In Henson v. Santander Consumer USA, Inc., 137 S. Ct. 1718 (2017), the United States Supreme Court gave some clarity as to who is a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”). In this regard, the Court ruled that an entity that purchases debt and then seeks to collect that debt is not a “debt collector” within the meaning of the FDCPA.
The FDCPA seeks to deter certain types of debt collection practices. To help achieve this outcome, the statute authorizes private lawsuits and substantial fines against violators. A key aspect to such lawsuits is defining who constitutes a “debt collector.” Section 1692a(6) of the FDCPA defines a “debt collector” as anyone who “regularly collects or attempts to collect . . . debts owed or due . . . another.”
It is understood that third party debt collection agents generally qualify as “debt collectors” under the statute. But that is not the type of entity that was involved in the dispute before the Supreme Court. In Henson, CitiFinancial Auto loaned money to individuals who sought to purchase automobiles, the plaintiffs in the lawsuit (who were the petitioners before the Court) defaulted on those loans, and that debt was purchased by Santander, which in turn sought to collect those defaulted loans from the plaintiffs. The plaintiffs accused Santander of engaging in debt collection practices that violated the FDCPA. Santander argued that it was not subject to the FDCPA because it was not a “debt collector” within the meaning of the statute. To this end, Santander argued that, with respect to the loans at issue, it was not seeking to collect a “debt[ ] owed or due . . . another.”
The Court found the text of the statute clear and unambiguous and agreed with Santander. In this regard, because Santander purchased the debut and sought to collect the debt for itself, Santander was not seeking to collect the “debt[ ] owed . . . another.” As a result, the Court held that Santander was not a “debt collector” under the FDCPA and, thus, it was not subject to the FDCPA’s restrictions.
In reaching this conclusion, the Court rejected each of the petitioners’ textual and grammatical arguments, the details of which need not be addressed in this post. The petitioners also argued that because the statute expressly excluded from the definition of “debt collector” certain persons who acquired debt before default, it must be inferred that the definition of “debt collector” necessarily included those who acquire debt after default, as those persons were not expressly excluded from the definition. The Court rejected this argument as well, finding that it “doesn’t necessarily follow that the definition must include anyone who regularly collects debts acquired after default.” The Court also rejected each of the petitioners’ policy arguments, which need not be addressed here.
In reaching its decision, the Court specifically noted two issues that it was not addressing. First, the Court noted that it was not deciding whether Santander qualified as a “debt collector” because it regularly acted as a third party collection agent for debts owed to others. The Court explained that the petitioners did not raise this issue in their petition for certiorari and, thus, it was not going to address the issue in its decision. Second, the Court noted that it was not interpreting another definition of “debt collector” that included “any business the principal purpose of which is the collection of any debts.” The Court explained that this definition was not litigated much by the parties and it did not agree to address the issue in granting certiorari.
The Supreme Court’s decision in Henson is significant in that it should give banks and other purchasers of loans in default the ability to seek collection of those loans without being subjected to lawsuits filed by the debtors under the FDCPA. With that said, this freedom FDCPA litigation may not be long-lived. The Court made clear that it was not deciding whether a party that seeks to collect debts it purchased and that also regularly seeks to collect debts owed to another is a “debt collector” under the FDCPA. Likewise, the Court stated it was not addressing an alternative definition of “debt collector” that involved any business whose principal purpose involved the collection of any debts. Future litigation could end up with a different outcome for banks and other purchasers of loans in default who intend to collect those debts.