This week, the U.S. Supreme Court resolved a lingering question regarding the status of certain creditors under the Fair Debt Collection Practices Act (FDCPA).
In Henson v. Santander Consumer USA Inc., the Court unanimously held that a company may collect debt it purchased for its own account without being considered a “debt collector” under the FDCPA, even if the debt was in default when purchased.
For years, some courts interpreted the FDCPA definition of “debt collector” to include companies that purchase accounts that are in default. Many of my clients really struggled with that interpretation because it created an unworkable dichotomy. That is, when a company purchased a loan portfolio (e.g., when acquiring another company), the FDCPA would not apply to accounts in good standing when purchased but the FDCPA would apply to accounts in default when purchased.
Other courts, such as the Fourth Circuit Court of Appeals, disagreed with this approach. Earlier this year, the Supreme Court granted certiorari to decide the issue.
In Justice Neil Gorsuch's first opinion released Monday, the Court focused on the text of the FDCPA, delving into a full-blown grammar lesson, and explained that the statute clearly identifies debt collectors as companies that collect debts owed to another. A company collecting its own debt, even if the debt was in default when purchased, is not collecting a debt owed to another. Accordingly, the Court reasoned, “[A] company collecting purchased defaulted debt for its own account – like Santander—would hardly seem to be barred from qualifying as a creditor under the statute's plain terms.” Thus, the Court held the FDCPA does not apply to companies collecting debts for their own account, regardless of the default status of the debt.
This case is noteworthy on two levels. First, it resolves a longstanding disagreement among federal courts on an important issue in the consumer finance industry. Companies that purchase accounts are no longer faced with having to deal with FDCPA requirements for some of the accounts, but not others.
Second, for Supreme Court “watchers”, this case gives insight into Justice Gorsuch's legal philosophy. The opinion emphasizes the language of the statute. It notes that Congress, not the Court, must change the statute if it is to be changed. At the end of the opinion, Justice Gorsuch comments “Constant competition between constable and quarry, regulator and regulated, can come as no surprise in our changing world. But neither should the proper role of the judiciary in that process—to apply, not amend, the work of the People's representatives.”
Consumer finance companies will certainly view this as a welcome development.