On June 12, 2017, the Supreme Court decided Henson v. Santander Consumer USA Inc., No. 16–349, a case that considered the issue of whether a party that holds debt should be held to the same standards as a party that seeks to collect the debt owed to another party under the Fair Debt Collection Practices Act (the “FDCPA”). The Court, pursuant to the first opinion written by newly appointed Justice Gorsuch, held that a party may collect debts that are purchased for its own account without being considered a “debt collector” under the FDCPA.
In this case, Respondent Santander Consumer USA, Inc. (“Santander”) purchased certain defaulted loans from CitiFinancial Auto, including those owed by Petitioners. Santander then attempted to collect the debts, using practices that the Petitioners argued violated the FDCPA. Petitioners brought suit, and the District Court and U.S. Court of Appeals for the Fourth Circuit both ruled that Santander did not qualify as a debt collector because it did not regularly seek to collect debts “owed...another.”
The Supreme Court Decision
The FDCPA allows private lawsuits to be brought, and the imposition of meaningful fines, in order to deter wayward “debt collector[s].” A “debt collector” is defined by the statute as anyone who “regularly collects or attempts to collect . . . debts owed or due . . . another.” 15 U.S.C. § 1692a(6).
The Court affirmed the lower courts’ decisions, and in so doing drew a clear distinction between those who seek only to collect debts that they purchase from a third party and thus own outright, with those who seek to collect debts owned by third parties.
The Court rejected Petitioners’ arguments that use of the past participle “owed” excluded loan originators from the FDCPA, but includes debt purchasers like Santander. In other words, the Court rejected Petitioners’ reasoning that since the debts at issue were at some point “owed” to someone else, then a party who purchases and then seeks to collect a debt is attempting to collect a debt “owed...another” under the statute. The Court explained that past participles “are routinely used as adjectives to describe the present state of a thing,” and therefore rejected Petitioners’ argument on this point.
The Court also rejected Petitioners’ argument that the FDCPA treats debt purchasers as debt collectors, particularly when they regularly purchase and seek to collect defaulted debts. In support of their argument, the Petitioners point to the fact that the FDCPA excludes from the definition of “debt collector” certain persons who obtain debts before default and, therefore, the term “debt collector” must include those who regularly seek to collect debts obtained after default. It was also argued that the FDCPA treats everyone who attempts to collect a debt as either a “debt collector” or a “creditor,” but not both.
In rejecting this line of argument, the Court noted that while the Act excludes from the debt collector definition certain persons who acquire a debt before default, it does not necessarily follow that the definition must include anyone who regularly collects debts acquired after default.
Finally, the Petitioners raised a policy argument that, had Congress been aware of defaulted debt purchasers such as Santander when it was crafting the FDCPA, it would have treated them like traditional debt collectors. The Court declined to go down that road, and instead relied on the plain language of the statute on the basis “that [the] legislature says...what it means and means...what it says.”
The bottom-line of this case is that originators of debts and purchasers of debts are not considered “debt collectors” under the FDCPA. Instead, that definition is reserved for parties who regularly seek to collect debts “owed...another.”