Mr. Bruce A. Nants
Dear Mr. Nants:
Ms. Rachelle V. Browne has asked me to respond to your inquiry of January 18, 1989, regarding the venue provisions of the Fair Debt Collection Practices Act ("Act"). In your letter you describe a situation in which a law firm that is clearly subject to the Act files several thousand collection suits against credit cardholders for debts, owed on their VISA and MasterCard credit card accounts. These cards are issued based on the personal credit qualifications of the individual cardholders. You also indicate that the suits name only individuals and not businesses, corporations, partnerships, or trusts. Your question concerns the applicability of Section 811 of the Act -- the venue provision -- to such suits when the credit card debts are of both a business and personal nature.
As you note, Section 803 (5) defines "debt" to mean an obligation arising from a transaction in which the goods or services that are the subject of the transaction are for "personal, family, or household purposes." Thus, debts incurred for business or commercial purposes are not covered by the Act. Your question is whether and to what extent the Act applies in situations where a consumer's VISA or MasterCard account is used for both personal as well as business expenses. You ask, for example, whether some percentage of the purchases made with a credit card must be business-related in order for the concomitant debts to be excluded from the Act.
Purchases made on credit card accounts may involve debts that are and are not covered by the Act. Each credit card transaction constitutes a separate and distinct item for purposes of the Act. Thus, rather than considering the account as a whole, we would look to each transaction to determine whether related debts are subject to the Act. However, we acknowledge that it may be impractical for an attorney suing to collect delinquent balances on a credit card account to distinguish between those debts that are subject to the Act and those that are not.
In order to avoid violating the Act, an attorney debt collector who sues to collect on a credit card account issued in the name of an individual, as opposed to a business, should probably assume, absent evidence to the contrary, that the account is used, at least in part, for personal expenses and that therefore, some or all of the obligations incurred constitute "debts" under the Act. If any of the individual transactions underlying an unpaid credit card balance represent consumer debts, then any legal action taken to collect those debts must comply with the provisions of Section 811. The percentage of consumer debt in the balance is irrelevant so long as at least one transaction falls in that category. In those cases, the attorney would be required to file suit only in the judicial district where the consumer signed the contract sued upon or where the consumer resides at the commencement of the action.(1)
Please note that these comments represent unofficial staff opinion and, as such, are not binding on the Commission or any court. They do, however, constitute the staff's present enforcement position.
1. However, in the case of an action to enforce an interest in real property securing the consumer's obligation, Section 811 (a) (1) requires that the action be brought only in the judicial district where the real property is located.