Eastern District of New York Holds Loan Servicers Are Not Debt Collectors If They Acquired the Account When It Was Not In Default

The United States District Court for the Eastern District of New York has held that a loan servicer does not qualify as a debt collector under the Fair Debt Collection Practices Act, 15 U.S.C.A. §1692a (“FDCPA”), where the loans were not in default when the servicer began servicing them.

In DeSimone et al. v. Select Portfolio Servicing Inc., Plaintiffs filed a proposed class action accusing Select Portfolio Servicing Inc. (“SPS”) of charging borrowers unauthorized fees for processing direct debit payments from borrowers’ bank account. Plaintiffs alleged that the direct debit processing fees were not authorized by their mortgage agreements and that those fees violated the FDCPA as well as certain state consumer protection statutes.

SPS moved to dismiss, arguing that it was not a “debt collector” as that term is defined in the FDCPA, because there was no allegation in the Complaint that the loans were in default when SPS began servicing them. Despite Plaintiffs’ arguments that SPS regularly collects defaulted loans and that at least one Plaintiff’s loan was past due at some point, the Court agreed with SPS and dismissed the FDCPA claim. “The issue is whether plaintiffs’ loans were in default at the time defendant began servicing them, not at some point thereafter.” With Plaintiffs’ only federal claim dismissed, the Court further declined to exercise supplemental jurisdiction over the state law claims.

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