“Disruptive dinnertime calls, downright deceit and more…” On June 12, 2017, the U.S. Supreme Court issued a unanimous opinion in Henson vs. Santander Consumer USA, Inc., 582 U.S. _____ (2017), holding that a company who purchases debt and seeks to collect such debt for itself and not on behalf of a third-party creditor is not a “debt collector” subject to scrutiny under the Fair Debt Collection Practices Act (“FDCPA”).
The Key Issue. The key issue in this case revolves around the FDCPA’s definition of the term “debt collector” and whether Santander Consumer USA, Inc. (“Santander”) satisfies the definition of “any person who regularly collects … debts owed or due…another”. 15 USC 1692(a)(6). The FDCPA was enacted in order to address and protect consumers from abusive debt collection practices by debt collectors. 15 USC 1692(e). In general, the FDCPA applies to consumer transactions in which a consumer is obligated to pay money arising out of a transaction for personal, family, or household purposes. 15 USC 1692(a)(5).
Whether a person or company falls under the scrutiny of the FDCPA depends on whether such person or company is a “debt collector”. Subject to certain exclusions, a person or company is a “debt collector” for purposes of the FDCPA if (i) the principal purpose of such person or company’s business is the collection of debts or the enforcement of security interests, (ii) such person or company regularly collects or attempts to collect debts owed to a third party, or (iii) in the collection of its own debts, such person or company uses a different name indicating that a third person is collecting or attempting to collect such debts. 15 USC 1692(a)(6). Creditors who originate debt are typically excluded as a “debt collector” so long as they are collecting their own debts in their own name. 15 USC 1692(a)(6)(F).
Background. As background, four consumer petitioners received secured automobile loans from a consumer finance company, Citi Financial Auto (“Citi”), and thereafter defaulted on the loans due to non-payment; this resulted in the foreclosure and repossession of petitioner’s vehicles and pursuit of deficiency balances owed to Citi. Santander, a consumer finance company in the business of buying defaulted consumer debt, briefly serviced Citi’s defaulted loans during the time Citi held the loans, including petitioner’s loans. Subsequently, Santander purchased a portfolio of defaulted automobile loans from Citi, including those of petitioner, and attempted to collect the debt it acquired on its own account. Petitioners brought class action claims against Santander alleging that Santander violated the FDCPA. The District Court and the Fourth Circuit rejected petitioner’s argument that the FDCPA applied to Santander, finding that Santander was not a “debt collector” under the FDCPA due to the fact that Santander did not regularly collect debts “owed…another”.
Analysis. In bringing its claims, petitioners argued that Santander was necessarily a debt collector subject to the FDCPA because prior to Santander’s purchase of Citi’s defaulted loans, it serviced Citi’s defaulted loans; once Santander became the holder of such loans, Santander effectively sought to recover on a debt for a third party. Petitioners also pointed to the word “owed” under the FDCPA to suggest that the timing and type of the debt exposed debt purchasers to scrutiny for seeking to collect debts previously owed to third parties, but excluded from any scrutiny loan originators who maintain ongoing relationships with debtors and who never collect debt for third parties.
In addition to arguing semantics that would broadly define a “debt collector” to include a debt purchaser, petitioners also pitched a public policy argument pushing the idea that a broad interpretation of the statute would best uphold consumer protections and the intent of Congress in its enactment of the FDCPA. The Court rejected petitioner’s claims, agreeing with Santander: Santander became a creditor collecting its own loans once it purchased and began collecting upon such loans, and was thus excluded from FDCPA.
Narrow Ruling. In the Court’s narrow ruling, the Court declined to consider two issues not previously raised by petitioners: (i) whether debt buyer that regularly collects debts on its own account and services third-party debt is a “debt collector” under the FDCPA, and (ii) whether there is a threshold of debt that a debt purchaser must own to be exempt under the “principal purpose” definition of a “debt collector” – those engaged “in any business the principal purpose of which is the collection of debts.” §1692a(6). These issues are likely to be further litigated, and may open the door for potential liability to debt buyers in the future.
Ultimately, the court’s ruling resolves a circuit split in favor of banks and finance companies that seek to collect upon the debt that they purchase.
Concluding Thoughts. Heralded as a judge with judicial philosophy and style nearly identical to that of Justice Scalia, Justice Gorsuch’s appointment to the Supreme Court left many of us anticipating what mark he would make on a bench often dominated by the originalist views of Justice Antonin Scalia. In his first opinion, Justice Gorsuch proves he is a witty textualist who is not afraid to break the rules of grammar for dramatic effect, challenge canons of construction, and delve into linguistic analysis, all while remaining sensitive to policy concerns and, in the end, recognizing that in the context of the plain language of the statute such concerns “present many colorable arguments…a fact that suggests…these are matters for Congress, not this Court to resolve.”