In a unanimous decision, the Supreme Court narrowly interpreted “debt collector” under the Fair Debt Collection Practices Act to exclude debt purchasers engaging in collection efforts for their own accounts.

On June 12, 2017, Justice Neil Gorsuch delivered his first opinion since ascending to the Supreme Court in April. In Henson v. Santander Consumer USA (No. 16-349), the Court held that an entity collecting on debt that was in default and purchased for its own account is not subject to the Fair Debt Collection Practices Act (FDCPA or Act) because it does not constitute a “debt collector” as defined in the Act. The FDCPA defines a “debt collector” as “any person collecting or attempting to collect any debt owed or due or asserted to be owed . . . another.”1

Overview of the FDCPA

Enacted in 1977, the FDCPA authorizes private lawsuits and imposes significant fines to discourage debt collectors from using abusive, unfair or deceptive practices while seeking payment on nonperforming consumer debt, and also requires debt collectors to provide certain notices and disclosures to debtors. But the FDCPA by its terms does not regulate originators of such debt, nor debt purchasers that regularly engage in the purchase and collection of distressed and defaulted debt for their own accounts.

Procedural History

In Henson, the plaintiffs were borrowers who defaulted on car loans that were originated by CitiFinancial Auto and eventually sold to Santander. When Santander initiated collection efforts, the plaintiffs brought a class action against Santander, claiming that Santander was a “debt collector” whose debt collection practices violated the FDCPA. The district court dismissed the plaintiffs’ claims after concluding that Santander was not a “debt collector” under the FDCPA because as a purchaser of the defaulted loans, it did not “regularly seek to collect debts “owed . . . another.” The Court of Appeals for the Fourth Circuit affirmed, following the precedent set by the Ninth and Eleventh Circuits. However, the Third, Fifth, Sixth and Seventh Circuits reached different conclusions, creating a circuit split ripe for Supreme Court review.

Henson v. Santander

The Supreme Court affirmed the Fourth Circuit’s judgment, adopting a narrow definition of “debt collector” under the FDCPA. Justice Gorsuch’s opinion focused closely on the Act’s definition of “debt collector,” which includes “any person collecting or attempting to collect any debt owed or due or asserted to be owed . . . another.” Because the plaintiffs’ debt was now “owed” to Santander and not “another,” Santander did not qualify as a “debt collector” under a plain reading of the definition and thus was not subject to the FDCPA. The Court rejected petitioners’ arguments that an entity becomes a “debt collector” for purposes of the FDCPA when it purchases debt that was originally “owed” to the originator or by regularly purchasing defaulted debt. Instead, the Court held the definition of “debt collector” encompasses third-party collection agents that regularly collect on behalf of a debt owner, and not a debt owner seeking to collect for its own account.

Industry Implications

The Court’s focus on the phrase “owed . . . another” in determining the scope of the term “debt collector” was central to its conclusion that Santander was not, in fact, a “debt collector” under the FDCPA. The Court’s decision to apply a limited, textual analysis when analyzing the definition of “debt collector” may be illustrative in other statutory contexts where similar language is incorporated.

For example, under the Securities Exchange Act of 1934, the definition of “broker” includes “any person engaged in the business of effecting transactions in securities for others” with a safe harbor in Rule 3a4-1 exempting individual employees or agents of an issuer from registration as a broker.2 Additionally, the Securities and Exchange Commission has interpreted the Exchange Act not to require an issuer to register as a broker in connection with a sale of such issuer’s securities because, among other things, it is not effecting transactions for the account of others.3 Many businesses, including large marketplace lending platforms and funds, have relied on this language to take comfort that marketing and selling their own securities would not render them as brokers under the Exchange Act. Santander seems to bolster that argument and is therefore a positive sign for the regulatory basis upon which many digital finance and crowdfunding businesses rely.

The Court also rejected the plaintiffs’ policy-based argument that Congress would have included debt purchasers in the definition of “debt collector” had it known at the time the FDCPA was enacted that the distressed and defaulted debt purchase industry would grow to its present size. While acknowledging the plaintiffs’ concerns about debt collection abuse by such defaulted debt buyers, the Court concluded that such concerns are for Congress to address. Although it remains to be seen whether Congress will take action in the near future to expand the scope of “debt collectors” to include debt purchasers such as Santander, we believe this is highly unlikely due to higher priorities such as healthcare and tax reform. Additionally, the current Congress appears to be more interested in rolling back consumer financial protections than in extending new protections to consumers.

To the extent that future cases similar to Santander reach the Supreme Court for review, they seem likely to be subject to a similar analysis—a narrow, textual reading of the term in question. Since the Court is unlikely to broaden the application of a law beyond its plain meaning, it may reduce uncertainty for some parties but does not bode well for those seeking relief in protective provisions. More broadly, the Court seems unlikely to tread too far from the language of a given statute in order to reach a desired outcome, no matter how inconsequential the provision seems in the context of the activity, legislative history favoring a broader reading, or a sympathetic fact pattern.