McKinney, Versia S. v. Cadleway Properties

In the

United States Court of Appeals

For the Seventh Circuit

No. 07-1075

V ERSIA S. M C K INNEY,

Plaintiff-Appellee,

v.

C ADLEWAY P ROPERTIES, INCORPORATED ,

Defendant-Appellant.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 04 C 8248—Virginia M. Kendall, Judge.

A RGUED O CTOBER 30, 2007—D ECIDED N OVEMBER 13, 2008

Before M ANION, R OVNER, and S YKES, Circuit Judges.

S YKES, Circuit Judge. This case requires us to deter-

mine whether the defendant, Cadleway Properties, Inc.,

is a “debt collector” under the Fair Debt Collection Prac-

tices Act, 15 U.S.C. §§ 1692 et seq. (“FDCPA”). If it is, then

the FDCPA applies, and our second question is whether

the “validation of debt” notice Cadleway sent to the

plaintiff was clear or confusing on its face.

Reverend Versia McKinney’s Chicago home was dam-

aged by a flood in 1996. To help with repair costs, she

2 No. 07-1075

obtained a disaster assistance loan from the Small

Business Administration (“SBA”). After McKinney

ceased making payments in 2002, the SBA sold the debt

to a third party, and Cadleway subsequently acquired it.

In an attempt to collect on the debt, Cadleway sent

McKinney a collection letter that included a notice of

her right to dispute and obtain verification of the debt

and of the original creditor as required by the FDCPA.

McKinney responded with this lawsuit alleging the

notice was confusing.

The district court entered summary judgment for

McKinney, concluding that Cadleway is a debt collector

and its collection letter was confusing to the unsophisti-

cated consumer and therefore violated the FDCPA. We

agree with the former conclusion but not the latter. The

FDCPA covers debt collectors, not creditors, and these

categories are “mutually exclusive.” Schlosser v. Fairbanks

Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003); see also

15 U.S.C. § 1692a(4), (6) & (6)(F). The undisputed evid-

ence here establishes that Cadleway is a debt collector,

not a creditor. Cadleway’s validation-of-debt notice,

however, was objectively clear and not obscured by

Cadleway’s request that McKinney confirm or dispute

the amount she owed. Accordingly, we reverse the judg-

ment of the district court and remand with instructions

to enter judgment for Cadleway.

I. Background

Reverend Versia McKinney’s Chicago home was dam-

aged in 1996 when a sewer backed up into her basement

due to flooding. Unable to afford the repairs, McKinney

No. 07-1075 3

applied for and received a disaster loan for $5,200 from

the SBA. The loan agreement authorized the SBA to

demand immediate payment of the entire balance

should McKinney fail to make a scheduled payment.

Indeed, at some point after disbursement of the loan,

McKinney was unable to keep up with the payments

and ceased making them altogether, although the SBA

never demanded that she pay the outstanding balance.

Instead, in 2002 the SBA sold McKinney’s loan to

Lehman Capital/Aurora Loan Servicing Inc., which eventu-

ally sold it to Cadleway. Cadleway’s first contact with

McKinney was in September 2004 when it issued a col-

lection letter informing her that it had purchased the

debt and that she should begin making payments to the

new address provided. A bold-faced, underlined notice

on the front of the letter directed McKinney to read the

“Validation of Debt Notice” on the reverse side of the

letter.

The “Validation of Debt Notice” on the back of the

letter was designed to comply with the FDCPA by inform-

ing McKinney of her statutory rights regarding the

debt. The notice stated that according to Cadleway’s

records, McKinney owed $4,370.02, all but $337.39 of

which was principal on the original loan. The notice

also stated that McKinney had 30 days to notify

Cadleway if she disputed the debt, and in that instance

Cadleway would obtain and mail to her a verification

of the debt, its amount, and the contact information of

the original creditor. The notice further stated that if

McKinney did not dispute the validity of the debt

4 No. 07-1075

within 30 days, then Cadleway would assume the debt

was valid. At the bottom of the notice was a form on

which McKinney was asked to “confirm this balance or

state the amount which you believe is the correct balance.”

McKinney sent the letter to Michelle Weinberg, an

attorney with the Legal Assistance Foundation of Metro-

politan Chicago. Weinberg replied to Cadleway, asking

it to “cease all further communications regarding this

account” because Cadleway was not a licensed debt

collector and McKinney “is simply unable to pay this

debt.” McKinney then filed this action in the district

court under 15 U.S.C. § 1692k, which makes debt

collectors who violate the FDCPA civilly liable for

actual and statutory damages as well as attorney’s fees

and court costs. McKinney alleged that Cadleway’s

collection letter violated the FDCPA because an unso-

phisticated consumer would be confused about her right

to dispute the debt and obtain verification of its valid-

ity. McKinney asked only for statutory damages

and attorney’s fees; she did not claim actual damages.

The case was initially assigned to District Judge

Ronald Guzmán, and both parties moved for summary

judgment. Judge Guzmán held that Cadleway’s valida-

tion notice was confusing on its face to the

unsophisticated consumer but did not rule on whether

Cadleway was a “debt collector” under the FDCPA or

whether McKinney’s loan was a “debt” within the

meaning of the statute.

The case was thereafter transferred to District Judge

Virginia Kendall, and both parties again moved for sum-

No. 07-1075 5

mary judgment. Judge Kendall held that McKinney’s

obligation was a “debt” within the meaning of the FDCPA

and that Cadleway was a “debt collector” under the

FDCPA because it had acquired and attempted to collect

a debt that was in default at the time of acquisition. 1

Judge Kendall then entered judgment for McKinney and

later amended the judgment to award her statutory

damages of $1,000—the maximum allowed—as well as

attorney’s fees and costs.

II. Discussion

A. Standard of Review

A district court’s grant of summary judgment is re-

viewed de novo. Matthews v. Milwaukee Area Local Postal

Workers Union, AFL-CIO, 495 F.3d 438, 441 (7th Cir. 2007).

The evidence in the record must be viewed in the light

most favorable to the nonmoving party, Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 255 (1986), and on cross-

motions for summary judgment, inferences are drawn

in favor of the party against whom the motion under

consideration was made. Hess v. Reg-Ellen Mach. Tool Corp.,

423 F.3d 653, 658 (7th Cir. 2005). When the district court

considers cross-motions for summary judgment, granting

one and denying the other, the denial of summary judg-

ment “has merged into the final judgment and is

1

Judge Kendall’s conclusion that McKinney’s obligation was

a debt within the meaning of the FDCPA is not challenged

on appeal.

6 No. 07-1075

therefore appealable” as part of the appeal from the final

judgment granting the opposing party’s motion. Santaella

v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997).

Summary judgment is appropriate when “the pleadings,

the discovery and disclosure materials on file, and any

affidavits show that there is no genuine issue as to any

material fact and that the movant is entitled to a judg-

ment as a matter of law.” FED. R. C IV. P. 56(c).

B. McKinney’s FDCPA Claim

The FDCPA was enacted to combat “abusive, deceptive,

and unfair debt collection practices.” 15 U.S.C. § 1692.

To that end, the Act regulates communications relating to

debt collection (§ 1692c), abusive practices of debt collec-

tors (§ 1692d), and using false or misleading information

in collection notices (§ 1692e). Relevant to this case is

§ 1692g, which governs a debt collector’s “initial com-

munication with a consumer in connection with the

collection of any debt” and requires, among other things,

that the debt collector provide notice of the consumer’s

right to dispute the validity of the debt and receive verifi-

cation of it. § 1692g(a). Consumers may sue to enforce the

Act’s provisions and, if successful, recover actual damages,

statutory damages, and attorney’s fees and costs. § 1692k.

1. Cadleway’s Status as a “Debt Collector”

The FDCPA applies only to “debt collectors” seeking

satisfaction of “debts” from “consumers”; it does not apply

to “creditors.” Schlosser, 323 F.3d at 536. The Act defines

“creditor” as follows:

No. 07-1075 7

The term “creditor” means any person who offers or

extends credit creating a debt or to whom a debt is

owed, but such term does not include any person to the

extent that he receives an assignment or transfer of a debt in

default solely for the purpose of facilitating collection of such

debt for another.

§ 1692a(4) (emphasis added). The Act defines “debt

collector” as follows:

The term “debt collector” means any person who uses

any instrumentality of interstate commerce or the mails

in any business the principal purpose of which is the

collection of any debts, or who regularly collects or

attempts to collect, directly or indirectly, debts owed or

due or asserted to be owed or due another.

§ 1692a(6) (emphasis added).

The statutory definition of “debt collector” thus has two

subcategories. It includes any person who: (1) uses an

instrumentality of interstate commerce or the mails in “any

business the principal purpose of which is the collection of

any debts”; or (2) “regularly collects or attempts to collect

. . . debts owed or due or asserted to be owed or due

another.” This second subcategory of debt collectors refers

back to a group specifically excluded from the Act’s defini-

tion of creditors—those who receive “an assignment or

transfer of a debt in default” for the purpose of “facilitating

[the] collection of such debt for another.”

The definition of debt collector also contains certain

enumerated exclusions, one of which is relevant here:

The term [debt collector] does not include . . .

8 No. 07-1075

(F) any person collecting or attempting to collect

any debt owed or due or asserted to be owed or

due another to the extent such activity . . . (iii)

concerns a debt which was not in default at the time

it was obtained by such person . . . .

§ 1692a(6)(F)(iii) (emphasis added).

We have held that “[f]or purposes of applying the Act to

a particular debt, these two categories—debt collectors and

creditors—are mutually exclusive.” Schlosser, 323 F.3d at

536. We have also observed, however, that “for debts that

do not originate with the one attempting collection, but are

acquired from another, the collection activity related to

that debt could logically fall into either category.” Id.

Schlosser noted that in such a case—one involving a debt

originated by another and subsequently acquired by the

entity attempting collection—“the Act uses the status of

the debt at the time of the assignment” to distinguish

between a debt collector and a creditor. Id.

The Act draws this distinction in a rather indirect way,

however—by the exclusionary language, quoted above, in

the statutory definitions of creditor and debt collector. That

is, the definition of creditor excludes those who acquire

and attempt to collect a “debt in default,” § 1692a(4) (em-

phasis added), while the definition of debt collector

excludes those who acquire and attempt to collect “a debt

which was not in default at the time it was obtained,”

§ 1692a(6)(F) (emphasis added). So one who acquires a

“debt in default” is categorically not a creditor; one who

acquires a “debt not in default” is categorically not a

debt collector.

No. 07-1075 9

Thus, we held in Schlosser that the Act “treats assignees

as debt collectors if the debt sought to be collected was in

default when acquired by the assignee, and as creditors

if it was not.” 323 F.3d at 536; see also Bailey v. Sec. Nat’l

Servicing Corp., 154 F.3d 384, 387 (7th Cir. 1998) (“The plain

language of § 1692a(6)(F) tells us that an individual is not

a ‘debt collector’ subject to the Act if the debt he seeks to

collect was not in default at the time he purchased (or

otherwise obtained) it.”). We explained that “[f]ocusing

on the status of the obligation asserted by the assignee

is reasonable in light of the conduct regulated by the

statute,” which generally covers debt collection, not

debt servicing:

For those who acquire debts originated by others, the

distinction drawn by the statute—whether the loan

was in default at the time of the assignment—makes

sense as an indication of whether the activity directed

at the consumer will be servicing or collection. If the

loan is current when it is acquired, the relationship

between the assignee and the debtor is, for purposes

of regulating communications and collection prac-

tices, effectively the same as that between the origina-

tor and the debtor. If the loan is in default, no ongoing

relationship is likely and the only activity will be

collection.

Schlosser, 323 F.3d at 538. Accordingly, the purchaser of a

debt in default is a debt collector for purposes of the

FDCPA even though it owns the debt and is collecting for

itself. Id. at 538-39; see also FTC v. Check Investors, Inc., 502

F.3d 159, 171-74 (3d Cir. 2007) (holding that an entity

engaged in collection activity on a defaulted debt acquired

10 No. 07-1075

from another is a “debt collector” under the FDCPA even

though it “may actually be owed the debt”).

Cadleway argues that the evidence on the cross-motions

for summary judgment is insufficient to establish its status

as a debt collector. We disagree. The FDCPA does not

define “default,” but it is undisputed that McKinney’s debt

had been delinquent for at least two years when Cadleway

purchased it, and we think this suffices to establish that it

was a “debt in default” when it was acquired.2 Accord-

ingly, under Schlosser’s interpretation of the “mutually

exclusive” statutory definitions of “creditor” and “debt

collector,” Cadleway is a debt collector.

2

The Second Circuit has observed in this context that delin-

quency and default are two distinct concepts. See Alibrandi v.

Fin. Outsourcing Servs., Inc., 333 F.3d 82, 86 (2d Cir. 2003)

(“[C]ourts have repeatedly distinguished between a debt that

is in default and a debt that is merely outstanding, emphasizing

that only after some period of time does an outstanding debt

go into default.”). The court held in Alibrandi that because the

FDCPA does not define “default,” the default terms of the

debt transaction itself should control. Id. at 87 n.5. Here, the

original loan agreement between the SBA and McKinney

provides that the SBA “is authorized to declare all or any part

of said indebtedness immediately due and payable upon the

happening of any of the following events,” including “[f]ailure

to pay any part of the principal or interest on this Note when

due.” As we have noted, it is undisputed here that at the time

Cadleway acquired this debt, McKinney had not made any

payments for at least two years. Although the SBA had not

demanded immediate full payment, McKinney had plainly

defaulted on her payment obligations.

No. 07-1075 11

Cadleway maintains there is insufficient evidence in the

record to establish that the “principal purpose” of its

business was the collection of debts or that it “regularly

collects” debts owed to “another.” § 1692a(6). As we have

discussed, however, under Schlosser, an agency in the

business of acquiring and collecting on defaulted debts

originated by another is a debt collector under the FDCPA

even though it actually may be collecting for itself. In its

answers to McKinney’s interrogatories, Cadleway admitted

to issuing nearly 3,500 letters identical to the one it sent to

McKinney during the year-and-a-half period surrounding

the collection activity in this case. It is reasonable to infer

that at least some—perhaps most—of this voluminous

collection activity related to debts, like McKinney’s, that

were in default when acquired by Cadleway. There is no

evidence in the record to support an inference more

favorable to Cadleway. Cadleway’s interrogatory answer

is therefore sufficient to establish that it “regularly collects”

defaulted debts. We agree with the district court that

Cadleway is a debt collector under the FDCPA.

2. Cadleway’s Validation of Debt Notice

The FDCPA requires debt collectors to provide certain

information “in the initial communication” with the

consumer or “[w]ithin five days after the initial communi-

cation.” § 1692g(a). This includes the amount of the debt,

the name of the creditor to whom the debt is owed, notice

of the consumer’s right to dispute the validity of the debt

within 30 days of the communication, and to require the

debt collector to obtain verification of the debt and mail it

to the consumer. § 1692g(a)(1)-(4). The debt collector is also

12 No. 07-1075

required to advise the consumer that “upon the consumer’s

written request, . . . the debt collector will provide the . . .

name and address of the original creditor.” § 1692g(a)(5).

Upon receipt of such request, or if the consumer disputes

the debt, the debt collector must “cease collection of the

debt” until a verification of the debt and the original

creditor is mailed to the consumer. § 1692g(b).

Although the statute does not specify the manner in

which the required disclosures must be provided, we have

held, “plausibly enough, that it is implicit that the debt

collector may not defeat the statute’s purpose by making

the required disclosures in a form or within a context in

which they are unlikely to be understood by the unsophis-

ticated debtors” the statute seeks to protect. Bartlett v.

Heibl, 128 F.3d 497, 500 (7th Cir. 1997). Impermissible

communication tactics include flat-out contradiction,

overshadowing the information with other text or format-

ting, or “failure to explain an apparent though not actual

contradiction.” Id. at 500-01.

Whether the debt collector’s letter complies with the

statute is determined objectively; the inquiry is whether an

“unsophisticated consumer or debtor” would be confused

by the contents of the letter. Durkin v. Equifax Check Servs.,

Inc., 406 F.3d 410, 414 (7th Cir. 2005). The unsophisticated

debtor is “uninformed, naive, [and] trusting” but is also

assumed “to possess rudimentary knowledge about the

financial world and is capable of making basic logical

deductions and inferences.” Id. (internal quotation marks

omitted). In the normal case, the plaintiff must come

forward with more than her own confusion as evidence of

an FDCPA violation. “Rather, a plaintiff must demonstrate

No. 07-1075 13

that the letter’s language unacceptably increases the level

of confusion” such that “a significant fraction of the

population would be similarly misled.” Sims v. GC Servs.

L.P., 445 F.3d 959, 963 (7th Cir. 2006) (internal quotation

marks omitted). We have suggested that this requirement

“might be met through the use of a carefully designed and

conducted consumer survey” or appropriate expert

testimony. Durkin, 406 F.3d at 415.

In some situations, however, a debt collector’s letter may

be so clearly confusing on its face that a court may award

summary judgment to the plaintiff on that basis. Id. “If it is

apparent just from reading the letter that it is unclear . . .

and the plaintiff testifies credibly that she was indeed

confused,” then further evidence may not be necessary

provided the plaintiff “is representative of the type of

people who received that or a similar letter.” Chuway v.

Nat’l Action Fin. Servs., Inc., 362 F.3d 944, 948 (7th Cir.

2004).

McKinney presented no extrinsic evidence that

Cadleway’s validation-of-debt notice would be confusing

to a significant fraction of the population. Moreover, she

testified that the letter was not confusing to her. Instead, she

testified to confusion stemming from the nature of the

assistance she received from the SBA. As she put it during

her deposition: “The original materials, allegedly, was

FEMA disaster assistance. This is what confused me, that.

How did it become a loan? I’ve always been concerned

about that.” McKinney apparently assumed the money was

a grant from FEMA, not a loan from the SBA. Setting aside

the fact that any confusion in this regard was not occa-

sioned by anything in Cadleway’s collection letter,

14 No. 07-1075

McKinney’s assumption was completely unwarranted; the

documents she signed from the SBA clearly identified the

transaction as a loan with an interest rate and payment

schedule. Indeed, if McKinney thought it was an outright

grant, then there would be no reason for her to have made

any payments at all on the balance. See Williams v. OSI

Educ. Servs., Inc., 505 F.3d 675, 679 (7th Cir. 2007) (discount-

ing confusion resulting from “unrealistic, peculiar, [or]

bizarre” interpretations of collection letters).

Regarding the letter itself, McKinney testified that she

was not confused about her right to request the identity

of the original creditor. She also said that she under-

stood the letter’s explanation of her right to request

verification of the debt from Cadleway; she said only

that she did not understand how she could calculate the

correct amount due because she did not “have those

records.” She testified generally that the letter was “am-

biguous,” which she distinguished from “conflicting.”

Cadleway’s attorney asked, “Can you point to any par-

ticular paragraph that caused you confusion about your

right to dispute the debt?” McKinney equivocated: “I

told you, it was the entire letter.” Pressed for specific

points of confusion, McKinney was unable to identify

any: “It confuses me, that they have a figure here that I do

not agree with, and I will not sign. It confuses me. Where

could they have gotten such a figure? Where did they

get it?” Generalities like this do not suffice to sustain

No. 07-1075 15

the plaintiff’s burden on an FDCPA claim.3

There is nothing on the face of Cadleway’s letter that

makes its validation-of-debt notice confusing to the

unsophisticated consumer. The validation-of-debt notice

appears on the reverse side of the letter in clear, easy-to-

read type, and contains all the disclosures required by

§ 1692g. On the front of the letter, a notice in bold-face,

underlined type specifically directs the recipient to read

the validation-of-debt notice on the back. The district

court held that the confirmation request on the bottom of

the notice rendered the entire notice confusing, but we

disagree. This section of the letter is essentially a form

for the debtor to use to confirm or dispute the debt; it asks

the debtor to either confirm the total amount owed or

dispute the total and indicate what the amount should be.

This does not contradict any of the statutory notices given

in the body of the validation-of-debt notice, which clearly

communicate the consumer’s right to dispute the debt

and require the debt collector to obtain verification of it.

3

McKinney did testify that she did not understand the para-

graph of the notice that stated the total amount owed, including

interest and charges; that paragraph identified the amount of

principal and interest owed and also stated that “[b]ecause of

interest, late charges and other charges that may vary from day

to day, the amount due on the day you pay may be greater.”

This language is an almost exact replica of the “safe harbor”

we established in Miller v. McCalla, Raymer, Padrick, Cobb,

Nichols, & Clark, L.L.C., 214 F.3d 872, 876 (7th Cir. 2000), for

debt collectors to satisfy 15 U.S.C. § 1692g(a)(1).

16 No. 07-1075

The district court thought the presence of this confirma-

tion provision might suggest to an unsophisticated con-

sumer that confirmation was obligatory in order to avoid

the risk of credit-rating damage. But the form permits the

consumer to either confirm the debt or to dispute it and

insert any other amount (including “zero”). The form

does nothing to imply that confirmation is obligatory.

Asking the consumer to confirm or dispute the debt—and

providing a form on which to do so—does not obscure or

overshadow the information provided earlier in the

validation-of-debt notice. That notice fully complied with

the requirements of § 1692g and did so in a manner that

would not be confusing to the unsophisticated consumer.

Because McKinney did not present any other evidence

tending to show that the notice would mislead a

significant fraction of the population, she failed to carry

her burden on her FDCPA claim.4

4

Our conclusion in this regard encompasses both McKinney’s

burden on her own motion for summary judgment as well as

her responsive burden in connection with Cadleway’s

cross-motion for summary judgment. As our dissenting col-

league notes, there are several ways McKinney might have

established that the validation-of-debt letter was confusing.

See Dissent, n.1. She argued in her summary-judgment motion

that the letter was confusing as a matter of law to the average

unsophisticated consumer. Beyond her burden on this

motion, however, McKinney was required to demonstrate a

triable issue of fact in order to defeat Cadleway’s cross-motion

for summary judgment. She did not. It is true that cross-motions

for summary judgment do not waive the right to a trial, see

Miller v. LeSea Broad. Group, Inc., 87 F.3d 224, 230 (7th Cir. 1996);

(continued...)

No. 07-1075 17

Accordingly, although the district court properly con-

cluded that Cadleway was a debt collector under the

FDCPA, it improperly entered judgment for McKinney on

the merits of the claim. The judgment of the district court

is R EVERSED and the case is R EMANDED with instructions

to enter judgment in favor of Cadleway.

4

(...continued)

Zook v. Brown, 748 F.2d 1161, 1166 (7th Cir. 1984), but this rule

does not alter the respective burdens on cross-motions for

summary judgment—more particularly here, the responsive

burden of a plaintiff who moves for summary judgment and

is confronted with a cross-motion for summary judgment.

The motions are treated separately. See 10A C HARLES A LAN

W RIGHT , A RTHUR R. M ILLER & M ARY K AY K ANE , F EDERAL

P RACTICE AND P ROCEDURE § 2720 (3d ed. 1998). Cadleway

maintained that its validation-of-debt letter was not con-

fusing on its face, McKinney herself was not confused (or her

vague claim of confusion was insufficient to defeat summary

judgment), and the letter would not have confused other

average consumers. Accordingly, to defeat Cadleway’s motion,

McKinney could not simply rely on her pleadings and her

argument that the validation-of-debt letter was confusing as

a matter of law; she was required to establish a triable issue

on whether the average consumer would have been confused.

We have concluded that McKinney failed to carry her burden

of establishing confusion as a matter of law and therefore

summary judgment in her favor was improperly entered.

Because she also failed to produce any evidence of confusion

(e.g., evidence that she was confused and a significant fraction

of the population would be similarly confused), she failed

to carry her burden of establishing a triable issue, and

Cadleway was entitled to judgment as a matter of law.

18 No. 07-1075

M ANION, Circuit Judge, concurring in part and con-

curring in the judgment. I agree with the court’s well-

reasoned analysis that the validation-of-debt notice

Cadleway sent McKinney does not run afoul of the

FDCPA. That McKinney herself does not claim to have

been confused by the notice is telling. The notice is

straightforward. It contains all the disclosures required

by 15 U.S.C. § 1692g. It is in a normal, reasonably sized

font. And it allows a consumer either to confirm the total

amount owed or indicate that the total amount owed

listed on the notice is incorrect and provide the correct

amount, including $0.

Given the adequacy of the notice Cadleway sent

McKinney, we need not resolve the question of whether

Cadleway is a debt collector. But since the court

discusses the issue, it is necessary to point out that neither

the statute nor our prior precedent dictates that we con-

clude that Cadleway qualifies as a “debt collector” under

the FDCPA. As we observed in Schlosser, in a case such as

this—where the debt did not originate with the party

attempting collection—Cadleway “could logically fall

into either category,” creditor or debt collector, because

the statutory definition of a creditor includes “any

person . . . to whom a debt is owed.” Schlosser v. Fairbanks

Capital Corp., 323 F.3d 534, 536 (7th Cir. 2003) (quoting

15 U.S.C. § 1692a(4)). The court resolves that ambiguity by

referencing the exclusionary language in the FDCPA’s

definition of a creditor: “[the] term [creditor] does not

include any person to the extent that he receives an

assignment or transfer of a debt in default solely for the

purpose of facilitating collection of such debt for another.”

See supra, at 7-8; 15 U.S.C. § 1692a(4). But that passage does

No. 07-1075 19

not automatically exclude those, like Cadleway, who

“receive[ ] an assignment or transfer of a debt in default”

from being a creditor just because the debt on which they

are attempting to collect was in default. Rather, that

exclusionary portion of the FDCPA’s definition of a

creditor (as well as the mirror-image provision in the

FDCPA’s definition of a debt collector) labels an entity “not

a creditor” (and therefore a “debt collector”) only if the

entity is attempting to collect a debt in default “for an-

other.” 15 U.S.C. § 1692a(4) (emphasis added); see id.

§ 1692a(6)(F)(iii).

In this case, when Cadleway contacted McKinney, it

was not attempting to collect a debt in default “owed or

due or asserted to be owed or due another.” Id.

§ 1692a(6)(F)(iii) (emphasis added). It was collecting on

a debt it had purchased from Lehman Capital—a debt it

now owned and was collecting on its own behalf. Cf.

Bailey v. Sec. Nat’l Servicing Corp., 154 F.3d 384, 386 (7th

Cir. 1998) (defendant was servicing loans on behalf of

private investors who had purchased the loans from

HUD). To be a debt collector, the statute requires that

Cadleway be collecting on a debt “for another.” 15 U.S.C.

§ 1692a(4). Since Cadleway was collecting on a debt it

now owned for itself, it should not be considered a debt

collector, regardless of whether or not McKinney’s loan

was in default.

At first blush, our decision in Schlosser v. Fairbanks

Capital Corp., 323 F.3d 534 (7th Cir. 2003), appears to

inadvertently redact the FDCPA’s requirement that, to be a

debt collector, the party attempting to collect the debt

must be doing so “for another.” Not so. True, this court in

20 No. 07-1075

Schlosser concluded that the defendant, Fairbanks

Capital Corp., was a debt collector under the FDCPA

despite the fact that it owned the debt upon which it was

attempting to collect. But the question of whether Fair-

banks was a debt collector despite not attempting to

collect the debt “for another” never came up in Schlosser.

Rather, this court only addressed the narrow question of

whether Fairbanks, which in its collection letter had held

itself out to be a debt collector, could be considered a

“creditor” under the Act when the plaintiffs were not

in fact in default on their loan—even though Fairbanks

had believed the plaintiffs to be in default at the time it

had sent its notice. Schlosser, 323 F.3d at 536. The district

court had held “that under the plain language of the

statutory definition, [Fairbanks was] not a debt collector

because the [plaintiffs’] loan was not actually in default

when Fairbanks acquired it.” Id. We disagreed with

that statutory interpretation, holding only that Fairbanks

could be a debt collector because it attempted to collect on

a debt that it believed to be in default at the time it ac-

quired the debt. See id. at 539. Importantly, we did not

touch on the issue of whether a party attempting a col-

lection, like Fairbanks or Cadleway, ought not to be

considered a “debt collector” under the FDCPA because

it then owned the debt that it was attempting to collect

and was not therefore collecting the debt “for another.”

That issue was outside the scope of what this court

in Schlosser was addressing, and we did not consider it.1

1

Unlike this circuit in Schlosser, the Third Circuit did directly

confront this issue in F.T.C. v. Check Investors, Inc., 502 F.3d 159

(continued...)

No. 07-1075 21

We need not consider it here either; it is not necessary

for the resolution of this case. Even assuming that

Cadleway met the statutory definition of a debt collector,

Cadleway’s validation-of-debt notice was objectively

clear, as explained in Part II.B.2 of the court’s cogent

opinion, and McKinney therefore loses. But because

the court has chosen to address the issue of whether

Cadleway qualifies as a debt collector, I must respectfully

disagree with the court’s resolution of the question.

1

(...continued)

(3d Cir. 2007), but its analysis is flawed. The Third Circuit

never refuted the appellant’s statutory argument that it could

not be a debt collector because it was owed the debt upon

which it was collecting and was not therefore collecting the

debt “for another.” Id. at 172 (citing 15 U.S.C. § 1692a(4)). The

Third Circuit even went so far as to admit that the appellant

“appear[ed] . . . to satisfy the statutory definition of a creditor”

and that “focusing on the status of the debt when it was ac-

quired overlooks the fact that the person engaging in the

collection activity may actually be owed the debt and is,

therefore, at least nominally a creditor.” Id. at 173. Nevertheless,

it relied on Schlosser—a case that never directly addressed the

issue—and inconclusive language from the legislative

history (used to override the definite language in the statute)

to find that the appellant was a debt collector. See id. at 173-74.

As explained above, such a finding completely ignores the

plain text (“for another”) of both the statutory definition of

a debt collector and the exclusionary language in the

statutory definition of a creditor.

22 No. 07-1075

R OVNER, Circuit Judge, concurring in part and dissenting

in part. Although I agree with the majority opinion

that Cadleway was a debt collector as defined in the

Fair Debt Collection Practices Act, I disagree with its

conclusion that the debt collection letter was not confusing.

Judge Guzmán below determined that any reasonable

jury would conclude that the unsophisticated consumer

would be confused by the form. My colleague is worlds

apart, finding that there is nothing confusing on the face

of the letter at all. I find the latter position untenable.

The majority, the court below, and I all agree that the

standard validation notice set forth in the first five para-

graphs of the letter sent to Versia McKinney correctly

informed the debtor that she had thirty days to dispute the

validity of the date. To so dispute a debt, one only need

write a letter to Cadleway at the indicated address and

state simply, “I dispute the debt.” These four words

alone activate all of Cadleway’s obligations under the

FDCPA. The last paragraph, however, asks debtors to do

more. It asks the debtor to confirm the amount of the

debt, that is, to list a specific amount that the debtor

agrees is owed, and the implied consequence for failing

to do so is a damaged credit rating. Perhaps a savvy debtor

might understand that the confirmation portion of the

requirement is optional. I surely would not have and for

the reasons I describe below, I do not think an unsophisti-

cated consumer would either.

Imagine a not uncommon debtor who has dribbled out

payments in cash and money orders as she is able—ten

dollars stuffed into an envelope here, fifteen there—and

No. 07-1075 23

who may have been less than precise in her record keep-

ing. She knows that she owes something, and she knows

that it is less than the amount stated by the creditor, but

she does not know precisely how much less.1 She cannot

1

In fact, such is the case with McKinney herself. She explained

that she did not understand how she could calculate the correct

amount because she did not have the records. I include this

example in a footnote, because I wish to de-emphasize

McKinney’s actual experience for the following reasons: There

are two ways of demonstrating that a debt collection letter

is confusing. One is to demonstrate that it is confusing on its

face. The second is to demonstrate that it would be confusing

to the average unsophisticated consumer. Durkin v. Equifax

Check Servs., Inc., 406 F.3d 410, 414-15 (7th Cir. 2005) (“In some

situations, when an FDCPA violation is so ‘clearly’ evident on

the face of a collection letter, a court may award summary

judgment to the FDCPA plaintiff.”). In either case, the actual

confusion of the plaintiff, therefore, is irrelevant unless there

is also some evidence presented that the plaintiff is representa-

tive of the group of unsophisticated consumers. Avila v.

Rubin, 84 F.3d 222, 227 (7th Cir. 1996) (“because [the state-

ments in the collection letter] are inconsistent and

contradictory . . . our finding that the defendants violated

§ 1692g, without reference to actual consumer confusion, is

appropriate.”); Bartlett v. Heibl, 128 F.3d 497, 501 (7th Cir. 1997)

(“the question whether a dunning letter violates the Fair Debt

Collection Practices Act does not require evidence that the

recipient was confused—or even, as we noted earlier, whether

he read the letter”). In Chuway v. Nat’l Action Fin. Servs., Inc.,

362 F.3d 944, 948 (7th Cir. 2004), Judge Posner states that no

further evidence of confusion is necessary if the letter is confus-

(continued...)

24 No. 07-1075

state that the amount she owes is “zero,” as she knows

this is not true. If she were to guess an amount, she would

be making an admission (and probably an incorrect one)

as to her amount of debt. What is she to do? The

FDCPA relieves her of this burden by requiring only that

she state “I dispute the debt.” Cadleway’s letter puts an

additional burden on her and implies that her failure

to comply will result in damage to her credit rating.

The majority opinion concludes that the form does

nothing to imply that confirmation is obligatory. To the

contrary, everything about the letter indicates otherwise.

The clear direction in the last paragraph of the letter is

to “confirm the balance or state the amount you believe

is correct.” It is then followed by a form that contem-

plates exactly such a confirmation. It states:

The total amount owed as of September 24, 2004 of

$___ is confirmed.

1

(...continued)

ing on its face, and the plaintiff testifies credibly that she

was indeed confused. Id. (emphasis added). Although he cites

several cases for the former proposition, he cites none for the

latter. And indeed in his earlier opinion in Bartlett, he notes that

the FDCPA does not require evidence that the recipient was

confused or even that the recipient read the dunning letter.

This is, of course, true because the test for confusion is an

objective one. The majority opines at length about the evidence

that the collection letter was not confusing to McKinney. This is

a red herring. We have no evidence that McKinney was or was

not representative of the unsophisticated consumer.

No. 07-1075 25

The amount owed is incorrect. The total amount

owed should be $___.

If Cadleway merely had wanted to help creditors by

providing a form to dispute the debt it would have pro-

vided a check box option that stated, “G I dispute this

debt.” This letter is relying on a consumer’s natural

inclination to fill out a form provided in a letter rather

than dissect the dense text of the correspondence to

determine first, that confirming is different than dis-

puting the debt, and second, that she cannot use the

form, but must create her own letter from whole cloth in

order to dispute the debt. That form, moreover, contradicts

the requirements of the FDCPA and puts the burden on

the consumer rather than the debt collector to deter-

mine the correct amount of debt owed. The confusion is

compounded by the implication that failure to confirm

the amount of the debt will result in a damaged credit

rating. Ignoring the form thus appears to lead to detrimen-

tal consequences. The direction, the nature of the form,

and the implied threat together indicate that such a con-

firmation is indeed required. And that requirement is dif-

ferent from, and in some cases directly contrary to, the

requirements of the FDCPA. A debt collector may not

overshadow or contradict correct FDCPA information

with other messages sent with the validation notice.

Chauncey v. JDR Recovery Corp., 118 F.3d 516, 518 (7th Cir.

1997). The option to write “0” next to “total amount

owed”—an option to which the majority points—does

nothing to alleviate the problem. In particular, for the

debtor who thinks she owes some amount of debt, disputes

the amount asserted by the collector, but has no basis

26 No. 07-1075

to determine an exact correct amount, the form is

nothing but confounding.

Judge Guzmán described the confusion in slightly

different, although no less compelling terms. The valida-

tion notice portion of the letter (the first five paragraphs)

informs the plaintiff how to dispute the debt and that

it must be done within thirty days. The consequence of

failing to dispute the debt is that Cadleway may assume

that the entire debt is valid. The confirmation portion

(the last paragraph) instructs debtors that they must

confirm (rather than dispute) the debt but provides no

time line for doing so. (R. at 47, p.6) The implied conse-

quence for failing to confirm the debt is a damaged credit

rating. Id. In sum, the two portions therefore differ in

(1) the action required (dispute vs. confirm), (2) the time

frame for action (thirty days vs. no stated time limit), and

(3) the consequence for failing to act (the debtor will

assume the validity of the debt vs. an implication that

the creditor’s credit rating will suffer).

Judge Guzmán concludes that the two provisions

taken together could be interpreted to mean (1) that the

debtor has thirty days to dispute or confirm the debt

and failure to do so within that time frame will lead

Cadleway to assume the entire debt is valid and to

report the entire debt as unpaid to the credit bureau; or

(2) that the debtor has both the option to dispute the

debt within thirty days and the obligation to confirm

the debt within an unspecified amount of time and that

failure to do the former will lead the defendants to

assume that the debt is valid and failure to do the latter

No. 07-1075 27

will cause them to report the entire debt as unpaid to

the credit bureau. Id.

As the district court points out, the first interpreta-

tion requires the reader to conclude that the words

dispute and confirm are synonymous and that the confir-

mation provision is just an elaboration of the validation

notice. Id. The district court concluded that only “a savvy

consumer would draw those conclusions from this let-

ter. But an unsophisticated consumer, faced with a letter

that separately discusses the debtor’s option to dispute

and apparent obligation to confirm and sets forth

different consequences for the failure to do each, would

not.” Id. Judge Guzmán concluded that an unsophisticated

consumer would reasonably conclude that disputing and

confirming are separate acts and that failure to do the

latter would damage her credit rating. Id.

The majority agrees with Judge Guzmán that disputing

and confirming are indeed separate acts (“the form

permits the consumer to either confirm the debt or to

dispute it,” ante at 16 (emphasis in original)), but con-

cludes that the form does nothing to imply that confirma-

tion is obligatory. As I concluded above, however, the

letter says nothing about an option to confirm, and even a

more sophisticated consumer would view the tone and

form of the letter as a whole as requiring confirmation. Fur-

thermore, even a letter that explicitly stated “you also

have the option, but are not required to confirm the

amount of debt so that we can report it to the credit

bureau in accordance with 15 U.S.C. § 1681,” would not

relieve the confusion. “A letter can be confusing even to

28 No. 07-1075

a sophisticated reader though it does not contain an

outright contradiction.” Chuway v. Nat’l Action Fin. Servs.

Inc., 362 F.3d 944, 949 (7th Cir. 2004); see also Johnson v.

Revenue Mgmt. Corp., 169 F.3d 1057, 1060 (7th Cir. 1999)

(the failure to explain an apparent though not actual

contradiction can induce confusion). Even the statement

that confirmation is optional would leave the consumer

scratching her head wondering: Is this option different

from the option to dispute the debt? Must I dispute

the debt with a specific numeric figure? Will I be

reported to the credit bureau if I dispute but do not

confirm the debt? If I confirm the debt with an amount

lower than the amount stated, is the debt collector

still obliged to cease collection of the debt until a verifica-

tion of the debt is mailed to me? The confirmation

portion of the letter raises all of these questions but

leaves them unanswered. Not even I know the answer

without resorting to legal research. This surely cannot

be the standard we require of the unsophisticated con-

sumer. The confirmation portion of the letter is clearly

confusing on its face. I therefore respectfully dissent.

11-13-08