Christopher J. Hall, Esq.
Dear Mr. Hall:
This is in response to your letter of March 24, 1988, asking whether a particular loan transaction falls within the purview of the Fair Debt Collection Practices Act ("Act"). If so, you also inquire whether foreclosure of such a loan would trigger the verification requirements of Section 809 of the Act (copy enclosed).
You state that a banking association has lent money to a corporate entity for commercial purposes and that no part of the loan proceeds have been used for personal, family or household purposes. The principals in the corporate entity have executed individual guarantees of their corporate obligations, giving as security for their guarantees mortgages upon residential real estate that the principals own in their in their individual names. You want to know whether foreclosure of these loans would be covered by the Act. You ask us to assume that your client is a "debt collector" as defined.
Section 803(5)2 defines the term debt 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 to the transaction are primarily for personal, family, or household purposes..." The loan described in your letter did not "arise out of a transaction" where the proceeds would be used for personal, family or household purposes; hence, the loan is not a "debt" within the contemplation of the Act. Further, the Act has no application to the collection of commercial accounts. The fact that the principals to the loans executed mortgages upon their own residential real estate as security does not alter the fact that the loan was made to the corporate entity for commercial purposes and the resulting obligation is a corporate obligation to your client.
Since the loan being collected is not a "debt" as defined in the Act, none of the other provisions of the Act, including Section 809, are applicable to your client's activities in this particular situation.
For your information I am forwarding a package of informal staff interpretations dealing with various issues that have been raised by attorney debt collectors. Among these you will find interpretations addressing questions regarding foreclosure proceedings under various state foreclosure statutes as they apply to collection activities under the Act.
Thanking you for the opportunity to be of service.
Roger J. Fitzpatrick
1 15 U.S.C. 1692g.