I've been thinking about the pending acquisition of HSBCs' USA Credit Card operation by Capital One and how it will affect accounts currently in default status with HSBC.
First what we know (well we think we know):
HSBC will be selling 99% of their USA based credit card operation to Capital One including branded HSBC, Household Bank and Orchard Bank cards.
HSBC will be selling all of their co-branded credit cards to Capital One including GM Card, Best Buy, etc.
HSBC will retain a small number of credit card accounts, these are generally "asset customers" not everyday credit cards and this operation is moving to Ireland.
HSBC will NOT be exiting the USA market as a business, but they will be exiting USA based consumer credit cards.
Once the sale is complete, publicly stated as the second quarter of 2012, Capital One will own the complete operation including accounts receivables, etc generally governed by the assignment clause in the original customer agreements terms. I'm sure any changes Capital One makes will follow the usual "you can opt out but we'll close your card" SOP. I'm also fairly sure that co-branded cards will see no real difference in the everyday operation of these cards. I base this assumption of the Capital One - Kohls purchase that happened August 11, 2011. Most Kohls customers, including my wife, had no idea that their account was now owned/backed by Capital One rather than Chase.
Okay, now I get to the question and reason for this post: HSBC branded cards (HSBC, Household, Orchard) that are currently in default, yet still owned by HSBC (in house collection or just in say a 30 day default, or old and charged off but not sold) will be included in the sale to Capital One which I assume will become Capital Ones' problem as to reinstating or collecting.
HSBC is the original creditor, they are exiting the market but not being purchased by Capital One, only the credit card operation is being purchased. For the accounts in default at the time of the sale (date of closing), will Capital One be considered a CA since they will NOT be the original creditor? My thoughts are that Capital One can NOT be considered the Original Creditor for accounts currently in default with HSBC which would subject Capital One and any collection effort to the FDCPA .
The issue is not one of whether they are the original creditor, it is one of whether the purchaser becomes a debt collector who is subject to the FDCPA.
They are collecting on delinquent debt accrued to another.
The prevailing case law seems to be that if the account is in default at the time of transfer of ownership, the new owner is considered a "debt collector."
I will provide some case law cites if needed, but that is my understanding from the case law I have reviewed. It is that interpretation that is routinely used to makes JBDs debt collectors, even upon purchase of the debt. It was debt incurred to another that was in default upon purchase.
If the new owner contacts you, my advice is to consider them a debt collector subject to the FDCPA, hold them accountable for a dunning notice, and use the DV process.
Let them assert that they are not accountable to the provisions of the FDCPA. I think they would be.
Thanks Robert, that is the assumption I had come to too.
Oh, btw, I don't have anything in default with HSBC so I'm not worried about being contacted by Capital One for old debt. It just seemed like an interesting question to me where a company that would be considered an OC typically, is now considered a CA for a lot of accounts all subject to the FDCPA. Seems like an unique situation where some old debt could be GW/PFD easily due to the transfer.
For all I know Capital One will take all of the defaulted HSBC accounts and sell or sublet them to an outside agency.
The leading case is Kimber v. Federal Financial Corp., where the purchaser of credit card receivables from W.T. Grant, which had gone bankrupt, was held to be a "debt collector" with respect to those receivables which were delinquent at the time they were acquired. The court stated:
"The first part of 1692a(4) defined the universe of creditors as either those who originate a debt or those to whom a debt is owed; in either case, the creditors are not collecting the debts for others. The second part of 1692a(4), the assignee exception, then purports to exclude from this universe those persons who collect assigned or transferred debts that are already in default when assigned or transferred. To say that this exception applies only to those who collect debts for others would be to render the exception superfluous and meaningless; those who collect debts for others are not in the original definitional universe, and there is therefore no need to exclude them. Rather, the excluding factors in the exception are that the debts are the result of an assignment or transfer and that the debts were already in default at the time of assignment or transfer. With the phrase `for another' at the end of the exception, Congress merely intended that the debts should have originally belonged to another and that the creditor was therefore in effect a third-party or independent creditor. "