In 1977, Congress enacted the Fair Debt Collection Practices Act (FDCPA) in an effort to curb abusive, deceptive and unfair debt collection practices by debt collectors. The Act defines a "debt collector" as anyone who "regularly collects or attempts to collect...debts owed...another" and explicitly precludes creditors who "offer or extend to offer credit creating a debt or to whom a debt is owed." 15 U.S.C. § 1692a(4). However, in the recent landmark Supreme Court decision in Henson v. Santander Consumer USA, Inc., Justice Neil Gorsuch authored his first opinion as a Supreme Court Justice, holding that companies who purchase debt of a creditor and then attempt to collect on the debt are not considered "debt collectors" pursuant to the FDCPA and accordingly, not subject to private rights of action pursuant to the Act.
Santander purchased defaulted auto loans from CitiFinancial, including Henson's defaulted loan, and thereafter sought to collect on the loans. Henson then brought a class action lawsuit against Santander pursuant to the FDCPA, alleging that Santander's collection practices violated the Act. Santander filed a Motion to Dismiss the plaintiff's FDCPA claim in the United States District Court in the District of Maryland on the basis that it was not a "debt collector" under the FDCPA. The District Court agreed and granted Santander's motion, which was affirmed by the Fourth Circuit Court of Appeals and subsequently appealed to the United States Supreme Court. Henson v. Santander Consumer USA, Inc., 2014 U.S. Dist. LEXIS 62237 (D. Md. May 6, 2014).
Justice Gorsuch affirmed the Fourth Circuit's holding, stating that the language of the FDCPA defining debt collectors as collecting a debt "owed...another" suggests that those entities collecting debts purchased from another are not debt collectors. In this regard, Justice Gorsuch stated that the language "does not 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." Although Henson argued that Congress would have intended debt buyers to be considered debt collectors if the industry was prevalent in the 1970s, Justice Gorsuch stated 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." Henson v. Santander, 582 U.S. ____ (2017), slip op.
Comment: According to a January 2013 Federal Trade Commission study on debt buying practices, in 2008, debt buyers purchased $72.3 billion in consumer debt, including credit cards, medical, utility, auto and mortgage debts. Of that total, $55 billion, or 76.8 percent was credit card debt bought directly from credit issuers. Thus, this decision will likely have a great effect on the debt buying industry and the financial services industry, in general, now that debt buyers may be shielded from FDCPA claims arising from debts they purchased. However, the Court did not address whether debt buyers who also regularly collect debts of another are considered "debt collectors." Thus, we can still anticipate FDCPA lawsuits where the debt buyer has a mixed collection business.
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Sara L. De Long