SCOTUS Issues Landmark Precedent for FDCPA in Case Supported by ACA’s Industry Advancement Program

6/12/2017 9:50 PM

The U.S. Supreme Court unanimously held that defaulted debt buyers are not debt collectors subject to the Fair Debt Collection Practices Act.


The U.S. Supreme Court continued to redefine the scope of the Fair Debt Collection Practices Act (FDCPA) with its highly anticipated ruling Monday, July 12 in the case of Henson v. Santander Consumer USA Inc., 817 F.3d 131 (4th Cir.. 2016) (U.S. Supreme Court No. 16-349)Affirming the Fourth Circuit Court of Appeals, the Supreme Court decided 9-0 in favor of credit and collection industry participants.  The key issue in Henson was whether a company that regularly attempts to collect debts it purchased after the debts had fallen into default is a debt collector covered by the FDCPA.  The high court said “no,” concluding that the FDCPA does not extend beyond traditional “debt collectors” to those entities that purchase debts from the original lender after a consumer account is in default, commonly known as “debt buyers.”  While it is premature to assess the total effect this ruling will have on the debt collection industry and related FDCPA litigation, the Supreme Court’s opinion in Henson is decidedly one of the most significant impacting the FDCPA going forward.   

On March 27, 2017, ACA International submitted an amicus (friend of the court) brief on the merits to the U.S. Supreme Court, urging it to affirm the Fourth Circuit’s judgment and requesting that it provide clarity to all entities concerned about FDCPA compliance with respect to the manner in which the analysis of whether a company is a debt collector should be made under the Act’s notoriously complex definitional provisions.  In its amicus brief, ACA convincingly argued that companies, like Santander Consumer U.S.A. Inc., who do not collect debts owed or due another do not satisfy the substantive definition of “debt collector” and, therefore, fall outside of the FDCPA’s intended scope. 

The Supreme Court’s ruling in Henson is largely restricted to a textual analysis of the relevant federal consumer financial law to decide the question of whether you are considered a debt collector if you purchase a debt and then try to collect it for yourself.  The Court said in its opinion that a plain and careful reading of the FDCPA reveals that the words “owed . . . another” decided the case.  The Court explained that the FDCPA applies to “debt collectors,” which the statute defines as someone who “regularly collects or attempts to collect . . . debts owed or due . . . another.” But if you bought the debt, the Court reasoned, then the debt is not owed to another.  It is owed to you.  And, therefore, the FDCPA does not apply to those who purchase debts from others and then tries to collect them.  

Delivering the decision for the unanimous Court, newly-appointed Justice Neil Gorsuch wrote in his first Supreme Court opinion “[W]e begin, as we must, with a careful examination of the statutory text. And there we find it hard to disagree with the Fourth Circuit’s interpretive handiwork. After all, the Act defines debt collectors to include those who regularly seek to collect debts “owed . . . another.” And by its plain terms this language seems to focus our attention on third party collection agents working for a debt owner—not on a debt owner seeking to collect debts for itself. Neither does this language appear to suggest that we should care how a debt owner came to be a debt owner— whether the owner originated the debt or came by it only through a later purchase. All that matters is whether the target of the lawsuit regularly seeks to collect debts for its own account or does so for “another.” And given that, it would seem a debt purchaser like Santander may indeed collect debts for its own account without triggering the statutory definition in dispute, just as the Fourth Circuit explained.”

The Supreme Court was not persuaded by the consumers’ policy interest arguments that Santander’s ability to dodge the FDCPA by purchasing the consumers’ defaulted debts is a loophole that was not intended by Congress in enacting the FDCPA.  Despite the consumers’ contention that the inclusion of debt buyers in the FDCPA’s definition of “debt collector” makes sense because of Congress’s purpose and justifications for enacting the statute—to “deter untoward debt collection practices,” the Court ruled that “it is never our job to rewrite a constitutionally valid statutory text under the banner of speculation about what Congress might have done had it faced a question that, on everyone’s account, it never faced.”

Notably, Justice Gorsuch concluded the Court’s opinion by stating, “reasonable people can disagree with how Congress balanced the various social costs and benefits in this area” and Congress may choose at some point in the future to “alter the judgments it made in the past.”  “Constant competition between constable and quarry, regulator and regulated, can come as no surprise in our changing world.  But neither should the proper role of the judiciary in that process—to apply, not amend, the work of the People’s representatives.” 

Before the Supreme Court’s decision yesterday, the Fourth Circuit’s decision in Henson placed it in the midst of a circuit split on the question of whether a debt purchaser qualifies as a “debt collector” under the FDCPA.  The Fourth Circuit’s decision joined those in the Ninth and Eleventh Circuits holding that collectors of purchased defaulted debt are not debt collectors subject to the FDCPA.  The Third, Fifth, Sixth and Seventh circuits and the District of Columbia Court of Appeals have each, to some extent, held the opposite. 

As ACA reported previously, the Henson consumers filed a class action against Santander, alleging that it violated the FDCPA by engaging in abusive, harassing and deceptive attempts to collect the defaulted debts.  The consumers alleged that Santander was a consumer finance company that acquires defaulted debt for a “few cents on the dollar” and, therefore, was a “debt collector” under the FDCPA.  Santander moved to dismiss the consumers’ complaint on the basis that Santander did not meet the definition of “debt collector” under the FDCPA.  On appeal, the Fourth Circuit held that the consumers had not alleged that Santander was acting as a debt collector under the FDCPA.  Because the consumers alleged that Santander purchased and, thus, owned the debt, Santander was not collecting on behalf of another, and the FDCPA does not apply to creditors who collect debts on their own accounts.

Questions regarding the scope of the FDCPA, illustrated by the Henson case, are arising at the same time that the debt collection regulatory landscape—for both first- and third-party collection issues—is undergoing a seismic shift as the Consumer Financial Protection Bureau continues to seek to regulate debt collection activities.  This case is important because the Supreme Court’s decision today may significantly reduce a source of consumer class action litigation against lenders, loan servicers and collection agencies alike, and because it may impact debt collection licensing, regulation and enforcement at the state level.    

ACA International’s efforts to proactively support the credit and collection industry are part of the association’s Industry Advancement Program, and are made possible by funding through ACA’s Industry Advancement Fund. 

If you missed any of the articles previously published in ACA Daily that provided more detailed information about Industry Advancement Program supported cases, like the Henson case, you can always see the archived articles on the Industry Advancement Program website. Watch for updates when decisions are issued in these cases and learn more about new cases supported by the Industry Advancement Program in the future by reading ACA Daily and logging onto the Industry Advancement Program website throughout the year.

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