Neff, Nathan v. Capital Acquisitions ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 02-4186 & 02-4189
NATHAN NEFF and ROBERT ROBB,
Plaintiffs-Appellants,
v.
CAPITAL ACQUISITIONS & MANAGEMENT COMPANY
and CAPITAL ONE, F.S.B.,
Defendants-Appellees.
____________
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
Nos. 02 C 4434 & 02 C 5829—James F. Holderman, Judge.
____________
ARGUED SEPTEMBER 12, 2003—DECIDED DECEMBER 15, 2003
____________
Before BAUER, KANNE, and EVANS, Circuit Judges.
EVANS, Circuit Judge. In 1990, Citibank issued a credit
card to Nathan Neff, who fell behind on his account.1 Like
1
In 1998, 67.5 percent of Americans had a credit card, and 54.7
percent had account balances after paying their most recent bills.
See U.S. Census Bureau, U.S. Dep’t of Commerce, Statistical
Abstract of the United States 728, tbl. 1166 (2002). Among those
having a balance, the medium amount of debt totaled $1,900, and
over a quarter of Americans (26.9 percent) “hardly ever pay off the
(continued...)
2 Nos. 02-4186 & 02-4189
many credit card accounts, moreover, his was sold2 as
delinquent to Capital One, one of the defendants in this
case. In 1997, while Capital One held the account, a col-
lection agency, Northland Group, sent Neff a letter stating
that his balance was $1,330 but that he could settle up by
paying $536. Neff says he paid that amount with a money
order marked “payment in full.”
Over the next 5 years, Neff assumed that his Citibank
debt was satisfied. He received no monthly statements, or
for that matter any correspondence at all, which would have
alerted him to the fact that someone thought his account
remained open and that it was accumulating interest at a
staggering rate. In 2002, Neff received a letter from Capital
Acquisitions & Management Company (CAMCO), an entity
that purchased his account from Capital One, claiming that
he now owed $2,835.32, most for interest accumulated over
the years.
Like Neff, Robert Robb opened his mail one day and
learned that CAMCO said he owed money on a credit card
account he thought had been settled long ago. In 1990, a
company called “First Card” issued Robb a credit card. Robb
fell behind on payments and First Card sold the account as
delinquent to Capital One. Robb claims that the account
was settled and that he heard nothing until 2002, when he
received a letter from CAMCO notifying him that it had
purchased his account and that he owed almost $7,000, the
majority for accumulated interest. Like Neff, Robb never
1
(...continued)
balance.” Id. The government estimates that in 2000 there was
$683 billion of outstanding credit card debt. Id., tbl. 1165.
2
In 2002, card companies sold $46.29 billion worth of delinquent
card portfolios, up 25 percent from 2001. Ellen Kelleher, “Debt
Collectors Prosper on Bad Loan Bargains,” Financial Times
(London), Sept. 12, 2003.
Nos. 02-4186 & 02-4189 3
received monthly statements or correspondence of any sort
that would have put him on notice that he had outstanding
debt which was accumulating interest at a high rate.
We do not know what has become of the claims by Capital
One and CAMCO that Neff and Robb still owe money on
their old credit card accounts with Citibank and First Card.
If, as Neff and Robb allege, the accounts were settled long
ago, we can only assume that the claims against them have
dried up. But in these cases, it is Neff and Robb who take
the offensive, alleging that Capital One and CAMCO
violated the Truth in Lending Act, 15 U.S.C. § 1601 et seq.
(TILA), the Fair Debt Collection Practices Act, 15 U.S.C.
§ 1692 et seq. (FDCPA), and the Illinois Consumer Fraud
Act when they attempted to impose and collect interest on
revolving credit accounts without sending monthly state-
ments to them.
The district court court dismissed their complaints of
federal violations on a Rule 12(b)(6) motion,3 and we review
its order de novo on Neff and Robb’s appeal.
Understandably, both Neff and Robb were surprised when
they received letters from CAMCO telling them they owed
money on credit card charges going back almost 10 years.
Not only did they (if their story is accurate) assume that
they owed no money on the accounts, but they were surely
shocked to be told that they also owed an enormous amount
of interest. While we are sympathetic to Neff’s and Robb’s
situation, the district court was correct in granting Capital
One and CAMCO’s motion to dismiss.
Under TILA, only “creditors” are required to send con-
sumers monthly billing statements. 15 U.S.C. § 1637(b).
3
After dismissing the federal claims, the court declined to exer-
cise supplemental jurisdiction over the state claim.
4 Nos. 02-4186 & 02-4189
Neff and Robb argue that Capital One and CAMCO became
credit card issuers, and thus creditors under the purview of
TILA, when they purchased the open accounts. See 15
U.S.C. § 1602(f) (defining creditor as any person who issued
an open-ended credit card). To meet this definition, how-
ever, Capital One and CAMCO must have either “issued a
credit card” or been the issuer’s “agent.” 15 U.S.C.
§ 1602(n). Neither defendant meets either requirement.
To begin, neither one issued Neff or Robb a “credit card,”
something that is able to access a line of credit. Official
staff commentary to Regulation Z, 12 C.F.R. pt. 226,
Supp. 1 at ¶ 2(a)(15)-2.4 Neither CAMCO nor Capital One
granted Neff and Robb the right to “incur debt” or to “defer
payment of debt.” 15 U.S.C. § 1602(e); American Express Co.
v. Koerner, 452 U.S. 233, 240-41 (1981). Neff and Robb
could not go to the store and make a purchase on Capital
One or CAMCO credit. In fact, the defendants granted Neff
and Robb no credit privileges at all. Because neither Capital
One nor CAMCO issued Neff or Robb a “credit card,” they
are not “card issuers” under the Act.
Nor can Capital One and CAMCO be considered “agents”
of “card issuers.” 15 U.S.C. § 1602(n). To become an agent,
there must be an agreement that “the cardholder may use
a line of credit with the financial institution to pay obliga-
tions incurred by use of the credit card.” 12 C.F.R., pt. 226,
Supp. I, ¶ 2(a)(7). As explained above, Neff and Robb had no
credit privileges with Capital One or CAMCO. No contrac-
tual relationship existed, moreover, between the original
4
Congress delegated to the Federal Reserve Board the task of
carrying out TILA, see 15 U.S.C. § 1604(a). The Board’s interpre-
tation of both TILA and Regulation Z, including the official com-
mentary, is entitled to great deference. See Hardison v. General
Fin. Corp., 738 F.2d 893, 895 (7th Cir. 1984).
Nos. 02-4186 & 02-4189 5
card issuers, Citibank and First Card, and the defendants.
All Citibank and First Card did was sell Robb’s and Neff’s
accounts. That is not sufficient to deem Capital One and
CAMCO the agents of Citibank and First Card.
Since we conclude that neither Capital One nor CAMCO
are creditors under TILA, Neff’s and Robb’s reliance on the
rule for when “creditors” are permitted to stop sending
statements is misplaced. See 12 C.F.R. § 226.5(b)(2)(i); 12
C.F.R. pt. 22d, Supp. I, ¶ 5(b)(2)(i)-2. These regulations
apply only to “creditors,” and thus, as discussed above, the
defendants had no obligation to send such statements in the
first place. See Lilly v. Internal Revenue Serv., 76 F.3d 568,
571 (4th Cir. 1996) (“If a statute defines a term in its
definitional section, then that definition controls the mean-
ing of the term whenever it appears in the statute.”).
Furthermore, because TILA and Regulation Z specif-
ically address the circumstances of an assignee’s obligations
under the Act, we do not look to the “normal rule” that an
assignee assumes the duties of the assigning party. See,
e.g., Plumb v. Fluid Pump Serv., Inc., 124 F.3d 849, 864
(7th Cir. 1997) (“[e]lementary contract law provides that
upon a valid and unqualified assignment the assignee
stands in the shoes of the assignor and assumes the same
rights, title and interest possessed by the assignor.” (inter-
nal citation omitted)). Where Congress and the Federal
Reserve wished to impose requirements on assignees or
subsequent holders, they did so explicitly. See, e.g., 15
U.S.C. § 1641 (liability of assignees under the Act); 12
C.F.R. pt. 226, Supp. I, ¶ 20-1 (holding that a creditor “or
subsequent holder” is required to provide certain disclo-
sures under § 226.19 of the Act, relating to residential
mortgage and variable-rate transactions). Neither Congress
nor the Federal Reserve made the policy choice here to
extend the duty to send monthly statements to purchasers
of delinquent accounts, and it is not our role to read such a
6 Nos. 02-4186 & 02-4189
requirement into the statute. Cf., Aubert v. American Gen.
Fin. Inc., 137 F.3d 976, 979 (7th Cir. 1998) (“When Con-
gress wished to add . . . an exclusion from the [FDCPA’s]
coverage, it is apparent that it knew how to do so.”).5
Neff’s FDCPA claim fares no better. He argues that when
Capital One sold his debt to CAMCO, the sale resulted in
further collection action against him, when the debt should
have been reflected as satisfied, in violation of the FDCPA.
That Act, however, applies only to debt collectors, Pettit v.
Retrieval Masters Creditors Bureau, Inc., 211 F.3d 1057,
1059 (7th Cir. 2000), and only when their conduct is
undertaken “in connection with the collection of any debt.”
15 U.S.C. § 1629e. See also 15 U.S.C. § 1629f (“[a] debt
collector may not use unfair or unconscionable means to
collect or attempt to collect any debt.”). Capital One was not
a debt collector when it sold Neff’s account to CAMCO. 15
U.S.C. § 1692a(6) (defining a “debt collector” as any person
who “regularly collects or attempts to collect, directly or
indirectly, debts owed or due or asserted to be owed or due
another.”). In selling its asset, Capital One did not directly
or indirectly attempt to collect Neff’s debt. From the
moment it sold Neff’s account, it was irrelevant to Capital
One whether Neff’s account was collected or not. Capital
One retained no ownership interest in Neff’s debt and
CAMCO was not acting as its collection agency. Thus, on
5
For purposes of comparison, the FDCPA, which has a different
definition of “creditor,” is relevant. Under the FDCPA, a “creditor”
is any person who “offers or extends credit creating a debt or to
whom a debt is owed . . . .” 15 U.S.C. § 1692a(4) (emphasis added);
Schlosser v. Fairbanks Capital Corp., 323 F.3d 534, 536 (7th Cir.
2003). Under this definition, Neff and Robb would have a more
compelling argument that Capital One and CAMCO are “credi-
tors.” Significantly, Congress thus knew how to write a broader
definition of “creditor”, yet chose not to do so in TILA.
Nos. 02-4186 & 02-4189 7
just a facial reading of the statute, Capital One was not a
debt collector.
Once the TILA and FDCPA claims were properly dis-
missed, the district court did not abuse its discretion in de-
clining to exercise supplemental jurisdiction over the state
claims. See, e.g., O’Grady v. Village of Libertyville, 304 F.3d
719, 725 (7th Cir. 2002).
For the foregoing reasons, the judgment of the district
court is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-15-03