer Act (WCA). 

In so ruling, the Court held that the debtor did not create a triable issue of material fact to overcome summary judgment because he failed to present sufficient evidence that the transactions comprising the credit card debt on the underlying account were for “personal, family, or household purposes,” and therefore that the debt was a “consumer debt” subject to the FDCPA, 15 U.S.C. § 1692, et seq., and the WCA, Wis. Stat. §§ 421-427.

A copy of the opinion in Burton v. Kohn Law Firm is available here.

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A law firm filed suit against a debtor in Wisconsin state court to collect amounts due to its client debt collector.  The debtor denied knowledge of, or association with the issuer of the credit card at issue (“creditor”), and filed suit against the law firm alleging violations of the FDCPA and WCA for filing the state court action without first providing the debtor notice of his right to cure the default.

After the state court action was dismissed on the basis of the debtor’s denial that he incurred the underlying debt, the debtor amended his federal complaint against the law firm to add the debt collector as an additional defendant. 

In ruling upon the parties’ cross motions for summary judgment, the trial court entered judgment in favor of the law firm and the debt collector, holding that the debtor failed to establish that the debt at issue was a “consumer debt,” incurred for personal, family or household purposes, and therefore, was not subject to the FDCPA or WCA.  The instant appeal followed.

On appeal, the Seventh Circuit first examined the plain language of the FDCPA and WCA and its purpose to protect personal borrowers from abusive debt collection practices. 

As you may recall, 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 of the transaction are primarily for personal, family, or household purposes.” 15 U.S.C. § 1692a(5). Similarly, the WCA protects transactions involving a “customer,” Wis. Stat. § 421.301(13), and defines a “customer” as “a person … who seeks or acquires real or personal property, services, money or credit for personal, family or household purposes,” id. § 421.301(17).

Although the debtor maintained that the underlying debt was not his, the Seventh Circuit noted that he nonetheless may claim FDCPA protection by showing that the debt collector treated him as a “consumer” allegedly owing a consumer debt. Loja v. Main St. Acquisition Corp., 906 F.3d 680, 684 (7th Cir. 2018) (holding “that the definition of ‘consumer’ under the FDCPA includes consumers who have been alleged by debt collectors to owe debts that the consumers themselves contend they do not owe”).

However, the Court held, a plaintiff proceeding under this theory still must offer evidence to establish that the debt was a “consumer debt.” 

Thus, the issue to be decided on appeal was whether the debtor submitted sufficient evidence to create a triable issue of fact that the underlying credit card debt was incurred for personal, family, or household purposes.

The debtor argued that five pieces of evidence established that the debt incurred on the credit card account was consumer debt: (1) his statements that to the extent he was liable for the debt, it was a consumer debt; (2) the defendants’ treatment of the debt as a consumer debt by including FDCPA disclaimers on the collection letters, suing the debtor in his personal capacity, and sending communications to his personal address; (3) the law firm and the debt collector’s description of their consumer debt collection services on their websites; (4) an employee of the creditor’s email description of the underlying account as a “consumer account”; and (5) the billing statements listing purchases made on the credit card for personal, family, or household purposes.  The appellate court examined each of the debtor’s arguments in order.

First, as to the debtor’s own contention that his own statements suffice to prove that the debt was a consumer debt, the Seventh Circuit noted that the debtor’s representations in this case directly conflicted with those in the state court action. 

Specifically, his complaint in the federal action alleged that “[t]o the extent that [debtor] entered into a credit agreement with [creditor], such agreement was entered into for personal, family or household purposes,” yet in the state court action, he maintained that he never applied for, had knowledge of, or made purchases or payments towards the account.  Without any affidavit or sworn testimony to support his claims, the debtor’s allegations alone failed to establish that the debt at issue was a “consumer debt,” and the Seventh Circuit rejected the debtor’s self-serving statements.

Next, the Court reviewed the debtor’s argument that the law firm and the debt collector’s treatment of the debt — including use of FDCPA disclaimers in collection letters — established that the debt was a consumer debt.  The Seventh Circuit also rejected this argument, noting that courts “have held repeatedly that merely including FDCPA disclaimers on debt collection letters is insufficient evidence that the debt was a consumer debt because debt collectors may be exercising caution and including disclaimers on all communications with debtors simply to avoid any FDCPA liability.” See, e.g., Gburek v. Litton Loan Serv. LP, 614 F.3d 380, 386 n.3 (7th Cir. 2010) (noting that evidence that letter included disclaimer identifying it as attempt to collect a debt “does not automatically trigger the protections of the FDCPA”). 

The Seventh Circuit was also unpersuaded by the debtor’s arguments that filing of the state court action and mailing of communications to the debtor’s home address established the debt as a consumer debt, because an individual can be sued in a personal capacity for a business debt, and can carry on business activities from his residence. 

Without lengthy analysis, the Seventh Circuit also rejected the debtor’s argument that the debt was a consumer debt because the law firm and the debt collector advertised services collecting consumer debt on their websites, concluding that such general descriptions of their services have no bearing on the debt they attempted to collect from the debtor in this case.

The Court next analyzed the debtor’s argument that the district court improperly excluded an email from the creditor which identified the debtor’s account in default as “a consumer account.”  The email, sent by an employee of the creditor in response to an inquiry from the debtor’s counsel, was characterized by the trial court as “a statement made by someone other than the declarant to prove the truth of the matter asserted (that the debt was consumer debt),” and excluded as inadmissible hearsay. 

On appeal, the debtor contended that the email was not inadmissible hearsay, but instead, an admissible statement of an opposing party under Fed. R. Evid. 801(d)(2)(C).  However, because the email was offered to provide the truth of the matter asserted — i.e. establish that the creditor itself stated the account was a consumer account — the Seventh Circuit concluded that the email was correctly characterized as hearsay.  Fed. R. Evid. 801(c), 802.  Moreover, the Court found that the exception under Rule 801(d)(2)(C) did not apply, because the email came from an employee of the creditor — who was not a party to the lawsuit — and cannot be attributed to the opposing parties here, the law firm and the debt collector. 

Alternatively, the debtor argued that the email was admissible under the residual exception to the hearsay rule, Rule 807.  Rule 807(a) provides that a statement not otherwise subject to a hearsay exception “is not excluded by the rule against hearsay” if: (1) the statement has equivalent circumstantial guarantees of trustworthiness; (2) it is offered as evidence of a material fact; (3) it is more probative on the point for which it is offered than any other evidence that the proponent can obtain through reasonable efforts; and (4) admitting it will best serve the purposes of these rules and the interests of justice. Fed. R. Evid. 807(a).

The Seventh Circuit concluded that the email did not satisfy any of these conditions because: (1) the statement was not made under oath or subject to cross-examination; (2) the debtor sought to introduce the email to show the creditor stated the account was a consumer account, but such distinction did not provide a factual dispute of whether the debt was a consumer debt; (3) the debtor could have obtained sworn deposition or in-court testimony of the creditor’s employee or any other representative through reasonable efforts, and; (4) the debtor failed to establish that admitting the email will “serve the purposes of these rules and the interests of justice.”  Accordingly, the appellate court agreed with the district court’s determination that the creditor’s email was properly excluded as inadmissible hearsay.

Lastly, the Seventh Circuit considered the debtor’s argument that the billing statements on the account demonstrate that the debt in question was a consumer debt. 

While the statements showed that most charges to the account were purchases of low dollar amounts primarily at gas stations and convenience stores, they also shed no light on why these charges were incurred. 

Because the debtor was unable to explain whether these transactions were for a consumer as opposed to a business purpose, the billing statements failed to provide adequate information for a trier of fact to conclude that his purchases were made for personal, family, or household purposes. Cf. Matin v. Fulton, Friedman & Gullace LLP, 826 F. Supp. 2d 808, 812 (E.D. Pa. 2011) (finding the court “lack[ed] sufficient information to determine whether the purchases were made for primarily personal, family, or household purposes” based on account statement where plaintiff was “unable to recall what purchases she made on her credit card and the purpose for those purchases”).

For the foregoing reasons, the Seventh Circuit concluded that the trial court properly determined that the debtor failed to submit sufficient evidence to create a triable issue of material fact that the underlying debt at issue was a “consumer debt” for the purpose of the FDCPA and WCA.  Accordingly, judgment in favor of the law firm and the debt collector and against the debtor was affirmed.