News & Views

Seventh Circuit Allows Non-Debtor to Allege Consumer Status

The United States Court of Appeals for the Seventh Circuit has reversed a district court’s dismissal of an FDCPA action, reinstating a suit by a plaintiff who claims never to have been the debtor on the account in question.

In Loja v. Main St. Acquisition Corp., Defendant Main Street was the purchaser of a Washington Mutual Finance Visa card that was issued in the name of “Mario Loja.”  Main Street placed the account with its co-defendant law firm, which made demand upon and sued on the debt.  Loja prevailed in the collection action, following which he sued under the FDCPA.

Main Street moved to dismiss, arguing that Loja failed to allege sufficiently that the credit card debt was for “personal, family, or household purchases,” and that he had therefore failed to allege the collection of a qualifying debt that would permit invocation of the FDCPA.   Loja responded that he had alleged the debt was on a personal credit card and that such an allegation should suffice for an FDCPA suit.  He also asserted that it would be impossible for him to allege additional details because he did not generate the underlying transactions.  The district court granted the motion to dismiss, and Loja appealed.

In granting the motion to dismiss the district court raised, on its own, the theory that the words “obligated or allegedly obligated to pay any debt” in the FDCPA’s definition of “consumer” meant that an FDCPA plaintiff was required to allege that he actually owed a debt. The district court ruled that because Loja claimed he did not owe any debt, he did not meet the statutory standing requirements.  The district court further told Loja that any amendment would be futile if he continued to allege that he did not owe the debt.

In reversing the dismissal, the court of appeals held:

Significantly, the text of 15 U.S.C. § 1692a(3) does not limit “alleged” to obligations alleged by the consumer. The word applies generally and consequently includes obligations alleged by a debt collector as well. We therefore hold 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. This interpretation conforms to the structure and text of the rest of the FDCPA, which focuses primarily on the conduct of debt collectors, not consumers. Keele v. Wexler, 149 F.3d 589, 595 (7th Cir. 1998) (noting that the language of the FDCPA “focuses primarily, if not exclusively on the conduct of debt collectors, not debtors”).

The Seventh Circuit further noted that the defendants had alleged that Loja owed the debt, tried the case, and lost.  “This allegation by Main Street [in the state court suit] sufficiently qualifies  Loja as a consumer under the FDCPA.”

The ruling is focused on the sufficiency of the federal court complaint and not the actual facts of the case. To that extent it might still be possible to demonstrate that as a factual matter the debt was not “consumer” in nature.  However, the decision appears to suggest that merely suing an individual on a debt and not affirmatively alleging the debt to be for business purposes is enough to constitute an allegation that the debt was for personal, family, or household purposes.  The case may lower the pleading standard for a plaintiff, but it does not go so far as to shift the plaintiff’s burden of proof at trial.