U.S. Supreme Court Refuses To Apply FDCPA To Purchasers Of Debt But Leaves Potential Arguments For Applicability Undecided
The Fair Debt Collection Practices Act ("FDCPA") authorizes private lawsuits and fines to deter abusive collection efforts by "debt collectors"—a term defined under 15 U.S.C. §1692a(6) to include anyone who "regularly collects or attempts to collect … debts owed or due … another." In the June 12, 2017 opinion in Henson et al. v. Santander Consumer USA Inc., the United States Supreme Court ruled that those who purchase debt and seek to collect on the purchased debt do not qualify as debt collectors because the FDCPA's plain text focuses on third party collection agents regularly collecting for debt owners—not on a debt owner seeking to collect debts for itself. Although this is a good result for debt purchasers, the Supreme Court's opinion leaves some arguments for the applicability of the FDCPA to debt purchasers undecided.
In Henson, the petitioners to the Supreme Court alleged that CitiFinancial Auto loaned money to petitioners seeking to buy cars; that petitioners defaulted on those loans; that Santander Consumer USA Inc. ("Santander") then purchased the defaulted loans from CitiFinancial; and that Santander sought to collect on the defaulted debt in ways that petitioners believed improper under the FDCPA. The issue before the Supreme Court was who fell within the definition of "debt collector" under the FDCPA. When it came to that question, the parties agreed on at least part of the answer. Petitioners and Santander accepted that third party debt collection agents generally qualify as "debt collectors" while those who seek only to collect for themselves on loans they originated do not. Therefore, the narrow issue that remained in dispute for the Supreme Court was how to classify individuals and entities that regularly purchase debts originated by someone else, but then seek to collect those debts for their own account. As the Supreme Court asked, "Does the [FDCPA] treat the debt purchaser like the repo man or the loan originator?"
In answering this question, the Supreme Court noted that it need look no further than the plain terms of the FDCPA which focuses on third party collection agents working for a debt owner—not on a debt owner seeking to collect debts for itself. The Supreme Court further noted that the FDCPA does not suggest that how a debt owner came to be a debt owner—whether through origination or purchase—was relevant. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for "another." Given that statutory interpretation, the Supreme Court found that a debt purchaser can collect debts for its own account without triggering the statutory definition of "debt collector" and becoming subject to liability under the FDCPA.
Notably, the Supreme Court specifically stated that it did not consider the following arguments as they were not properly before the Court: (1) Whether Santander could qualify as a debt collector because it regularly sought to collect on debts that it had purchased and also regularly acted as a third party collection agent for debts owed to others; and (2) Whether another statutory definition of the term "debt collector"—one that encompasses those engaged "in any business the principal purpose of which is the collection of any debts" allowed Santander to fall within the FDCPA. Even though the Henson opinion is favorable to debt purchasers, they need to be aware that these undecided issues allow for arguments that could subject them to liability under the FDCPA and should conduct themselves accordingly.