Ninth Circuit Holds That Debt Buyers That Outsource Direct Collection Are Still Debt Collectors Subject to the FDCPA

Business Litigation Update

Date: March 23, 2020

In its March 9, 2020, decision in McAdory v. M.N.S. Associates, the Ninth Circuit considered whether a business that bought and profited from consumer debts, but outsourced direct collection activities, qualified as a “debt collector” subject to the Fair Debt Collection Practices Act (FDCPA). The court joined the Third Circuit in holding that an entity that otherwise meets the “principal purpose” definition of debt collector under 15 U.S.C. § 1692(a)(6) cannot avoid liability under the FDCPA merely by hiring a third party to perform its debt collection activities.


In 1977, Congress enacted the FDCPA, which allows consumers to sue “debt collectors” for certain violations of the FDCPA’s provisions. The statute defines “debt collector” in two ways: (1) “any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of debts,” (the “principal purpose prong”), or (2) “[any person] who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another” (the “regularly collects prong”).

Jillian McAdory owed a debt that was purchased by DNF Associates, LLC (DNF). Eventually, McAdory reached an agreement with MNS Associates, LLC (MNS), a debt collector retained by DNF, but, according to McAdory’s FDCPA claim, MNS breached the terms of that agreement by prematurely withdrawing funds from her account before the authorized payment date. McAdory filed suit against DNF and MNS, alleging eight separate violations of the FDCPA. McAdory alleged that DNF was a debt collector because its principal purpose was “the collection of defaulted consumer debts that it purchases for pennies on the dollar” from which it “derives the vast majority of its income.” McAdory did not allege that DNF directly contacted her about her debt.

The United States District Court for the District of Oregon granted DNF’s motion to dismiss, ruling that McAdory’s complaint failed to state a claim against DNF because “[d]ebt purchasing companies like DNF who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts.” McAdory appealed to the Ninth Circuit.

Ninth Circuit Decision

Reversing the lower court ruling, the Ninth Circuit “decline[d] to read a direct interaction requirement into the principal purpose prong” of the FDCPA. The court rejected DNF’s argument that the principal purpose prong’s use of the word “collection” requires that a business’s principal purpose must be the act of collecting debts directly from a consumer. Adopting DNF’s interpretation, according to the court, would “largely collapse the two alternative definitions of debt collector” as provided by the FDCPA.

Instead, borrowing extensively from the analysis of the Third Circuit’s recent decision in Barbato v. Greystone Alliance, LLC, 916 F.3d 260 (3d Cir. 2019), the court reasoned that, in determining a business’s principal purpose, “the relevant question… is whether debt collection is incidental to the business’s objectives or whether it is the business’s dominant or principal objective.” The court held that the complaint’s allegation that DNF lacked any other business purpose besides debt collection was sufficient to allege that it was a debt collector under the principal purpose prong and thus subject to the FDCPA.

Apart from its analysis of the statutory language, the court also reasoned that its interpretation of the principal purpose prong was consistent with Congress’s legislative intent in passing the FDCPA because “debt buyers profiting from debt collection lack market incentives that deter the sort of abusive debt collection practices Congress was motivated to regulate.”

Finally, the court disagreed with DNF’s argument that it could not meet the FDCPA’s definition of “debt collector” if it already qualified as a “creditor” under the Act. Instead, the court harkened back to its decision in Schlegel v. Wells Fargo, N.A., 720 F.3d 1204 (9th Cir. 2013), where it rejected, in a footnote, the “per se rule” that those who meet the FDCPA’s definition of creditor cannot be debt collectors.

Dissenting Opinion

Judge Bea dissented from the majority opinion, taking issue with the majority opinion’s implications for vicarious liability. Due to the absence of allegations that DNF directly violated any of McAdory’s rights under the FDCPA, Bea rejected the notion that DNF should be held responsible for MNS’s alleged misconduct. Bea further contended that McAdory’s allegations regarding DNF’s business objectives insufficiently established that debt collection was DNF’s principal purpose. Finally, Bea criticized the majority’s statutory interpretation as based on a “grammatical error.”


By joining the Third Circuit in eliminating any direct interaction requirement under the FDCPA’s definition of “debt collector,” the Ninth Circuit’s McAdory decision underscores a growing trend among courts of expanding the scope and applicability of the FDCPA. The court’s decision also underscores the Ninth Circuit’s continued refusal to join other circuits, which have held that the FDCPA’s definitions of “debt collector” and “creditor” are mutually exclusive. Businesses that buy and profit from consumer debts should continue monitoring the ever-shifting FDCPA litigation landscape closely and adjust their business practices to account for the potential for increased liability exposure and/or oversight of third party debt collectors.


For more information, please contact:

Jessica E. Salisbury-Copper

Scott A. King

Joe Barton

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