Recently, the Supreme Court held that an entity collecting on debt that was in default and purchased for the debt purchaser’s own account in not subject to the Fair Debt Collection Practices Act (the “FDCPA” or the “Act”) because it does not constitute a debt collector as defined in the Act. Henson v. Santander Consumer USA, Inc., SC No 16-349 (2017).
Summary of the FDCPA
The FDCPA authorizes private lawsuits and levies significant fines to discourage debt collectors from utilizing abusive, unfair, or deceptive practices while seeking payment on defaulted consumer debt, and also mandates debt collectors to provide certain notices and disclosures to debtors. See 15 U.S.C. §§1692-1692p. Pursuant to the Act, a “debt collector” is “any person who uses any instrumentality of interstate commerce of the mains in any business the principal purpose of which is the collection of any debts, or who regularly attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. 1692(a)(6). Thus, the FDCPA, by its own terms, does not apply originators of such debt, nor debt purchasers that regularly engage in purchasing and collecting defaulted debt for their own accounts.
Henson v. Santander
In this case, the plaintiffs were borrowers who defaulted on car loans that were originated by CitiFinancial and ultimately sold to Santander. Henson v. Santander Consumer USA, Inc., SC No 16-349 (2017). When Santander began collection efforts, the plaintiffs brought a class action against Santander, claiming that Santander was a “debt collector” whose debt collection efforts violated the FDCPA. Id. The Fourth Circuit Court of Appeals affirmed the District Court’s conclusion, agreeing with the Ninth and Eleventh Circuits, that Santander was not a “debt collector” under the FDCPA because, as a purchaser of the defaulted loans, it did not “regularly seek to collected debts owed . . . another.” Id. Stated differently, once the debt is purchased from the originator, the debt purchaser stands in the shoes of the originator, and the originator no longer has a right to that debt. Id. Therefore, debt purchasers are not collecting a debt owed to another, but are collecting a debt owed directly to them. Id. However, the Third, Fifth, Sixth, and Seventh Circuits reached different conclusions, creating a split ripe for SCOTUS review. Id.
The Supreme Court affirmed, adopting a narrow definition of “debt collector” under the FDCPA. Id. The Court’s opinion focused on the FDCPA’s definition of “debt collector,” which includes “any person collecting or attempting to collect any debt owed or due or asserted to be owed . . . another.” Id. Because the plaintiffs’ debt was now “owed” to Santander and not “another,” Santander could not be a “debt collector” under the plain reading of the Act. Id. Thus, Santander was not subject to the FDCPA. Id. The Court rejected the plaintiffs’ argument that an entity becomes a “debt collector” when it purchases debt that was originally “owed” to the originator or by regularly purchasing defaulted debt. Id. Instead, the Court held the definition of “debt collector” encompasses third-party collection agents that regularly collect on behalf of a debt owner, and not a debt owner seeking to collect for its own account. Id.
The Court also rejected the plaintiffs’ policy-based argument that Congress would have included debt purchasers in the definition of “debt collector” had it known at the time the FDCPA was enacted that the distressed and defaulted debt purchase industry would grow to its present size. Id. While acknowledging the plaintiffs’ concerns about debt collection abuse by such defaulted debt buyers, the Court concluded that such concerns are for Congress to address.
The United States Supreme Court has concluded that “debt collector,” as defined under the FDCPA, must be narrowly construed. Those who do not “regularly seek to collect debts owed . . . to another” are not “debt collectors.” As discussed previously, originators of the debt are not subject to the FDCPA because they seek to collect the debt they own. Further, as SCOTUS held, those who purchase defaulted debt and then seek to collect it for their own account, and not for or on behalf of another, are “debt purchasers.” Because debt purchasers do not seek to collect the debt for and on behalf of another, but collect debt it owns, debt purchasers are not subject to the FDCPA.