Under FDCPA, loan's purpose can justify classifying it as consumer, despite evidence that it was commercial in nature

Law Reporter, Jun 2001

Slenk v. Transworld Sys., Inc., 236 F.3d 1072 (9th Cir. 2001).

The Ninth Circuit Court of Appeals held that, under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. sec sec 1692, the purpose for which a loan is used can justify classifying the loan as consumer despite documentary evidence that the loan was commercial in nature.

Here, Slenk, the owner of a construction business, bought a backhoe to use in building his home. The sale invoice listed Slenk's business as the purchaser, the sales tax applicable to businesses was used, and in a permit application, Slenk's business was listed as the building contractor for the house construction. Slenk took out a loan from a credit union to finance the backhoe purchase. The agreement was signed by Slenk as an individual and identified the intended use for the loan as the purchase of excavation equipment. However, the backhoe was listed as the property of Slenk's business on his tax returns. Despite this, the backhoe was never used by Slenk's business. Slenk sold the backhoe after completing his home.

Slenk failed to repay the loan, and it was assigned to a collection agency, which sent letters to Slenk and called him repeatedly. Slenk sued the agency, alleging, among other claims, that its collection practices violated the FDCPA. The trial court granted defendant summary judgment, finding that the act did not protect plaintiff because the loan was commercial in nature.

Reversing, the Ninth Circuit noted that the FDCPA defines a consumer debt as any obligation of a consumer to pay money arising out of a transaction in which the property that is the subject of the transaction is primarily for personal use. To determine whether a loan is consumer or commercial in nature, the court explained, courts should look to the transaction as a whole, paying specific attention to the purpose for which the credit was extended. Consequently, neither the lender's motives nor the fashion in which the loan is memorialized are dispositive, the court said.

The court rejected the trial court's reliance on certain factors-the sales invoice, tax returns, lower sales tax, and building permits-in reaching its conclusion. While those facts militate against plaintiffs position, the court said, they are not dispositive. There are other undisputed facts, overlooked by the trial court, that give rise to a genuine issue of material fact, the court noted. The loan instrument itself states that the debt was consumer in nature, the backhoe was only used to build plaintiffs home, plaintiff's business was not licensed to use a backhoe, and the equipment was sold immediately after completion of the home. While this evidence contradicts the documentary evidence, it is not the province of the trial court to weigh conflicting evidence for purposes of summary judgment, the court concluded.

Accordingly, the court remanded. Plaintiffs Counsel

John Harris Paer, Honolulu, Haw.