This decision may interest and benefit certain purchasers of defaulted mortgage loans who later face FDCPA claims. This decision might also affect the Consumer Financial Protection Bureau’s Section 8 Real Estate Settlement Procedures Act (“RESPA”) interpretation.
On June 12, 2017, the United States Supreme Court, in a unanimous decision, held that individuals and entities who regularly purchase debts originated by someone else, and then seek to collect those debts for their own account, are not “debt collectors” subject to the Fair Debt Collection Practices Act (“FDCPA”). Henson v. Santander Consumer USA Inc., __ S. Ct. __, 2017 WL 2507342 (June 12, 2017). In doing so, the Court resolved a conflict existing in the United States Court of Appeals for the Fourth and Eleventh Circuits, which held that such purchasers of debt are not debt collectors, and the Third and Seventh Circuits, which held that they are.
The Court focused on the plain language of the FDCPA, which defines debt collectors to include those who regularly seek to collect debts “owed ... another,” stating, “by its plain terms this language seems to focus our attention on third party collection agents working for a debt owner—not on a debt owner seeking to collect debts for itself. Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner—whether the owner originated the debt or came by it only through a later purchase. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for ‘another.’”
In Henson, four consumers financed vehicle purchases on retail installment sale contracts and each failed to pay. The creditor repossessed, sold the vehicles, and informed the consumers they each owed a deficiency balance. The creditor later sold the debts to Santander, which then communicated with the consumers to collect the debts. The consumers filed a class action lawsuit alleging FDCPA violations by Santander.
Attorneys general from more than two dozen states urged the Supreme Court to find that debt buyers, such as Santander Consumer, are covered by the FDCPA, arguing that “from the consumer’s perspective, a debt buyer is no different from a debt collector, and there is no reason to treat one differently from the other.” They claimed that the broader structure of the FDCPA supported the conclusion that the proper inquiry should be whether the debt was owed or due to another at the time it originated, not at the time of collection, because of the absence of an ongoing servicing relationship with the consumer (that Congress had envisioned when it moved to exempt creditors and those attempting to collect debts that were not in default when they were obtained, as distinguished from those who were acting like debt collectors).
The Supreme Court declined to extend the statute, stating, “it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done,” and “we will not presume with petitioners that any result consistent with their account of the statute’s overarching goal must be the law but will presume more modestly instead ‘that [the] legislature says ... what it means and means ... what it says.’”
This decision may interest and benefit certain purchasers of defaulted mortgage loans who later face FDCPA claims. This decision might also affect the Consumer Financial Protection Bureau’s Section 8 Real Estate Settlement Procedures Act (“RESPA”) interpretation, which has overruled decades of established interpretative guidance, and is currently the subject of additional litigation.