An Important Decision in the Recent FDCPA Case

In August, District Judge Kennelly made yet another important decision in the FDCPA case Vasilakos v. Bliss and Gaines, P.C.  Vasilakos’s complaint stated that Blitt’s collection letter contained false and deceptive statements that violated the FDCPA.  Blitt, however, contended that the debt it attempted to collect was not a consumer debt and therefore the FDCPA did not apply to the collection.  Blitt moved for summary judgment, which the Court granted. In May 2003, Vasilakos applied for a “small business card account” as president of P.S.E.C., Inc.- a real estate business-  and was approved.  In the “Important Disclosures and Terms of Offer”, a document included in the application Vasilakos signed, it stated that an applicant acknowledges and agrees that “all cards and convenience checks will be used solely for business and commercial purposes and not for personal family or household purposes”.  Vasilakos used his small business credit card for business-related expenses relating to P.S.E.C. and a Rub-a-Dub Laundromat which he sold in 2009.  Plaintiff contends that after he sold Rub-a-Dub, the credit card was used for personal expenses.  He also offered evidence that any balance on the card that was incurred before the sale was largely or entirely paid off.

Judge Kennelly stated that the FDCPA was adopted “to protect consumers by prohibiting debt collectors from using abusing, deceptive and unfair debt collection practices in attempting to collect debts from consumers.”  Berman v. GC Servs. Ltd. P’ship, 146 F.3d 482, 484 (7th Cir. 1998).  The FDCPA’s prohibitions apply only to the collection of “debt”, defined in the statute 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 transactions are primarily for personal, family, or household purposes.”  15 U.S.C. § 1692a(5).  Judge Kennelly concluded that the evidence in the case proved that Vasilakos received a small business credit card and agreed with Capital One that it would be used only for business purposes.  The question then became, whether Vasilakos’ subsequent use of the credit card personal uses converted the debt into consumer debt.

To determine this issue, Judge Kennelly referenced a case where the plaintiff incurred a consumer debt by buying a home, but later moved to another home and was renting it to others thus making business use out of the property.  Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872, 875 (7th Cir. 2000).  In Miller, the defendants attempted to collect a debt and argued that the FDCPA did not apply because the debt was a business debt at the time of collection.  The Seventh Circuit court held that it made sense “to base the debt collector’s obligation on the character of the debt when it arose rather than when it is to be collected.” Id. at 875.

The Seventh Circuit Court also looked at the flip side of the scenario- a situation closer to this case- where supposedly plaintiff had bought the house for business purposes, but later converted it to personal use.  The court stated that “The Act regulates debt collection tactics employed against personal borrowers on the theory that they are likely to be unsophisticated about debt collection and thus prey to unscrupulous collection methods.  Businessmen [sic] don’t need the warnings.  A businessman who converts a business purchase to personal use does not by virtue of that conversion lose his commercial sophistication and so acquire a need for statutory protection.” Id.

Following Miller, the Court reasoned that the relevant transaction was the one in which Vasilakos has obtained the Capital One credit card and became obligated to pay amounts due from purchases made with the card.  Because the Court found that this transaction was a business transaction and not a personal or household transaction, the FDCPA did not apply.  Judge Kennelly also noted that Capital One never consented to Vasilakos using the card for personal purchases.  For these reasons, the Court granted Blitt’s motion for summary judgment and entered judgment in its favor.