Answer: Determining whether an obligation is a consumer or business debt for FDCPA purposes requires an examination of the nature of the transaction from which the debt arose. See Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., 214 F.3d 872, 875 (7th Cir. 2000) (stating that whether a debt is a “consumer debt” under the FDCPA depends on “the transaction out of which the obligation to repay arose, not the obligation itself . . .”); Clark v. Brumbaugh and Quandahl, P. C., LLO, 731 F. Supp. 2d 915, 921 (D. Neb. 2010) (“[T]he court must focus on the nature of the debt that was incurred, and not the purpose for which the Account was opened.”); Garcia v. LVNV Funding, 2009 WL 3079962, at * 3 (W.D. Tex. Sept. 18, 2009) (“Whether a debt is a consumer debt [under the FDCPA] is determined by the use of loan proceeds by the borrower and not by the motive or intent of the lender.”). Courts determine whether a debt was incurred primarily for personal, family, or household purposes by examining the end use of the subject of the transaction. Bloom v. I.C. System, Inc., 972 F.2d 1067, 1068 (9th Cir. 1992). “Neither the lender’s motives nor the fashion in which the [obligation] is memorialized are dispositive of this inquiry.” Id. In Bloom, the Ninth Circuit found a debt on a commercial loan was not a “debt” covered by the FDCPA, where although the loan was informally extended by a friend, the end use of the loan was “for venture capital in an investment.” Id. at 1069.
The Ninth Circuit has conversely held that where a debt is incurred in the name of a business, and has the ostensible form of a business transaction, the debt would nonetheless be a consumer “debt” where the subject of the obligation was used for a personal, family, or household purpose. Slenk v. Transworld Sys., Inc., 236 F.3d 1072, 1075-76 (9th Cir. 2001). In Slenk, where the debtor purchased a backhoe in the name of his business, but used the backhoe to build a family home, the Ninth Circuit ruled the district court erred “[b]y focusing exclusively on select documentary evidence, rather than looking to the facts illustrating the actual use to which the backhoe was put.” Id. at 1076; see also In re Howe, 446 B.R. 170, 174 (Bankr. E.D. Pa. 2009) (citing Slenk for the proposition that “the borrower’s intended use of the loan proceeds is the determinative issue”).
District courts across the country have followed the guidance of the Ninth Circuit. “The FDCPA is concerned with the substance of the transaction as opposed to the form.” Perk v. Worden, 475 F. Supp. 2d 565, 569 (E.D. Va. 2007). The court in Perk found that purchases made on a corporate credit card for personal use, like those at issue here, created a “debt” subject to the FDCPA. Id. at 569 (“It is worth noting that the debt at issue was not actually incurred until Plaintiff used the card, as opposed to when Plaintiff applied for the card. Although Plaintiff applied for a corporate card, she did not incur the debt until it was used for her personal purposes.”); see also Kimmel v. Cavalry Portfolio Services, LLC, 2011 WL 2039049, at *4 (E.D. Pa. May 25, 2011) (“More importantly, the terms of the agreement and the manner in which the card was actually used are two separate issues.”); Vick v. NCO Fin. Sys., Inc., No. 2:09-CV-114-TJW-CE, 2011 WL 1195941, at *5 (E.D. Tex. Mar. 7, 2011) (“Although . . . the Account was opened . . . ostensibly for commercial purposes, the court must focus on the nature of the debt that was incurred, and not the purpose for which the Account was opened.”).
As many courts have made clear, the form of the transaction is not determinative. Rather, it is the end use to which the subject of the transaction is put. See Riviere v. Banner Chevrolet, Inc., 184 F.3d 457, 462 (5th Cir. 1999) (“In order to determine whether a transaction is primarily consumer or commercial in nature, the court must examine the transaction as a whole.”). In this case, the credit card was primarily used for personal, family, or household purposes. See Clark, 731 F. Supp. 2d at 922 (“it is possible that the incurred debt was at least partially consumer debt. Although [the defendant] is correct in its contention that the Account was opened on behalf of [a business] ostensibly for commercial purposes, the Court must focus on the nature of the debt that was incurred, and not the purpose for which the Account was opened.”). What’s more the plain language of the FDCPA does not require the debt be incurred “exclusively” for personal, family, or household purposes, but only “primarily.” 15 U.S.C. § 1692a(5).
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